Cut in fuel subsidy to earn Oman additional OMR162m

Business Friday 22/January/2016 20:02 PM
By: Times News Service
Cut in fuel subsidy to earn Oman additional OMR162m

MUSCAT: People in Oman will have to pay approximately OMR162 million extra for petrol and diesel as the government has deregulated prices to lessen its burden and cushion the OMR3.3 billion budget deficit.
A Times of Oman research, based on the National Centre for Statistics and Information (NCSI) petroleum products’ retail sales data, found that Oman could earn an extra OMR162m per annum from the latest price hike.
On January 15, prices of super grade petrol were raised to 160 baisas per litre, from 120 baisas a litre; they were increased to 140 baisas for regular grade petrol, up from 114 baisas a litre, and 160 baisas for diesel per litre, against an earlier 146 baisas per litre.
According to the NCSI’s data, 296,471,000 litres of regular petrol was sold all over Oman for 114 baisas per litre in 2014, resulting in earnings of OMR33,797,740.
If we consider the same level of sales in 2016, at a price of 140 baisas per litre for the entire year, OMR41,505,940 can be earned.
For super grade petrol sales, 3,358,493,000 litres were sold in 2014 at a price of 120 baisas per litre and OMR403,019,160 was earned. Similarly, if we consider the price as 160 baisas, then OMR537,358,880 could be earned. In the case of diesel, 1,434,816,000 litres were sold in 2014 at a price of 146 baisas and OMR209,483,136 was earned. If we consider the price as 160 baisas, then in 2016, OMR20,087,424 could be earned.
The total increase in earnings would take the sales of 2014, based on the current price increases as a rough estimate, to a total of OMR162,135,390, which can be potentially earned.
“The aim of increasing petroleum product prices is to reduce the subsidy burden on the government, thereby reducing the gap in government finances. The government had spent close to a billion rials towards subsidies in 2015 and had budgeted OMR400 million for 2016.
By bringing local petrol and diesel prices in line with global oil prices, the government is aiming to pass on the subsidy burden to consumers,” a senior manager of research at United Securities, said.
“The government may not earn profit by selling the petroleum prices, but the aim would be to not incur a huge subsidy burden for the government finances,” he added.
According to Joice, during 2015, Oman Oil Refineries and Petroleum Industries Company (Orpic) produced approximately 4 million kilolitres of petrol and 3.5 million kilolitres of diesel.
“The average throughput per station in 2015 was estimated to be in excess of 12 million litres per annum. Going by these numbers, the government’s subsidy burden is expected to come down by around OMR200 million as a result of the petrol and diesel price hike. If the government sticks to its policy of aligning petrol prices with international oil prices, the amount of subsidy burden that will be passed on to the consumers would go up in the scenario of increasing oil prices. That way, the government can bring in more fiscal discipline to control the deficit on its finances,” Joice added.
Meanwhile, calculations of petroleum products’ sales from 2012 till 2014 showed that an increase of 10 per cent can be expected.
N Gurumurthy, an economic expert, said if growth of 10 per cent per annum in sales volume was factored in, at best, the increase in prices may be expected to yield OMR0.2 billion in additional revenue, which is less than 10 per cent of the projected budgetary deficit.
“One cannot ignore the fact that the assumed price of oil for the budget calculation is likely to be more than the expected average price during 2016. In view of this, the increase in prices may only marginally help the government bridge the deficit. There will still be a gap, which has to be funded through various options articulated by the government in its budget proposal,” he added.
On Wednesday, the Dubai Mercantile Exchange (DME) said that Oman’s oil price (March delivery) reached $23.81. The DME statement added that the price of Oman oil declined by US$1.01 from the price on Tuesday, which was $24.82.