Yemen to supply more unsubsidised fuel in bid to cut black market

Mohammed al Qadhi

Jul 18, 2011

SANAA // In an attempt to cut off a growing black market in fuel, the Yemeni government plans this week to increase the supply of unleaded petrol to be sold at unsubsidised prices.

The decision will almost double the price of a 20-litre canister of leaded petrol, increasing it from US$6.25 (Dh22.9) to about $13. A 20-litre canister of diesel, which used to cost about $4, would be sold at about $10.

"This is all just a temporary measure to stop the black market, smuggling and hunger for fuel. We will go to the normal price when the pipeline is fixed," said Mr Sharaf, Yemen's minister of trade and industry, referring to the main oil pipeline in the central province of Marib.

The boost in supply is expected to reduce the long lines of vehicles waiting for days at fuel stations and help re-open many factories that closed due to the lack of diesel fuel. But the price hike is also bound to be passed on to consumers, already dealing with rapidly rising prices of food staples and other commodities.

Tribesman damaged the pipeline in mid-March and had, until Tuesday, refused to allow the government to repair it. Repairs were finished Friday and first ship carrying crude oil from Ras Eisa port on the Red Sea to the Aden Oil Refinery is expected next week, said refinery officials.

The damage had caused a sharp drop in oil production to 3 million barrels a month from 5.8m barrels. Mr Sharaf said after the stop of oil production in Marib, the government has been spending about $450m per month on importing fuel.

In the ongoing unrest, tribesmen have taken control of some areas as part of the effort to force President Ali Abdullah Saleh to step down from power. The damaged pipeline is symbolic of the economic crises the country now faces.

The Yemeni government subsidises oil derivatives by US$1.5 billion per year, 73 per cent of which goes toward diesel and much of it to support farmers who use to pump water to their fields.

Mustafa Nasr, director of the Studies and Economic Media Centre (SEMC), a Sanaa-based non-profit organisation, said the government fuel plan "could be of positive results if it is a temporary measure, for it could revitalize the paralysed economic activity".

"It will be catastrophic if the government decides to stop subsidising fuel for good as this will increase the prices of all commodities, which means increasing poverty," Mr Nasr said.

Prices for petrol and diesel have risen by 900 per cent over the past three months on the black market, according to a recent study by the SEMC.

The punishing fuel prices have "affected the prices of all commodities and paralysed the function of many economic sectors and some service activities", the study said. It estimates that the cost of transporting goods has risen by 60 per cent since April.

The price of food staples such as wheat, flour, sugar, yogurt and milk has increased by 40 to 60 per cent.

Many people complain the government is deliberately heightening the suffering of the people to turn them against protesters who have been demanding since February the departure of Mr Saleh.

"The government is trying to punish us. They want the people to say life before the protests was better and that the revolution is making our life hard," said Nadeem Jamal, 31, a teacher in Sanaa.

Mr Sharaf estimates Yemen has suffered between $5bn and $8bn of direct and indirect losses in the past five months from lost oil exports, including the cost of oil purchases at international prices, and a drop in tourism, customs and tax revenues.

Tawfeek al Khameri, an owner of hotels and restaurants, said that his companies have lost about $45m since the start of the unrest in February.

Tourism, which accounted for about $1.2bn of the country's $33bn gross domestic product, has ground to a halt.

Hotels are nearly vacant and restaurants have restricted operating hours as they struggle to cut costs. Between 700 and 800 factories have shut down due to a shortage of diesel.

Mr Al Khameri said the Yemen economy is collapsing.

"I cannot see any silver lining that we will get out of this very soon and the he problem is that those people in power are heedless to the growing pains of the ordinary citizens and the calamity we are heading toward," he said.

Businessmen, analysts and western diplomats have also warned of the likely collapse of the economy.

Mr Nasr said an important signal of the economic collapse is the dwindling foreign reserves of the central bank, which he said is about $3bn. However, Mr Sharaf insists that it is $4.1bn.