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Jordan: Hike in fuel oil prices not alarming if electricity charges remain fixed

Mining industries that could be affected are cement, phosphate, potash companies
AMMAN -- Unless electricity charges go up, prices are not expected to rise in many sectors, a knowledgeable source from the energy sector told The Jordan Times after the government hiked the cost of fuel oil on Sunday until the end of this month.

According to a decision issued by Industry and Trade Minister Salem Khazaaleh and carried by the Jordan News Agency, Petra, a tonne of fuel oil for industries and vessels will be sold at JD253 instead of the previous price at JD225.

Jet fuel for local companies will be sold at JD0.385 per litre instead of JD0.360, for foreign companies at JD0.390 instead of JD0.365 and for chartered flights at JD0.405 per litre instead of JD0.380, the decision stated. The price of a tonne of asphalt becomes JD0.248 instead of JD0.220.

National Electric Power Company Director General Ahmad Hiasat told The Jordan Times that it is highly unlikely that prices of electricity will be affected by the decision as fuel oil accounted only for about 20 per cent of the power needs to generate electricity.

"About 80 per cent of the country's power generation plants depend on the natural gas provided by the Egyptian gas pipeline in producing power and almost 20 per cent or less depend on fuel oil in generating power. This means that dependence on fuel oil is minimal, " he explained.

Hiasat elaborated: "As far as I know, the higher prices of fuel oil will only be charged to industries and airlines but not for power generation." As such there will be no increases in electricity charges taking into consideration that the government "has no intention to increase the prices of electricity".

Jordan Petroleum Refinery Company CEO Ahmad Rifai told The Jordan Times on Monday that the decision to increase prices of fuel oil was not new as the prices have been already floated.

"Almost a year ago, the prices of fuel oil were floated and every month the prices are set in line with international prices by a committee representing the ministries of finance, energy and the refinery," he said.

Stressing that petroleum prices are floated, he emphasised: "If there is a drop in prices at the international level, there will be also a decrease in the Kingdom. The prices are floated".

Hatem Halawani, chairman of Jordan's Chamber of Industry, described the decision as an extra burden on the industries.

"Energy greatly affects the industries as it is a basic component. The industry in the country was affected by the previous hikes over the past two years," he said. "We wish that there would not be extra hikes because that will increase the burden".

According to Halawani, many industries in the Kingdom will be affected by the decision at various degrees.

"For example, heavy industry such as steel and mining will be largely affected, while the impact might be less in other industries," Halawani remarked.

Several officials and industrialists contacted by The Jordan Times to comment on the decision, either did not return the calls, declined to comment, or hinted of a possible increase.

Jebril Qarqa, general manager of Al Areen garment manufacturing company in the Irbid Industrial Estate, said: "Though, I do not use fuel oil in my factory. But in case the prices of electricity are increased, then my business will be affected."

"Many factories like mine have deals with foreign companies to manufacture items at certain prices. In case there is an increase in power prices, our production cost will rise, negatively affecting our businesses," said Qarqa.

"If energy prices are increased, many investors would think of relocating," Qarqa added.

"No comment," was the answer from the Jordan Cement Factories which relies heavily on fuel oil.

Fuel oil used for the manufacturing of cement accounts for 60 per cent of the total production cost, according to the company. When the government raised the prices of fuel oil last year to JD225 per tonne, the average price of a tonne of cement rose by 6.9 per cent. Currently, a tonne of cement is sold at the factory grounds at almost JD60, not inclusive of taxes.

Other mining industries that could be affected by higher fuel prices are the phosphate and potash companies.

Ghassan Mufleh, board chairman and general manager of the National Steel Industries Company, said the impact will be negligible.

"The fuel price increase will not add more than JD1 to the cost of a tonne of steel, which is very minimal," he said. "We, at the company, can absorb this, hike and the prices will not increase tremendously because of the decision".

According to Mefleh, a tonne of steel is sold at his company for JD465, not inclusive of the sales tax.

"Raw material used in our industry is what mainly increases the prices," he concluded. "However, if the prices of electricity rise, the situation will be different".

By Mohammad Ghazal

© Jordan Times 2007