Where is the diesel? [Archives:2008/1157/Business & Economy]

May 22 2008

By: YemenTimes Staff
The global increase in the prices of Oil has affected Yemen just like many oil producing countries in terms of the increase in revenue, at the same time, Yemen is also affected like many oil importing countries as Yemen still imports substantial amounts of diesel which is used in the domestic market. Yemen exports around 300,000 barrels of oil per day, while importing 60,000 barrels per day most of which is diesel. However, the costs of importing diesel are burdening the government's budget due to the record high oil prices in the international market, increasing the cost of subsidizing the expensive oil which is sold at a fix nominal price in the domestic market. These subsidies are expected to exceed US$ 3.5 billion in 2008 alone, which is equal to 12 percent of the gross domestic product (GDP).

With the price of diesel on the rise, it is evident that the government is unable to maintain the purchase of the same quantities due to the limited budget available for purchase and subsidies, in spite of receiving banking facilitations and credit to do so. The high prices are forcing the government to buy less diesel in turn creating a shortage of supply in the local market, which will not end unless the global prices decrease or the government undertakes measures to finance the purchase of more diesel.

The government of Yemen is indicating that it will work towards improving its internal refining capacity in order to maintain adequate supply of diesel without having to import it, the cabinet also decided to create a strategic reserve of diesel in order to supply the domestic market should any discrepancies arise. However, the cabinet is yet to seek permission from the parliament to finance any of these two ideas.

Recently, the parliament has called on the previous minister of Oil Bahah to ask him about what his ministry plans to do with regards to the diesel shortage, while the ministry maintains that the diesel crisis is being dealt with and supplemental shipments are on their way to ease the current crisis.

Cost of Crisis

During the last four weeks it has become a usual site to see huge lines of trucks and commercial transport vehicles lining up to fuel in diesel, Yemen Times investigated the impact of the shortage in the domestic market through the following opinion survey.

Mohammed AbdulSallam, a minibus driver, says that diesel is now more expensive than petrol because it is not available in the domestic market and you can only buy it in the black market, and if you're lucky you will get what you need at a reasonable price, adding that a few weeks back he used to queue for several hours at the diesel station just to get the limited quantity of 20 liters.

Hani Mahmoud, another minibus driver, says that folks come from rural areas as the supply of diesel has stopped going to all parts of rural Yemen, flooding the city demanding diesel because the government gives the cities preferential treatments for urban. Many of these are farmers who need the diesel to activate water pumps, tractors, and other machinery for agriculture without which they risk losing their crops for the season, so they are very concerned and will go to great lengths to get the diesel they need.

Abdullah Naji, a cargo transportation truck driver, stated that he has never seen diesel crisis this severe since the 1994 civil war, but the problem is not that the diesel is not available, but the trucks which transport the diesel and also natural gas are stuck in different locations seeking diesel, so although there is diesel at the port of Aden waiting, he needs to queue for a day to fuel up to go to the aden port to transport cargo. He also added that the mismanagement of diesel imports would lead to worse situations, blaming the government for not anticipating this crisis.

Abdulghani Ali, a truck owner, says he had to stop his vehicle and take a forced holiday off work because for three times he queues at the station, only to run out of diesel before it is his turn to fuel up, emphasizing that he needs to find another way to make a living because this crisis does not look like its going away any time soon, and it has been getting worse every day during the last four weeks.

Khalil Al-Dhahbani, a farmer who arrived from a neighboring governorate, indicates that all his fellow farmers are depending on him to bring diesel back to the governorate, as they have invested into equipment and machinery to help improve their agricultural yield, but unable to use them due to the unavailability of diesel, stating that the decline in agricultural production will definitely rises the costs of vegetables and fruits and other crops, as any increase the farmers have to pay will be directly charged to the retailer and the consumer.

Ali Muhsen, driver of a transport truck, says that he had to pay 1500 Riyals per 20 liters of diesel, which is almost double the usual price, now he charges double the costs of transportation of goods especially since most other trucks are either stuck at emptied diesel pumps or off the roads as a result of the crisis.

Mitigating factors

Sources at the ministry of oil indicate that the ministry has ordered the purchase of a one-time increase of 40,000 tones of diesel to mitigate the diesel crisis, adding that the ministry is receiving credit ranging from US$ 300 – 400 million to finance the purchase of additional quantities of diesel from the international market. However, the government emphasized that the main problem affect diesel if the smuggling of diesel to outside the country, and having large companies in Yemen buying large quantities of diesel which is intended for the domestic market thereby creating a situation of crisis.

The World Bank in Yemen believes that Yemen should reduce its diesel subsidies in order to be able to help the financial situation and bring the Yemeni people one step closer to the reality that their government is spending heavily on subsidizing depleting oil resources, which is an unsustainable strategy resulting in harsher consequences in the near future.

It is evident that this shortage of supply will continue as long as the government does not take any immediate measures coupled with a long term strategy, which will be based on removal or decrease of subsidies in order to be able to increase the supply of diesel to the domestic market.