Kuwait Moves Toward Cutting Diesel, Kerosene Subsidies In Key Reform

Kuwait’s government is moving towards cutting some of the energy subsidies which drain billions of dollars from the state budget every year, in a politically sensitive reform which could start to curb waste and overuse of its oil resources.

The cabinet “accepted” a report by a committee at the Ministry of Electricity and Water on hiking prices of diesel and kerosene more than threefold, state news agency KUNA reported late on Wednesday.

The report discusses raising the prices of both fuels at wholesalers and fuel stations to KD0.170 (59 U.S. cents) per litre from KD0.055, minister for social affairs and labour Hind Al-Sabeeh was quoted as saying.

KUNA did not say that the cabinet or Kuwait’s ruling emir had actually decided to raise prices, but the report appeared to be a major step towards doing so.

Despite Kuwait’s vast oil wealth and big state budget surpluses, the budget could conceivably fall into deficit later this decade if the country does not rein in wasteful spending growth, the International Monetary Fund has warned.

Subsidy cuts are key to restraining spending because lavish subsidies, mostly on energy, swallow about KD5.1 billion annually, or roughly a quarter of the government’s projected spending this fiscal year, according to official figures.

However, as in most of the Arab world, cutting subsidies is politically risky. In recent years, Kuwait’s parliaments have repeatedly been dissolved over procedural disputes or for challenging the cabinet, in which members of the ruling family hold top posts.

The cabinet began considering subsidy cuts months before the recent plunge of global oil prices, which has brought Brent crude down to $83 a barrel, its lowest level since 2010, from around $115 in June.

But the sliding oil price may have concentrated minds in the Kuwaiti cabinet and made officials more willing to take the political risk of reforms. The country is in no danger of running out of money – the IMF has estimated it needs an oil price of only $52 to balance the state budget – but if current prices persist, budget surpluses will shrink considerably.

KUNA did not say how much money the government hoped to save from cutting diesel and kerosene subsidies, but in a report earlier this year, it estimated diesel price reform would save around $1 billion a year.

It is not clear whether the government will consider reducing subsidies for other, more important fuels, which could save larger amounts of money but would have more impact on poorer Kuwaitis’ living standards and would therefore be more sensitive politically.

Oil minister Ali Saleh al-Omair said earlier this week that lifting prices for petrol and butane gas was not on the agenda.

However, Wednesday’s cabinet meeting also discussed adjustments to electricity and water tariffs, KUNA reported. Rising demand and consumption have forced a reassessment of current tariffs, the agency said.

Sabeeh was quoted as saying consumption had become wasteful among some sections of the public and action had to be taken to limit strain on the utilities.