Dubai Gasoline Company Questions Cut-Rate Fuel
When its gasoline pumps started going dry in the United Arab Emirates' poorer northern states earlier this year, Dubai's oil company blamed mysterious service upgrades.
Few believed that at the time, and now the company is dropping its subtlety, triggering an uncharacteristically public spat over fuel pricing policies.
By letting its farther-flung stations run empty, the Emirates National Oil Co., or ENOC, was telegraphing a message: The Dubai government-owned firm was tired of driving itself deeper into the red by shouldering money-losing state fuel subsidies that keep pump prices artificially low.
In an unusually strongly worded statement over the weekend, the company said that continuing to cover subsidies mandated by the UAE's federal government "is clearly not sustainable or viable for the company."
It was a rare public display of power politics in a country where grievances — particularly ones involving the many businesses controlled by the Emirates' ruling sheiks — are typically resolved behind closed doors.
The rift highlights Dubai's determination to maintain its independence within the UAE federation despite a daunting debt bill, and it throws into question the generous subsidies the country uses to help buy political stability.
Regular gasoline sells for just 1.72 dirhams a liter in the UAE, or $1.77 a gallon. That's a little more than half of what drivers pay in the U.S., where gas now averages $3.46 a gallon, and a fraction of what it costs Europeans to fill up.
"Providing cheap fuel to its population is what makes Dubai attractive as a trade hub," said Christopher Davidson, a lecturer at Britain's Durham University and an expert on the UAE. "We're reaching a point where Dubai can no longer manage to do that itself."
The UAE as a whole is OPEC's third-biggest oil producer, sitting atop 97.8 billion barrels of crude.
Like other Arab monarchies and sheikdoms lining the Persian Gulf, it has long lavished its oil wealth on government handouts, including cradle-to-grave health care, cheap utilities and generous housing assistance.
Those transfers of wealth have helped keep a lid on dissent and shield the UAE from the popular protests roiling much of the Arab world.
Cut-rate gasoline is just one of those perks, making it cheap to fill up the Porsches, Ferraris and hulking Toyota Land Cruisers that race down Emirati highways.
The problem for ENOC, which also runs stations under its EPPCO subsidiary, is that Dubai has few of the UAE's oil reserves. Those are mainly controlled by Abu Dhabi, the federal capital and the richest of the federation's seven semiautonomous emirates.
Because Abu Dhabi and Dubai don't share their energy resources, ENOC has to buy its fuel on the open market at international prices — a situation it says no longer works.
"ENOC makes money on everything else they do, whether it's selling ... car washes or Mars bars," said Thaddeus Malesa, an independent energy analyst in Dubai. "The only place where they are losing money is on gasoline sales."
The Abu Dhabi National Oil Co., which is backed by that emirate's government, also loses money on gasoline sales at home, but it can more than make up for it by selling crude internationally, Malesa said.
ENOC says it expects to lose 2.7 billion dirhams ($736 million) this year.
As a result, it is struggling to expand its network to keep up with demand. Dubai gas stations remain stocked but are often packed with long lines during rush hours.
Meanwhile, ENOC and EPPCO stations remain shuttered in Sharjah, a teeming city next to Dubai that is home to many lower-income workers. Authorities there closed the company's outlets in June after it failed to respond to demands to replenish fuel supplies, further lengthening lines at stations in Dubai.
What the company hopes to gain with its latest brinkmanship is unclear.
It said in its statement that it "looks forward to the support of the concerned authorities in addressing the concern," but didn't provide details.
The company's head of communications couldn't be reached for comment Sunday. A public relations company employed by ENOC said it was not responding to questions.
Most likely, ENOC is hoping the central government will step in to cover the shortfall between the subsidized price and the company's costs, analysts said.
"This is just ratcheting up the rhetoric in order to arrive at an amicable solution for themselves," Malesa said. "It's all about the problem of who is paying for these subsidies. They don't want to be bearing this cost."
Davidson likened the showdown over fuel subsidies to the situation in late 2009, when Dubai faced a multibillion-dollar financing crunch and was forced to accept an emergency bailout from Abu Dhabi. A few months later, Dubai's ruler unexpectedly renamed the world's tallest tower in honor of Abu Dhabi's leader on opening night — a gesture seen by many as a nod to the oil-rich sheikdom's financial support.
"They appear determined to keep putting on a brave face even though all the assistance has to keep coming from outside," Davidson said. "They're playing a really high stakes game (over the subsidies), which makes me think the coffers are really in trouble."
Source: Associated Press
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