The Sultanate is missing out on economic gains because of it gives huge amount on energy subsidies. This is leading to social concern, as well. A similar view was expressed by Darwish bin Ismaeel al Balushi, Minister Responsible for Financial Affairs while presenting the 2013 Oman Budget, which has a burgeoning size of RO 1.335 billion subsidies altogether.
His concern stems mainly from the miss-out of subsidy benefits to the deserving section of the society, and the exploitation of exporting the subsidised Omani fuel to other countries for a profit. The budget has an allocation of 15 per cent of the revenue for participation and subsidy to private sector for increasing support to the domestic businesses, thereby supporting citizens of the country.
It allocated RO 1.65 billion in 2013 for both private participation and subsidy from RO 0.85 billion in 2012, an increase of 95 per cent on year on year basis. This is the highest allocation in Oman's history for subsidy and participation expenditure. The majority subsidies are in the form of interests on housing and development loans, electricity, water, fuel and some basic foodstuffs.
But the lion's share of RO 740 million is given as fuel subsidy. It is not an astonishing fact that subsidised fuel has a downside impact on the socio-economic fabric of a country. Al Balushi points out: "Cheap fuel has a potential downside. It could contribute to profligate consumerism, particularly where car-buying is concerned, thereby sparking a proliferation of vehicles on the roads, and inevitably a rise in traffic accidents, which reap a heavy burden in lives and healthcare costs".
While stressing on the need for a careful review of fuel subsidies, the minister said the amount could be better used for employment generation, training of Omanis, and improving the living standard of the citizens. At the same time, what often goes unnoticed is that some firms and people seek to exploit the energy subsidy situation. With the availability of subsidised energy, many firms tend not to invest in energy efficiency measures. Subsidies capping the cost of electricity have been blamed for contributing to increasing power consumption.
This, according to experts, if continues, will jeopardise the capacity to export the hydrocarbon resources because of its ever-rising domestic demand for energy generation. With current levels of economic dependence on hydrocarbon revenues and high population growth, this would give rise to serious financial and social pressures, they say. According to estimates by the World Bank, energy subsidies account for 7 per cent of GDP within the MENA region before the global financial crisis.
This is the only region globally where the amount of oil is needed to generate one dollar of GDP. Even the fast-emerging Asian economies of China and India are reducing the amount of energy they use per unit of GDP. The per capita energy consumption in the GCC is twice as high as the European average, coupled with increasing energy demand from growing populations. According to International energy Agency economist Fatih Birol, the Middle East has some of the highest fuel subsidies in the world.
"Worldwide, we have $500 billion fossil fuel subsidies and 50 per cent of that is in the Middle East," he said on the sidelines of the World Future Energy Summit. "It is extremely challenging to have such big subsidies and achieve renewable energy targets. If you want renewable industry to grow and on the other hand, you have fossil fuel subsidies, they are not complementary," he says.
If the region reduces subsidies and provides concrete financial and other support to the renewable energy sector, the Middle East as a whole can produce 10 per cent of electricity from renewables by 2035, Birol says. It is high time the Omani government intensified its efforts to break all the barriers in its plan for phased transition to renewable energy.
The country has regular strong sunshine necessary for large-scale solar energy generation, and possesses ample space for, and conditions conductive, to wind farms. The country, with its huge budget surpluses, is also financially well placed to invest in the development and implementation of renewable technologies.
© Oman Daily Observer 2013
