Monday, May 05, 2008

Raise the price; end the nonsense

State-owned Adnoc (Abu Dhabi National Oil Company) persists in pricing diesel well below its competitors. Truckers naturally flock to Adnoc, creating long queues that spill out onto the streets causing traffic jams. It's a problem I identified before. Now the manager of Traffic Affairs at the Ministry of Interior is getting into the act.

The reasonable solution would be for Adnoc to raise its price to the market level. That's not what Adnoc is proposing however. The Nation reports,
Col Gaith al Mazroui, the manager of Traffic Affairs at the Ministry of Interior, said talks were under way between the department and Adnoc to find ways to end the congestion.

Col Mazroui said the Traffic Affairs Department had suggested diesel sales to lorries heavier than two-and-a-half tonnes be limited to specific hours of the day.

Adnoc should consider setting up dedicated diesel vending forecourts on roads outside of the main urban areas, while it had been advised to increase the number of diesel pumps, said Col Mazroui.

Adnoc should begin a publicity campaign urging drivers to fill up only when it was absolutely necessary, he added.

A meeting would be held soon to decide on the proposals.

Congestion at the Adnoc stations is mostly limited to the northern Emirates, which has just 49 Adnoc petrol stations to service Sharjah, Ajman, Ras al Khaimah, Umm al Qaiwain and Fujairah. By contrast, Abu Dhabi has 127 Adnoc stations.
Read it all here.

There would be many would be grateful if the traffic congestion created by underpricing was solved. I wonder what the politics are that inhibit Adnoc from simply raising the price on diesel.



Anonymous Anonymous said...

Why does every god damn problem end with a solution titled "raise the prices" ?

If Diesel and Petrol can be cheaper in Saudi Arabia and other Gulf countries, why do you recommend that Adnoc "raise prices to market level" ?

Maybe ENOC and Emarat should lower their prices instead ?

If the UAE was a pacific island I would understand the need to have high prices due to lack of recources, but we are an oil producing country, and ADNOC is absolutely right in maintaining low prices.

Obviously that will lead to a long queue of trucks , its upto them whether they prefer to wait for lower prices or get instant diesel by paying more at ENOC.

A rise in diesel prices will screw people even more than the current inflation

8:45 AM  
Blogger Dubai Entrepreneur said...

The problem is not waiting in line for cheap diesel. The problem is traffic congestion caused as a result.

The question is, as a non-Diesel consumer but road user, will I pay more for goods affected by higher diesel prices (knock-on effect) or rather put up with traffic?

Quite frankly, the value I put on my time exceeds just about every commodity I can think of.

Petrol and Diesel are already significantly below market prices. Economists generally like to see economies running themselves and correcting themselves without the use of subsidies. In a perfect world for an economist, I would imagine there would be minimal regulations and a free flow of goods and people with prices self-adjusting to market conditions.

4:44 PM  
Blogger John B. Chilton said...

Well stated, Dubai Entrepreneur. Our public servants will be doing us a favor if this problem is resolved by Adnoc increasing its price.

4:47 PM  
Anonymous Anonymous said...

You have a very limited scope on the situation in the UAE at the moment.

The huge construction and real estate projects currently taking place in the UAE is unlike anything any business model can predict. The growth and construction rate is just too fast for the market to keep up with.

Kudos to Adnoc for not raising the price of Deisel. If the price of Deisel was increased even slightly, you would see it translate into huge costs throughout all segments of the economy.

Blaming Adnoc for the rapidly growing business sector and population is justified however, considering that ABU DHABI NATIONAL OIL COMPANY is the source for all of your salaries and paychecks.

To put it simply, ADNOC is the main energy, economic, social, cultural tool used by this great nations government to support and provide all the other segments of the economy. You want them to raise petroleum product prices so that the nations economy hits hyper-inflation? take a deeper and more thorough look into things. ADNOC provides funding for too many projects and initiatives to be mentioned in one page, while the competition is just a profit venture.

As a leading company in the UAE, ADNOC would rather have econimcal stability, social security and no inflation than make a few Fils here and there from Deisel sales.

You say that in a true free market capitalist economy ADNOC should raise its prices? Why? they don't need to. they are doing fine the way they are now. It's the others that seem to be having a problem competing. In a true free economy, those that can't compete should get out and call it quits. But you're asking for the market leader to throw up the prices and hurt the consumer so that others can survive?
Great logic... not.

10:35 AM  
Blogger John B. Chilton said...

Disagreement does not imply one party has a limited scope of a situation.

While it does not make its decisionmaking transparent, Adnoc appears to be a very well run company, especially when it sticks to the business of making money and returning it to the shareholders -- which in this case are the citizens of the UAE.

Just because it is generally well run does not mean it is above reproach. Conversely, it is an error in logic to conclude that a specific criticism implies a criticism of the whole is being made. Healthy open debate is an important route to improvement of our institutions.

10:41 PM  

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