x Abu Dhabi, UAEMonday 22 January 2018

A healthy debate on petrol prices

The FNC has rightly brought the issue of petrol prices up for debate. We urge, however, that higher prices are a better solution.

Around the world, few issues catch the public interest as surely and strongly as the retail price of petrol. The subject became an issue in this country this week when some members of the Federal National Council proposed an across-the-board price cut.

FNC members have been effective - as reports in the The National reveal - in raising a range of issues for the attention of government officials and the public. Now, by setting up a committee to study the idea of cheaper petrol, the FNC has opened this subject for discussion.

The UAE is one of the few countries where petrol is a bargain. The litre that retails for Dh1.72 here costs the equivalent of Dh3.46 in the US - double our price - and twice as much again in France.

However, some FNC members are more interested in the prices paid in other oil-producing countries, and these are indeed lower. The Saudi price is 76 fils per litre; several GCC states charge under Dh1.

It can be difficult to think beyond the pocketbook, but low petrol prices do more harm than good. As the Minister of Energy Mohammed Al Hamili told the FNC, the UAE's major petrol retailers may lose about Dh12 billion this year; Government subsidises sales at a price well below the world price, which Mr Al Hamili said was about Dh2.92 per litre for petrol.

Outside this region, retail prices are often above that level because governments tax fuel, rather than subsidising it. This encourages conservation and efficiency, as opposed to subsidies that make waste easy. Where petrol costs more, public transit tends to be better, vehicles are smaller, traffic is less, air is cleaner and greenhouse-gas emissions are lower. People may walk or use bicycles more.

In a region rich in oil, it is easy to assume that cut-rate petrol is one of the best ways to share wealth. But there are more effective ways, such as selling petrol at a higher price and using the money to improve social services, to augment infrastructure or even to disburse cash to citizens.

To be sure, any steep sudden rise in petrol prices would be a mistake, causing real hardship for some and milder disruption for many more. But a methodical series of small price increases would improve the national balance sheet and push the economy towards greater efficiency.