RIYADH: Saudi Arabia should cut energy subsidies that are burdening public finances, the economy minister and the head of the state-run utility said, a move that would also tackle the issue of erosion of crude exports.
Rock-bottom prices for gas, power and gasoline have turned the world’s 20th biggest economy into its sixth-biggest consumer of oil, producing less than $3.70 of economic output for every kilogram of oil equivalent that it used in 2010, compared with the global average of $6.20, according to World Bank data.
“This has become an increasingly important issue as these subsidies have become increasingly distorting to our economy. This is something we are trying to address,” Economy and Planning Minister Mohammed Al Jasser said yesterday.
“Rationalisation of subsidies, particularly on fuels for non-targeted participants”, is needed to improve Saudi productivity, he told a financial conference in Riyadh.
Jasser did not give details of how Riyadh would tackle fuel subsidies.
Saudi Arabia keeps its domestic energy prices low for everyone, regardless of income levels, paying the subsidies out of the hundreds of billions of dollars that the kingdom makes from exporting crude oil.
This practice limits the potential long-term returns from oil exports. Nearly 40 percent of Saudi electricity is still produced by burning oil.
Energy-hungry industry has boomed over the past decade, thanks to energy costs that are a fraction of those in most countries. This growth increases the cost burden on state-run companies that supply fuel, power and gas.
“Subsidy is becoming a big part of the government budget ... Subsidy should be revised and done in a different way. It should be smarter and support low income people,” state-run Saudi Electricity Co Chief Executive Ali Al Barrak said.
Jasser also said Saudi Arabia should also resolve imbalances in its labour market, including the low level of private-sector employment among Saudi citizens, particularly women.
Reuters
