Arab region must rethink utilities subsidy: Experts

January 09, 2013 - 12:58:35 am

Eng Fahad Hamad Al Mohannadi, General Manager, QEWC, during a session at the 4th General Conference of Arab Union of Electricity and Exhibition yesterday. &  Dr Hisham Khatib. Abdul Basit

By Satish Kanady

DOHA: The Arab region must seriously re-look into its existing system of offering subsidies to the utilities,  leaders of the region’s two leading entities said yesterday.

Subsidies to the utilities are really weighing down on the economy of many Arab countries. The subsidy to electricity alone is accounted for at least 50 percent of the total budget deficit of these countries, Fahad Hamad Al Mohannadi, General Manager of Qatar Electricity and Water Company (QEWC), said while addressing a session at the General Conference of Arab Union of Electricity and Exhibition here yesterday.

Given the proposed development plans lined up by  some of the emerging Arab nations, the demand for electricity is expected to double for the next ten years, meaning the budget deficits of these countries are set to increase by 6 to 8 percent.

“The very low tariff rate being enjoyed by people living in huge villas will definitely have a major  impact on the sustainability of the electricity sector in the long run. We need to encounter this. This conference must come out with a concrete proposal to scrap the existing subsidy system in the region in a phased manner, if not in a one strike”, he said.

“Subsidy to utilities is an evil. It’s equal to wasting precious resources,” Dr Hisham Khatib, Vice Chairman at the World Energy Council of Jordan and the Global Energy award laureate, told The Peninsula. Subsidies to water and electricity are bringing in huge financial commitments to the governments. It is high time we to do away with this system.

“There is no two opinions on giving concessions to low income citizens. But it should be done in a way that the respective countries make sure they are meeting at least the production cost.”

According to Dr Hisham, the estimated amount the region incurred due to the electricity subsidy in 2011 was almost double to the total investment in the electricity sector. He said the region allocated nearly $55bn to the subsidies in the electricity.

“The future of Arab’s electricity sector is based on the subsidy system. The region’s electricity sector needs holistic reforms.  Some countries are giving 100 percent subsidies to the utilities. We need to have a rethink on it,” Dr Hisham said.

Dr Hisham who said that the world would continue to depend largely on fossil fuel for the next 50 years shared his concern whether the region was going a little bit hasty in developing the alternative  energy sources. 

He said the economic return on investments in the traditional fuels is too low compared to the returns on the investments in the alternative energy. The high level of humidity, incessant sand storms and ‘above 50 degree Celsius’ weather patterns are not ideal for massive investments in the solar energy, he said.

The Peninsula