Dubai gasoline company questions cut-rate fuel

By Adam Schreck

Associated Press

Published: Sunday, Oct. 16 2011 12:00 a.m. MDT

An EPPCO gas station which has been closed for a few months in Sharjah, United Arab Emirates, Sunday Oct. 16, 2011. After letting some of its far-flung gas stations run dry, Dubai's main oil company is now saying the United Arab Emirates' cap on pump prices is not sustainable. The rift highlights debt-saddled Dubai's determination to maintain its independence within the UAE federation and throws into question the generous subsidies the country uses to help buy political stability.

Kamran Jebreili, Associated Press

DUBAI, United Arab Emirates — 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.

Try out the new DeseretNews.com design!
try beta learn more
Get The Deseret News Everywhere