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Oman’s energy-related subsidies climb to RO 563m for 9M 2022



Government subsidy on oil products soared to RO 563 million for the first nine months of this year — part of a safety net put in place by authorities to soften the impact of elevated utility and fuel tariffs on the local population.

According to the Ministry of Finance, government expenditures under the ‘Contributions and Other Expenses’ category — a subhead that includes subsidies — totalled RO 1.434 billion for the January - September 2022 period, up from RO 578 million for the corresponding period in 2021. It included RO 563 million in subsidies towards energy products, the ministry noted in its latest fiscal performance bulletin.

This compares with an allocation of RO 1.071 billion in the 2022 State Budgetary towards ‘Contributions and Other Expenses’ — a budget-item that includes subsidies for electricity, water, sewage and waste sectors, in addition to subsidies for oil products, housing and development loans.

The subsidy expenditure of RO 563 million towards energy products covers majorly the cost of providing electricity and water, produced from gas-based energy sources, to eligible consumers.

This compares with an allocation of RO 575 million in the 2022 Budget towards electricity and water subsidies for the year.

Although longstanding subsidies for non-Omani residential customers were rolled back last year in line with government reforms announced as part of the Medium Term Fiscal Plan (MTFP), they will be gradually phased out for nationals over a 10-year period spanning the January 2021 – 2031 timeframe.

An estimated 80,000 Omani households are also eligible to receive monetary support under the National Subsidy System (NSS) set up by the government to help mitigate the impact of subsidy reform in the electricity and water sector.

The NSS scheme, previously designed to ease the impact of rising motor fuel prices on economically vulnerable citizens, was expanded in 2021 to include households faced with steeper electricity and water bills in the wake of the government’s decision to roll back subsidy on most utilities.

Constituting a small part of the subsidy on energy products is an allocation announced by the government last year to offset a steep rise in retail fuel prices benchmarked to international crude prices. It capped fuel tariffs at the average of rates recorded in October 2021 and pledged to cover the differential up to the end of 2022. An allocation of RO 67 million was also announced towards this new subsidy.

Consequently, the price of Grade 91 fuel remains capped at a maximum of 229 baisas per litre, Grade 95 at 239 baisas and diesel at 258 baisas. But with international prices of crude having prevailed above the $100 per barrel mark for much of the first half of this year, the new allocation has been barely enough to cover the differential, according to officials.

Furthermore, a grant of RO 35 million was included in the 2022 Budget towards subsidising retail petrol and diesel supply to low-income Omani vehicle owners and fishermen that are registered under the National Subsidy System (NSS).

Additionally, a subsidy expense of RO 18 million was incurred on certain food commodities during the first nine months of the year, according to the ministry.

Importers of grain, notably the two major flour milling companies of Oman, have been receiving financial assistance to offset the steep rise in the cost of wheat imports following the outbreak of hostilities between grain-producing heavyweights Russia and Ukraine.

Also included in the RO 1.474 billion expenditure under the ‘Contributions and Other Expenses’ sub-head is an allocation of RO 150 million for the future debt obligations budget-item, the ministry added.

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