Jordan's energy and subsidy problem

Published December 23rd, 2012 - 03:00 GMT
Jordan imports 96 per cent of its energy needs and reduced fuel subsidies in November to save money
Jordan imports 96 per cent of its energy needs and reduced fuel subsidies in November to save money

[Jordan's] Prime Minister Abdullah Ensour has said that direct cash support to ease the effect of lifting fuel subsidies could be stopped if prices of crude oil drop below $100 per barrel.   

Ensour told a press meeting on Wednesday evening that the government will start to review prices of oil derivatives on a monthly basis as of January 1, 2013. 

He explained that authorities will monitor the prices of crude oil on the Singapore index for a month and that if prices keep a downtrend below the $100 mark, the cash subsidy will be removed. 

Petroleum product prices were liberalised by the government on November 14, triggering nationwide protests and riots.

The move sent the price of 90-octane gasoline up by 15 per cent, from JD0.70 a litre to JD0.80 a litre. 

Diesel and kerosene prices went up to JD0.685 per litre instead of JD0.515 a litre, rising 33 per cent. 

Cooking gas saw the highest rise, with the price of a gas cylinder going up from JD6.5 to JD10. 

Prices of oil derivatives in the domestic market will be defined every month based on oil prices on international markets, the premier said, adding that if international crude prices go down, prices of oil derivatives in the local market will see a decrease, while if prices in the global market are up, fuel product prices will automatically be higher. 

Ensour said the decision to replace the previous generalised subsidy system with cash assistance to “deserving segments” was part of the reform project and was aimed to prevent further losses to the Treasury, which faces an unprecedented shortfall in finances. 

Indicating that over 90 per cent of households who are eligible for the cash support have received the first batch of assistance, estimated at JD100 million, the premier noted that the overall value of cash subsidy will cost the budget JD300 million, which would cut the subsidy burden on the Treasury by JD500 million. 

The previous generalised subsidy regime used to cost JD800 million, according to official figures. 

Under the new system, each individual of a household that consists of six members or less and whose collective income is less than JD800 a month or JD10,000 a year will receive JD70 annually in compensation for the hike in prices.

Electricity dilemma  

As he said that the problem of subsidies has been solved, Ensour noted that power generation remains the biggest challenge facing the government’s finances. 

Losses incurred by irregular supply of Egyptian natural gas will reach JD1.7 billion by the end of this year, he said, stressing that reviewing electricity tariffs is a must in order to stop draining the state’s limited financial resources. 

However, Ensour pledged not to take any measure in this regard until after parliamentary elections, slated for January 23.

Elaborating that the government also offers JD250 million to subsidise wheat prices and JD100 million to support barley, in addition to hundreds of millions of dinars provided to universities and the National Aid Fund, the prime minister said Jordan is a country that offers large subsidies despite a lack of funds. 

In terms of the deficit projected in this year’s budget, he noted that it would reach JD4.2 billion by the end of the year. 

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