Each drop of subsidised fuel is costing the UAE economy

By cutting the UAE’s fuel subsidy tab by just US$2 billion, thousands of jobs could be created and renewable energy projects expanded.

The UAE spent an estimated $20bn on fuel subsidies in 2013, according to the International Energy Agency.

However, the UAE’s energy minister Suhail Al Mazrouei said on Monday at an event in Abu Dhabi discussing an upcoming report on the state of energy supply in the UAE that the government did not want to subsidise any form of energy, and he also reiterated that fuel subsidies were out of his control.

Vahid Fotuhi, the founder of the Middle East Solar Industry Association, said that $2bn worth of solar photovoltaics could easily be added into the UAE’s grid.

“With that 10 per cent, the UAE could install 2,000 megawatts of solar PV – enough to satisfy one-third of Dubai’s power needs,” he said.

And with that could come a great deal of jobs.

Take for example Dubai’s Mohammed bin Rashid PV park, which is under construction through Acwa Power. The Saudi Arabian company said that for its 200MW worth of work, the full project – excluding construction – could create as many as 300 jobs.

A simple extrapolation from that figure indicates that a 2,000MW project could result in 3,000 new jobs.

When many people think about the lifting of subsidies, they only think about how much more expensive the subsidised item will hurt their wallets. Yet subsidies drag down economies and cripple job creation.

The idea behind subsidies is usually to help alleviate economic stress on consumers, particularly in places such as Egypt. The North African country’s subsidies made up about one third of its budget last year, and 75 per cent of that amount was for energy subsidies, according to the Egyptian Centre for Economic Studies.

Subsidies in Egypt are an understandable policy in a country with a gross national income (GNI) per capita at $10,790 in 2012. This is a stark comparison to GNI levels in the UAE at about $60,000, according to figures from the World Bank.

Subsidies across the Arabian Gulf are more a policy in line with giving back to the people. After all, a great deal of hydrocarbons are produced in the region, rather than poverty alleviation. However, it is actually hurting the potential development of the regional economy, including sectors such as renewables.

Again, basic calculations show that each person living in the UAE, local and foreign, is receiving about Dh8,000 a year from the government in the form of fuel subsidies. There is no cheque in the mail, or a message to pick up the no-strings-attached money at the bank of your choice.

You receive the cash each time you fill up your car with petrol, you take a taxi or bus, or flick on a light switch.

That free money comes in the form of fuel subsidies, but imagine how much more money you could get if there were none. It would likely be more than just offsetting the price increase at the pump or increase in electricity bills.


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