PHOTO
Muscat - The Omani government's decision to adopt a market-linked pricing system for transport fuels, combined with the planned rollback of subsidies on electricity and water, have the potential to boost energy efficiency and renewable energy initiatives, says a newly published research paper by international think-tank Chatham House. Titled 'Fuel, Food and Utilities Price Reforms in the GCC: A Wake-up Call for Business', the insightful paper delves into the implications of the subsidy cuts for companies as well as domestic consumers in member states of the bloc.
Authored by Glada Lahn, a senior research fellow in the Energy, Environment and Resources Department at Chatham House, the paper warns of "age-old pitfalls" that could stymie the price reform process currently underway in the wider GCC region. "The recent domestic price reforms in GCC countries indicate that change is possible on a step-by-step basis. Given the confluence of interests in reform and increasing economic pressures, Oman, the UAE, Saudi Arabia, and Bahrain have passed the stage of just testing the water," said Lahn. The price of petrol (Super M95) has soared around 50 per cent since February when a market-linked pricing regime came into effect in the Sultanate.
Diesel and other petrol variants have been significantly pricier as well, while the price of natural gas supplied to the power generation and water desalination sector was doubled last year. Industrial and large commercial consumers are already on notice that planned power subsidy cuts will result in a spike in their electricity bills. But concerns over the potential impacts of rising prices on businesses and consumers could dampen the appetite for further price reforms going forward, according to the researcher. They include impacts on the competitiveness of industry and the profit margins of companies as well as the trickle-down effects on prices for the final consumer and household budgets.
Any sustained upswing in international oil prices, which recently touched $50 per barrel for the first time since the current price crash, could also likely cause "paralysis or backsliding" in price reforms, Lahn warns. This could happen if governments fail to institutionalize the governance necessary to carry through with reforms, she points out.
The paper moots, for example, the need for the fuel price increases to be accompanied by stronger institutional and legislative measures to help drive energy efficiency in the transport sector. Such steps, it emphasizes, would not only help rationalize fuel consumption, but also incentivize the use of public transport and the fuel-efficient cars.
Lahn also underlined the potential for new business sectors taking root as rising fuel resource prices open up opportunities for increased investment in areas such as efficiency and renewable energy.
"A smooth transition to more efficient pricing regimes will entail smart redistribution measures -- particularly in Oman, Bahrain and Saudi Arabia -- and harnessing the benefits of new growth sectors.
"Efficiency and renewable energy markets are two sectors with major potential if governments encourage them to develop," she wrote.
However, a significant stumbling block to achieving this objective, according to the researcher, is the absence of a coordinated policy on domestic energy consumption in Oman or its fellow GCC members.
"Since these countries have plentiful oil and gas as well as small populations, their leaders long harboured the view that they did not need such a policy and thus did not establish an institutional framework for passing and implementing the necessary legislation. However, throughout the last decade, facts on the ground have increasingly challenged this view," Lahn stated.
She pointed out that renewable energy development in the region is no longer seen as a "fancy accessory", but as a means of managing peak demand and reducing fuel consumption. Governments have periodically espoused a desire to supplant oil and gas with alternative energy resources, although low oil, gas and water prices have proved a major obstacle -- thus far at least.
In a region that enjoys the highest carbon intensities per capita, it would be interesting to see how Oman and the GCC emerge from this dilemma, she noted in conclusion.
© Oman Daily Observer 2016
