Economist on the price of Gasoline in Syria

FROM THE ECONOMIST INTELLIGENCE UNIT, 02 Nov 2007

The government has hiked the price of gasoline by 20% amid growing controversy over a broader plan to phase out fuel  subsidies,  which  now  exceed  10%  of  GDP. The gasoline price increase went into effect, with no prior warning,  on  November  1st,  with  the  price  of  a  litre going up to S£36 (US$0.75) from S£30. However, the government  is  still deliberating  whether  to  go ahead with the previously announced plans for much steeper increases  in  prices  for  gasoil  and  other products that account for a much larger proportion of total fuel consumption and which attract much larger subsidies.

Gasoline prices in Syria are in fact relatively high by regional standards—a point made in numerous comments on news websites, noting that that the price of petrol in Gulf Arab states such as Saudi Arabia and the UAE, where many  Syrians  go to find work, is substantially lower. By contrast gasoil/diesel, which accounts for more than 50%  of  Syria's total petroleum products consumption and which is sold domestically at a fraction of the world market  price.  The planned attack on subsidies includes a proposal to increase the price of gasoil by 71% from S£7/litre  to  S£12/litre  from  January  1st.  The price of cooking gas is also supposed to go up to S£250 per canister,  compared  with  S£145  at present. The price of industrial fuel oil was increased in 2004, and would rise  by  a  further  25%  to  S£7,500 per tonne. The government has proposed to compensate some 3.5m families, identified as being in lower income brackets, through providing an annual cash benefit of S£12,000.

Baathist rumblings

As  the  deadline  for  applying  the new fuel price increases approaches, the plans have attracted a welter of criticism in sections of the Syrian press, reflecting unease within the ruling Baath party and, it is presumed, among  well-connected  business  interests  who profit hugely from the current situation owing to the lucrative smuggling  opportunities  that  it affords. Certain members of the government, led by the (non-Baathist) deputy prime  minister  for economic affairs, Abdullah al-Dardari, have argued forcefully in favour of acting promptly to  tackle  the fuel subsidies problem, which is becoming worse as Syria's dependence on imports increases as a result of the decline in its own oil production. Mr Dardari has, as a result, become something of a hate-figure for  critics of the plans to hike fuel prices. The affair is set to become a critical test of the leadership of Syria's president, Bashar al-Assad, who may ultimately have to choose between the party hierarchy and his inner political circle on the one hand and his economic reform team on the other.

Refinery hopes

In  the  long term, Mr Dardari has pinned hopes on foreign investment in new refineries in Syria to address the problem. An agreement was signed at the end of October with Venezuelan, Iranian and Malaysian companies for the construction  of  a  refinery  outside  Homs with the capacity to process 140,000 barrels/day of crude, half of which would come from Syrian fields and the remainder from Iran and Venezuela. More than half of its production would  be  gasoil.  A similar deal is set to be signed with Noor Investments of Kuwait to build a refinery near Deir  ez-Zour,  to  process Iraqi crude. Financing these projects, which will each cost at least US$2.5bn, will pose a major challenge, however.

Comments (6)


1. annie said:

Life is going to get tougher for some, although the annual S£12,000 should provide some relief.

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November 3rd, 2007, 6:36 am

 

2. fadal said:

they do not know anyhing about planning. I am sure about that.

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November 3rd, 2007, 9:36 am

 

3. Ahmad said:

yeah well….why hasn’t anyone mentioned the Electricity hike??
Its gone up 3 times in price!!!!!!!! Actually between 3-4 times.
This is really gonna hurt your average Syrian, 4 days ago I recieved my bill, instead of being 800-1200/2mths as usual…..it had rapidly increased to 3300 pounds!!!!
How can the average Syrian afford to live anymore??

Lets watch the streets, starvation on the uprise for sure.
This is a sure way to make people want to see change….is the Government that Naiive??
If the price of Micro Buses goes up soon……..hmmmmmm

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November 3rd, 2007, 4:41 pm

 

4. Hosam said:

I would have expected a better analysis from thte EIU. Yes, the traditional Baath establishment is opposed to lifting the subsidies at this moment, but it’s not because of cronyism as the analysis suggests, but rather because they fear the potential social and political outfall from raising the subsidies. This is not a conflict between Baathists and Non-Baathists, as the article suggests; It’s a conflict in views with regards to priorities, sequencing and timing in making economic policies.

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November 3rd, 2007, 6:14 pm

 

5. eiu said:

Hosam, sure there is an issue regarding the social impact of cutting subsidies. But it is undeniable that the impetus for the long overdue structural changes to the Syrian economy is coming from non-Baathists, and these arguments are being at best grudgingly accepted by the party. I would also dispute the cntention that cronyism is not critical to this debate.

On the electricity issue, the government’s case is summarised in a recent EIU report:

The government also faces a considerable financial burden in maintaining electricity supplies, both from subsidising tariffs, which are below the cost of production, and, more importantly, from financing investment in new generating capacity. At the start of September the Ministry of Electricity put into effect a new schedule of electricity tariffs based on a sliding scale, with heavier consumers obliged to pay much higher rates. For domestic consumers there are eight bands, ranging from a nominal charge of S£0.25 (half a US cent) per kwh for those using 100 kwh in the two-monthly billing period to S£4 (8 US cents) for those using 2,001 kwh/y and more. For the highest band the entire electricity supply will be charged at the top rate; users of 2,000 kwh or less will be charged on a staggered basis. According to the electricity minister, Ahmed Khaled Ali, the overall charge for the mean household consuming 800 kwh per billing period will actually come down to S£710 (US$14) from S£810 previously. He did not specify the extent of the increases in charges for higher users. He said that rumours to the effect that bills would henceforth be charged monthly were unfounded. For industrial users, charges will range from S£150 to S£500, depending on the time of day (with the highest charges during domestic peak times—in the evening).

Household electricity tariffsa
Consumption (kwh) Tariff (S£)
0-100 0.3
101-200 0.4
201-400 0.5
401-600 0.8
601-800 2.0
801-1,000 3.0
1001-2000 3.5
2,001 and above 4.0
a Based on a two-monthly billing period.
Source: Syria-news.com.
Download the numbers in Excel

Mr Ali said that in 2006 Syria’s total electricity consumption rose by 8%, compared with the previous year, to 37.7bn kwh. The system has shown the strain during 2007, with regular power cuts during the summer months, when demand peaks owing to increased use of airconditioners and supply is affected by falling water levels behind the Tabqa and Tishreen dams on the Euphrates river, which account for about 20% of totalled installed capacity of 7,500 mw. Mr Ali said that the situation has improved owing to the recent start-up of a new 150-mw unit at the Nasiriya power station in Damascus; a second 150-mw unit is scheduled to come into service at the same plant in late October. Over the next two years two 750-mw combined cycle plants, at Deir Ali and Deir al-Zour, are also set to come on stream, and a further 2,000 mw of new capacity is planned by 2010. Mr Ali said that the total cost of the ongoing and planned power station projects is about US$6bn. The bulk of the financing for the projects that are now under way is coming from the European Investment Bank and Arab development agencies.

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November 4th, 2007, 12:30 pm

 

6. SyriaComment - Syrian politics, history, and religion » Archives » Economist Responds: What do Subsidy Cuts tell us about the Baath? Is it Washed Up? said:

[…] Yesterday, SC published the Economist on the price of Gasoline in Syria. Comenters contested whether there is really a "conflict between Baathists and Non-Baathists, as the article suggests." Ahamd decried the electricity hikes that he believes are hammering Syrians even harder than gas hikes. […]

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November 4th, 2007, 8:17 pm

 

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