Jun 30 2011 |
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Dubai cuts fuel supplies to neighbors in bid to reduce debt
By Karl Allen Erbil, June 30 (AKnews) - Dubai has cut petrol supplies to neighboring emirates as fuel price subsidies hamper the city's capacity to repay its debts.The New York-based news agency Bloomberg reports that the state-owned oil refiner and service station operator, Emirates National Oil Company ( ENOC ), closed pumps in Sharjah and limited supplies to other northern emirates last week.
According to International Monetary Fund (IMF) data, Dubai currently has debts reaching $16 billion.
Government forecasts indicate that the emirate - the seventh largest on the Arab peninsula - plans to curb "subsidies and transfers" by 50% in 201, as compared to 2010, to $740 million.
"Below-market retail prices - without a way to make up the losses - is an unsustainable situation," Middle East analyst Rachel Ziemba at Roubini Global Economics LLC in London told Bloomberg. "The Dubai government continues to be cash-strapped, and this is one of the reminders that just because its companies are restructuring, it doesn't mean that Dubai Inc. is out of the woods yet."
With oil prices reaching their highest since their 2008 peak, ENOC announced in May that it may have to spend $740 million this year to cover the cost of retailing petrol below market prices.
The UAE, which fixes petrol prices that are below retail costs, has left pump prices unchanged this year despite rising supply costs.
International oil prices averaged $94.60 a barrel in the first quarter of 2011, a significant hike from the $78.88 in the same period last year. Crude prices in New York reached a 2.5 year peak of $114.83 per barrel last month.
Petrol in the UAE costs the consumer just $1.88 a gallon, compared to $3.65 a gallon in the US.
In a bid to stave off the unrest that has swept through the Arab nations and toppled governments this year, the gulf monarchies have further raised social spending.
Thad Malesa, an independent energy analyst based in Dubai, told Bloomberg that ENOC - currently buying fuel at international prices and selling at a loss - has refused to lower its subsidies despite rising oil prices and domestic consumption.
"There have been no price increases in the Gulf since the Mideast protests began, as governments want no cause for similar opposition at home," he said.
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