Saudi Arabia slows phasing out of energy subsidies

Under the previous programme all energy products were to be linked to benchmarks by 2020

Saudi Arabia is slowing plans to eliminate subsidies for a wide range of energy products – plans which are key to efforts to make the country use energy more efficiently – under a new long-term fiscal programme released with Tuesday’s 2018 state budget.

King Salman formally announced on Tuesday that the target date for eliminating the government’s budget deficit would be pushed back to 2023 from the original target of 2020, in order to reduce pressure on economic growth.

As a result, the new fiscal programme provides for most domestic energy product prices to be linked to international benchmark prices over a much longer period:

— Gasoline prices will be 100 per cent linked to international benchmarks by 2025, a process that will occur gradually, the ministry said in a statement. Previously, this was to happen by 2020.

— Diesel prices will be 90 per cent linked to benchmarks by 2025. Previously, the target was 100 per cent by 2020.

— Natural gas prices including ethane, which is used as feedstock for the petrochemical industry, will be 75 percent linked in 2020-2021, though a ceiling will be imposed on them in 2021. The previous programme said prices would reach 100 per cent of benchmarks in 2020.

— Natural gas liquids, another petrochemical feedstock, will be 90 per cent linked in 2020. Previously, the target was 100 per cent in 2020.

— Kerosene and liquefied petroleum gas for households will be 100 per cent linked in 2019. Previously, the target was 2020.

— Jet fuel will be 100 per cent linked by 2018; previously, the target was 2020.

— Other oil liquids used for power generation such as heavy fuel oil 180-cst and HFO 380-cst, Arab light crude and Arab heavy crude will be 90 per cent linked by 2025. The old programme set a 2020 date to achieve 100 per cent.

— Residential electricity prices will be 100 per cent linked by 2025 instead of 2017; commercial electricity by 2025 instead of 2018; and industrial electricity by 2025 instead of 2018.

Last week, the energy ministry said Saudi Arabia would announce in the first quarter of next year a new round of increases in domestic prices of gasoline, jet fuel and diesel.

The new fiscal programme projects that the government’s budget deficit will narrow from SAR230bn ($61.3bn) in 2017 to a surplus of SAR4bn in 2023.

General reserves are forecast to drop to SAR271bn in 2023 from SAR584bn in 2017, while public debt is projected to hit SAR854bn in 2022 and remain flat in the following year, compared to SAR438bn in 2017.

Read: Saudi to increase electricity, fuel prices in Q1