An Eid Miracle: Abu Dhabi takes over Dubai’s indebted petrol stations

The acquisition is a gift on the Eid Al Fitr,” said an oil industry source after Abu Dhabi National Oil Company (ADNOC), the UAE state-owned oil company, announced it would take over federally-owned Emarat’s 74 stations by next month.

Emarat petrol stations had been losing $28 million a month on subsidised fuel sales.

Ironically for the Gulf oil-rich economy, public pressure to keep gasoline cheap has cut into profits, and for some caused crippling losses for the four UAE state-owned retailers (Dubai government-owned Emirates National Oil Co -ENOC; Emirates Petroleum Products Co -EPPCO; Emarat and ADNOC).

The combined losses stood at about $2.31 billion last year, according to The UAE’s energy minister Mohammad Bin Dha’en Al Hameli, who fears losses will hit $3.3 billion if world oil prices increase further.

Last year ENOC and subsidiary EPPCO forecourts in the Northern Emirates were shutdown because of losses, forcing people to drive long distances and queue for hours to fill up.

The closures, in a Gulf OPEC country that produces around 2.5 million barrels a day of crude, was because nearly all the UAE’s oil is in Abu Dhabi, forcing Dubai-based retailers to import theirs at a loss.

The UAE has in the past considered phasing out fossil fuel subsidies, but the Federal National Council in May recommended the government further cut gasoline prices.

It means the UAE is now one of the biggest spenders on fuel subsidies.  In 2010, Kuwait’s fossil fuel subsidies were highest on a per capita basis, with $2,800 spent per person. The UAE and Qatar followed, each spending close to $2,500 per person.

UAE fuel subsidies consumption per person, 2010

For Emarat, it is the end of a predictable tale of what happens when a government attempts to appease its citizens to keep unrest at bay, only to the detriment of the same group of people.

Take-overs are the easy way out.  It is a must to increase local refining capacity to reduce reliance on imports and more equally distribute subsidies so they are not just captured by higher income groups and industries.

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