Monday, October 17, 2011

WaPo covers wackynomics of Dubai

Washington Post
When its gasoline pumps started going dry in the United Arab Emirates’ poorer northern states earlier this year, Dubai’s oil company blamed mysterious service upgrades. Few believed that at the time, and now the company is dropping its subtlety, triggering an uncharacteristically public spat over fuel pricing policies. When its gasoline pumps started going dry in the United Arab Emirates’ poorer northern states earlier this year, Dubai’s oil company blamed mysterious service upgrades....By letting its farther-flung stations run empty, the Emirates National Oil Co., or ENOC, was telegraphing a message: The Dubai government-owned firm was tired of driving itself deeper into the red by shouldering money-losing state fuel subsidies that keep pump prices artificially low. In an unusually strongly worded statement over the weekend, the company said that continuing to cover subsidies mandated by the UAE’s federal government “is clearly not sustainable or viable for the company.” It was a rare public display of power politics in a country where grievances — particularly ones involving the many businesses controlled by the Emirates’ ruling sheiks — are typically resolved behind closed doors. The rift highlights Dubai’s determination to maintain its independence within the UAE federation despite a daunting debt bill, and it throws into question the generous subsidies the country uses to help buy political stability....The problem for ENOC, which also runs stations under its EPPCO subsidiary, is that Dubai has few of the UAE’s oil reserves. Those are mainly controlled by Abu Dhabi, the federal capital and the richest of the federation’s seven semiautonomous emirates. Because Abu Dhabi and Dubai don’t share their energy resources, ENOC has to buy its fuel on the open market at international prices — a situation it says no longer works....Dubai gas stations remain stocked but are often packed with long lines during rush hours. Meanwhile, ENOC and EPPCO stations remain shuttered in Sharjah, a teeming city next to Dubai that is home to many lower-income workers. Authorities there closed the company’s outlets in June after it failed to respond to demands to replenish fuel supplies, further lengthening lines at stations in Dubai....Most likely, ENOC is hoping the central government will step in to cover the shortfall between the subsidized price and the company’s costs, analysts said.
During its go-go years spread its network of petrol stations across the country soaking up markets that might have been served by the cautious Adnoc. Dubai projected itself across the country. As a strategy, it was always peculiar. Dubai simply didn't have the deep pockets to run the network at a loss. But none of that was transparent when Dubai had access to foreign lending throwing money at its other projects.

My guess is that Abu Dubai is simply squeezing Dubai and will end up owning Dubai's petrol networks.

One question I have: Why doesn't Dubai simply refuse to pay the subsidies mandated by the UAE’s federal government"? Would Abu Dhabi swoop in and embarrass Dubai by enforcing the mandate?

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