An interim solution on petrol shortages

When petrol shortages in the Northern Emirates last year led to long waits at filling stations, it was clear that the solution would eventually have to be nationwide. After 10 months of sporadic shortages, consumers will breath a sigh of relief as new stations begin to open.

As The National reported in the Business pages yesterday, a plan by Abu Dhabi National Oil Company (Adnoc) to build an oil-products import terminal in Sharjah, with construction starting in June, could help alleviate supply bottlenecks and ensure fuel arrives in a timely manner (and eliminate the need for inefficient lorry traffic in the process). Fuel supplied to regional power plants, another perennial problem during periods of peak energy demand, could also be better provided.

In the near term, drivers in the Northern Emirates may still have to circle northern highways in search of shorter queues. Many of the region's Enoc and Eppco stations, owned by the emirate of Dubai, have not reopened since the shortages first began last year.

With the price cap and subsidy on petrol, it did not make economic sense for the emirate to take further losses, and a nationwide solution was needed.

Given this situation, it is encouraging that Adnoc has chosen to move in. Unlike its northern counterparts, Abu Dhabi's oil company has the production capacity and deep pockets to absorb the losses that come with selling subsidised petrol. While the better long-term strategy would be for the UAE to gradually roll back mandated price caps, for now Adnoc's expansion plans will help to address consumers' burdens.

There will be some significant changes associated with the decision. Many Enoc and Eppco stations have likely pumped their last litre of petrol. As an official from the Sharjah Executive Council said earlier this month, in that emirate both brands most likely will be replaced by one of their competitors. It is not clear when that will happen, but Adnoc does have plans to expand its network of fuelling stations from 135 in Abu Dhabi to 234 across the country.

Adnoc is rightly filling the shortage, but it will be doing so at a loss. As welcome as the petrol subsidies are to ordinary motorists, the long-term solution is to let prices rise in accordance with the market.