Saudi extends timeline for energy subsidy removal plan

Saudi Arabia is extending its timeline for the lifting of energy subsidies, an important element in the country’s move to overhaul its economy and balance the budget.

Subsidies will be lifted gradually so that fuel prices compare to international levels between 2018 and 2025, compared to a previous target of 2020.

The Kingdom’s 2018 state budget, the biggest ever in its history despite lower oil prices, expects revenue at SAR 783 billion and public spending at SAR 978 billion, with a projected deficit of SAR 195 billion.

As part of the budget, the subsidy reduction plan has been revised from the one announced in the fiscal balance program in 2016, the ministry said, adding the plan is subject to change according to fiscal developments.

The gradual elimination of subsidies aims at encouraging rational consumption, building a competitive advantage for industrial sector investments, reorienting the subsidy for eligible categories and strengthening the public finances.

Argaam has compiled details of the energy price correction plan:

- Benzene and diesel prices are planned will be gradually linked to international rates during the period from 2020 to 2023.

- Jet fuel will be limited to international levels in 2018 only for the Saudi Arabian Airlines. The previous plan was a gradual rise from 2019 to 2020.

- Natural gas and ethane prices are planned to be lifted by 75 percent of the international prices between 2020 and 2021 with the imposition of a price cap in 2021.

- Prices of kerosene and liquefied petroleum gas (LPG) are supposed to match international prices gradually in 2018.

- Asphalt is targeted to be linked with international reference price gradually by 2021.

- Liquefied natural gas (LNG), including butane, propane and natural gasoline, will be raised to 90 percent of international prices in 2020.

- Other liquid fuel products prices are planned to be leveled with international prices in 2025.

- Residential and commercial electricity prices, previously scheduled to reach 100 percent of international levels in 2017, will now be raised gradually between 2018 and 2025.

- Industrial electricity prices will now be increased gradually between 2019 and 2025, versus an earlier plan to reach international levels this year.

- Water prices will also be adjusted, but no details were shared.