Saudi Arabia is reviewing its plan for energy subsidy cuts

By Vivian Nereim and Yousef Gamal El-Din on 12/10/2019

RIYADH (Bloomberg) - Saudi Arabia is reviewing its plan to cut domestic energy subsidies as it tries to balance its budget without hurting businesses that have relied on cheap power for a competitive edge.

“We have been asked by the government to re-study what would be the best pricing policy that we would adopt going forward,” Industry Minister Bandar Alkhorayef said in an interview with Bloomberg TV on Tuesday in Riyadh. The Energy Ministry, which is leading the project, aims to “strike the balance between how we can enable the industry and at the same time also be competitive.”

The world’s largest oil exporter has been gradually implementing energy subsidy cuts over the past few years, sending up the prices of electricity, gasoline and other fuels sold in the domestic market. The cuts are a key part of Crown Prince Mohammed bin Salman’s economic transformation plan, and officials say they’ve improved the government’s fiscal position and reduced domestic energy consumption.

Some businesses, contending with other austerity measures at the same time, have struggled to adapt.

In 2017, as the kingdom’s economy slipped into a contraction driven by oil output cuts, the government extended the timeline for the subsidy cuts to 2025. The current review aims to develop a predictable long-term program, Alkhorayef said.

The government plans to conduct a 2-billion riyal ($533 million) geological survey next year to encourage investment in the “totally untapped” mining sector, he said. It’s also at the final stage of drafting new legislation and policies for the industry, he said.

Alkhorayef was appointed in August to head the new ministry of industry and mineral resources. The entity is being split from the Energy Ministry and will begin operating independently Jan. 1.

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