Saudis may see fresh subsidy cuts, higher energy prices

Saudi Arabia is likely to cut energy subsidies between 20 percent and 50 percent in 2017, leading to an increase in electricity and fuel prices, analysts surveyed by Argaam said.

If so, this would be second consecutive year for an increase in energy prices. Last year, the kingdom had cut fuel subsidies and raised retail fuel prices by nearly 50 percent.

Commenting on the potential fuel price hikes, Hans-Peter Huber, chief investment officer at Riyad Capital, said that subsidy removal may be accompanied by support programs for the low-income sections of the society.

He added that raw materials for the industry could be excluded from these hikes, at least for the present.

Saudi Arabia is looking to reduce its dependence on oil revenue, following a two-year drop in oil prices.

Following last year’s hike, the price of higher-grade unleaded gasoline in the kingdom was raised to SAR 0.90 per liter from SAR 0.60, a hike of 50 percent. Lower-grade petrol was increased to SAR 0.75 from SAR 0.45 per liter, up 67 percent.

The government also increased diesel, natural gas, ethane, diesel, kerosene, electricity and water prices as part of the government’s five-year plan to reduce subsidies.

Meanwhile, Bloomberg reported on Wednesday, citing an unnamed person familiar with the matter, that Saudi Arabia was considering increasing retail fuel prices in 2017.

The increase is expected to be announced before the end of the year, the person said.

The kingdom might link retail prices with benchmark crude oil prices, or to average international petrol and diesel prices, the person said.