Many prices could rise Lifting diesel subsidy has various implications [Archives:2005/806/Business & Economy]

January 10 2005

Mahyoub Al-Kamaly
Yemeni people are praying that the government would spare them the imposition of a fresh dose of price reforms in 2005, including the lifting of subsidiary on oil products.

Some are performing prayers pleading that the crisis between the authority and the opposition would end.

Amidst tension between citizens and politicians, economic experts say that rise in diesel prices would make people uneasy because diesel is an essential commodity. They use it daily in their farms, and work, as well as in passenger buses and other forms of transportation.

Farmers use diesel in their cars and also for water-pumps and ploughing machines.

In addition, companies and traders use this commodity in operating transport buses. Prices from everything from machines, telephones, communications, food and medicines, water, construction materials and imported commodities could all be affected with a rise in transport costs.

The Yemeni government is determined to lift subsidiary of diesel soon and that would result in the rise of prices of all needs of the Yemeni citizen.

The Yemeni oil company, authorized for providing local market needs of oil products, says it buys diesel at a price of 69 YR a litre, which is a world price as the government says. But the company sells it to consumers for 17 YR.

The Yemeni government covers the difference in price that is about 52 riyals per litre. According to official the government pays more than YR 7 billion a month as subsidiary. The opposition considers that as a rightful right of the people from the share of the government of local production of oil.

Official reports point out that the volume of diesel subsidiary during the last month amounted to 75-85 billion YR, while they expected that the subsidiary could reach 110- 120 billion YR this year.

The Yemeni government says it has prepared plans for alleviating what it bears because of the yearly subsidiary for the diesel that has increased in late years.

Such plans include lifting the subsidiary. It is looking for solutions for the economic and social damage to be inflicted on the citizens and farmers for implementation of those plans.

Economic sources expect an increase in diesel prices by 80 to 100 per cent.

Yemen imports large parts of its diesel consumption at world price that is 50 riyals for a litre while it is sold for 17 riyals a litre.

That has created a large gap between the two volumes of supply and demand. Economic sources add that local consumption demand has doubled the problem due to its rise from 70 to 148 tons.

The sources confirm economic reforms would not be confined to the price value but would extend to taxes and customs also.

The negative impact would be focused on agriculture in the first place, while the government says it would take measures to alleviate those negative effects by implementing a strategy of fighting poverty that is dependent on support and aid of a fund for helping farmers and also discussion of exempting agriculture machines from customs and raising employees salaries.

The government also says it needs those amounts of money, offered for subsidizing oil products, to invest them in areas of development and enhancement of the national economy and the state budget.

It says that lifting the subsidiary would also bring the state huge resources enabling it to finance its projects without the need of loans.

The ordinary citizen, however, would not understand such justifications whether brought forward by the government through media or mosque preachers and others.

He wants to find an improvement in his living circumstances and drop in prices of consumer goods to be proportionate to levels of his income and purchasing power.