Sunday, May 08, 2005

Price of diesel in Oman to increase by 43% - Times of Oman
“The increase in price from 102 baisa a litre to 146 baisa a litre is to protect market integrity. At the same time, the hike in diesel price will make the entire fuel-selling process more transparent,” sources told the Times of Oman.

The Ministry of Oil and Gas said: “Pursuant to the Council of Minister’s decision on May 2, 2005, the price of diesel sold at fuel-filling stations in Oman to end-users is fixed at 146 baisa a litre from May 8, 2005.”

There were unofficial talks in the market that some were indulging in buying subsidised fuel from Oman and selling in markets where prices were high. Price for petrol will remain unchanged at RO0.120 a litre.

“There had been scarcity of diesel. The government’s decision stands commendable, as it will make diesel prices in line with neighbouring markets such as the UAE, to a certain extent, and will avert unsound practices, if any,” a customer opined. “Nevertheless, engineering and contracting companies will feel the pinch as their fuel costs will go up substantially, at least by 50 per cent,” another customer said.
Until I reached the penultimate paragraph I scoffed at the terminology "market integrity" and "transparency."

This is a classic example of arbitrage incentives draining the treasury of the state which attempts to subsidize a tradeable good. I wonder if it might also have created shortages of diesel in some parts of the country.

I wonder why Oman thought it useful to subsidize diesel more than the UAE subsidizes diesel. The last paragraph's reference to engineering and contracting companies suggests that the purpose was to subsidize construction costs.

Are the "unsound practices" in the last paragraph another reference to the arbitrage? Or did the subsidy have further unstated unintended consequences?

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