Y Special: Does fuel subsidy measure up to the expectations in Oman?

18 Jan 2018
POSTED BY Y Magazine

For many, it’s the first positive step towards a better future. For others, it’s welcome but not enough. And for a few, it means nothing. Alvin Thomas and Hasan al Lawati find out if fuel subsidy measures up to the expectations.

When 18-year-old Sami al Balushi received his driving licence in February last year, he was ecstatic. The young aspiring business graduate could finally drive to his college and around Muscat, as opposed to relying on his friends or the public transport.

But to put himself through college Sami works part time at an international eatery in Muscat. He is paid RO500 for his services, which he puts into his college funds and daily expenses. He also purchased a second-hand car for RO3,800 by availing a bank loan.

He soon started driving to his hometown in Bahla for the weekend to meet his ailing father and his family.

This, he says, is when things started to get harder: he constantly found himself tight-strapped when he had to pay his daily bills.

The reason for that, he says, was the unprecedented rise in the fuel prices and of some other commodities.

“By around November of 2016, the price of regular petrol rose to 173 baisas per litre from around 145 baisas per litre in February when I received my driving licence,” says Sami.

“This meant I was paying RO9.51 for a full tank of fuel – and I had to fill up every three days during the week, and once when I travelled back home to meet my family.

“In short, I was spending roughly RO28.5 every week just to fulfil my daily tasks. As a matter of fact, I even considered ferrying some of my expat friends to college so that they would chip in for petrol. But I soon buried the idea because car-pooling is illegal in Oman,” he tells Y.

Frustrated, Sami finally decided to ditch his car and opt for the Mwasalat buses instead. This meant he was starting his day in the wee hours of the morning.

“To save the fuel expenses I decided that I would only use the car when I drive to Bahla and for nothing else. Else, I would be requiring close to 180 litres of petrol every week,” he exclaims.

But come last week (December 13, 2017), Sami’s worries were partially put to rest following the announcement of the fuel subsidy scheme under the National Subsidy System (NSS).

This means Sami can return to his routine and drive his vehicle without any of the hitches.

But, as it turns out, it is not just Sami who is benefitting from this scheme but rather more than 500,000 Omani citizens who are currently earning a salary of RO600 and below. And it was reported by the NSS this week (Monday, December 18) that more than 50,000 had already registered for the scheme.

As per the details revealed to the public, Omani citizens who meet eligibility requirements will get 200 litres of regular ‘M91’ petrol per month at a cost of not more than 180 baisas per litre.

The current price of M91 petrol stands at 186 baisas – and this translates to a six baisas drop from the current price.

This mechanism will include all sectors of society who meet the following requirements: Omani citizens above 18 years old who own in his or her name a vehicle registered with the Royal Oman Police or a fishing boat registered with the Ministry of Agriculture and Fisheries, provided that his or her total monthly income from all sources is not more than RO600.

With the introduction of the National Subsidy System, the current price cap on M91 petrol will also be lifted, as directed by the Council of Ministers, according to authorities.

Based on the subsidy terms, the categories covered include all Omani employees, job seekers, students, housemaids and retirees, entrepreneurs and also fishermen who meet the said eligibility terms. No details were shed on whether taxi drivers can also avail the subsidy.

Those who meet the conditions should register themselves on the website nss.gov.om.

The Oman News Agency revealed that a support mechanism for farmers will be announced soon.

Meanwhile, those who have registered are reporting that they have now begun receiving their smart cards from fuel-marketing companies.

Sami is one of those who have received their fuel cards; but the cards can only be used from January of 2018.

“The card for Shell and Oman Oil must be activated through the website, while Al Maha cards are automatically activated. The card is to be used in January 2018,” the NSS has announced online.

Until Thursday, December 14, the number of fishermen who applied for the scheme stood at 51.

Sami says: “It may not seem like a big difference, but I have to be honest, it will reflect in our savings. It’s still not the amount we were paying in 2016 but at least it’s a start. It makes us feel that we are all looked after and our voices are being heard.”

This is echoed by Mohamed Issa al Zadjali, an employee at a coffee outlet. He tells: “I am happy with the move; it may not be the biggest subsidy but this will help those who have to travel a lot.

“There are several Omanis living on low salaries, and it gets hard if you have a family. I know people who stop going outside because they cannot afford to drive their car on a daily basis. For them, it is simply work and home; maybe that can change,” he remarks.

Currently, citizens of Al Batinah Governorate are in first place with 30.7 per cent of registrations originating from the region, while Muscat came in second at 25.58 per cent.

To get to grips with the new initiative, we talk to Mohammed al Harthy*, a government employee. He tells us: “There was an oil subsidy in Oman and it was roughly RO1bn in 2014. This was applicable to all the people in Oman – both Omanis and expats.

“Following the oil crisis in 2015, this became quite hard for us to maintain. So, as you all know, we removed the fuel subsidy.

“But now they have started it again – only that the subsidy is roughly RO100mn. This is not enough for everyone, which is why it only applies to a portion of society (Omanis falling under the criteria).

“Essentially, this is aimed to make the people feel better and to stop them from making a big fuss about this situation. Moreover, the value-added taxes (VAT) system is also on the cards to be implemented in the country.”

According to al Harthy, the government – following the implementation of the subsidy – will be providing 200 litres of petrol (M91) at RO36 per person for a month. This translates into a saving of RO1.2 per person in a month.

“I know a lot of people are complaining about it, but I support the government’s decision here, because more than 500,000 Omanis are going to benefit from it and that is a big number.

“My estimate is that the oil prices in Oman will increase and that will help stabilise the market. And maybe then, the whole scenario of the subsidy will change too.”

Mousa al Raisi*, a government employee, also goes on to tell us that this move is a strategic one.

“The message is clear: It is intended at those with low salaries. Two hundred litres depends on who receives it; if you’re earning a low salary, then it will reflect in savings.

“Imagine you’re driving to your far-off hometown every weekend of the month. If that’s the situation, then you’re probably spending more than 200 litres of fuel. But when you’re getting the first 200 for a discounted price, you’re inclined to see a difference in your overall spending from the last few months,” he adds.

However, while the move may seem positive, will it lead to the ineligible people (earning more than RO600 per month) availing the services for their benefit by hook or crook?

“Probably not,” says al Harthy. “Yes, every law that is passed can be broken or a loophole can be found, but it probably won’t be the case here. The subsidy is marginal and it probably wouldn’t be enticing for richer people to try and exploit.”

But, Qais al Khonji, an entrepreneur in the oil and gas field, thinks that it could be. “Actually people could misuse it more than companies or big organisations with employees using cards as a method of payment. It would be a bit tough to track these transactions but it’s not impossible.”

Nonetheless, he believes that the way to move forward at this time is with a fixed price system for all. “To be honest I’m for a fixed oil prices for everyone. Fix it at 150 baisas at all times and for everyone. Stability is healthy in any economy. When the price is fixed, at least people will be able to calculate their exact monthly expenses and help them make any future financial decisions. They should only reconsider it when it drops back drastically again (God forbid).”

Talking to al Harthy, we also learn that there are no immediate plans for a fixed rate or a subsidy scheme for fuel for expats in the country. “Expats will certainly not like this,” he comments. “I understand that there is a strong ratio of Omanis to expats, so there will be quite a lot of market share. But if the subsidy will be applied to the expats, then the load on the allotted subsidy will increase, thereby reducing the effectivity of it.”

Shyam Vasudevan, a junior accountant in a leading bank in Oman, tells: “It’s surprising that the fuel subsidy was implemented only for Omanis – and that too for people who have salaries of nearly RO600.”

He adds: “I understand the need for such a subsidy if you have a family but for all else, I think it is a high salary cap. For example, I earn RO300 and I am not given any form of subsidy; but again, I do not pay any taxes so it’s not right for me to complain. Still, I would like to see some steps being taken for people who earn low among the expat community.”

Mazin Hasan al Rashdi, a businessman who is also a business turnaround specialist, says: “This form of a subsidy will really not translate into much for a person earning RO600, and the problem for the Omanis will not be the 200 litres cap but rather the actual price of the fuel, which is 180 baisas.

“As for expats, it will be the same concerns. Expatriates who earn above RO500 mostly own a car and they like to use it. They may also take a loan for the same. But, if the cost of fuel is 186 and 207 baisas for M91 and M95, respectively, then they may stop using it regularly.

“This will further translate into them spending lesser outside, as they travel less frequently and thus affecting the overall economy of the country. The spending power of the people determines the GDP (gross-domestic product) of the country,” he adds.

Melissa Joan, an economist based in Oman, further asserts the statement. “Mazin is right,” she says. “If an expat earns RO600 and spends RO50 on fuel every month – and if he or she sees that there is no change in the petrol prices – then they will most likely cut back on as much driving as they can. This will mean they will eat out less, shop less and even visit places less,” she tells Y.

Ala’a al Maskary, a businessman running a metal works company, says: “I do not fall under the bracket of people eligible for this subsidy, but there’s one thing you should keep in mind: this is the first real positive change we have seen since the fall in oil prices.

“Sure, expats and Omanis enjoy subsidised electricity and water services but this is the first change with regards to the petroleum sector. And we must welcome it with open arms.

“Don’t forget that the government is shelling out RO100mn for this purpose. It must mean that they are considering the well-being of the citizens here, and that they are now in a position to answer the requests of the people that are finding it hard to make ends meet.

“I believe this will pave way for a better future year for Oman, and I certainly hope that this is a sign of the positive things to come.”

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