People queue for fuel as subsidies cuts are announced

Anxious motorists have been queuing at Syria’s petrol stations in recent weeks, concerned about rising fuel prices after the government announcement that state diesel subsidies would be phased out by 2010. Prime Minister Naji Otri was quoted as saying that hugely expensive energy subsidies simply “cannot be endured any longer.” Promised subsidy cuts – along with dwindling domestic reserves, soaring global oil prices and illegal smuggling of subsidised diesel out of the country – has moved some analysts to predict a quadrupling of diesel prices within five years. Syria currently buys diesel at a rate of around SYP30 to SYP35 per litre (about $0.60) and sells it to citizens at a rate of SYP7 ($0.14). Total state expenditure on diesel subsidies over the past five years has averaged between $1 billion and $1.5 billion per year. The prime minister recently told state-run daily Al-Thawra that subsidies would be gradually dismantled in an effort to bring the domestic price of diesel into line with global rates. According to local economists, the move will result in a rise in the price of diesel from $0.14 per litre to $0.60. The promised reduction is expected to save the government some $4 billion over the next half-decade. But many fear that a drastic rise in fuel prices could have dire social consequences for a population whose average income is only $100 per month. "I have two mini-buses that run on diesel,” said Abu Yousef, a 59-year-old bus driver in Damascus. “If the government stops subsidies, I’m sure the price of a bus ticket will rise. Everything is related to the price of diesel.” Yousef went on to note that “Transport, agriculture, industry and heating are all heavily dependent on the price of diesel.” Production shortfall fuels rise in costs In the past five years, Syria has consumed an average of 7 million tonnes of diesel per year, 4.5 million of which comes from domestic production, while another 2.5 million tones is imported at an annual cost of around $2 billion. Overall domestic oil production, meanwhile, has fallen from its peak 1996 levels of 604,000 barrels per day (bpd) to a current level of 470,000 bpd. While petroleum still accounts for 75 percent of Syrian exports, this proportion is expected to fall to a mere 10 percent by 2010. Declining oil output has been accompanied by a surge in domestic consumption, an increase of some 47 percent over the past 20 years. According to Otri, however, nearly a quarter of Syria’s subsidised diesel is smuggled out of Syria to neighbouring countries – mainly Turkey and Lebanon – where it can be sold at much higher prices. A litre of diesel in Lebanon, for example, costs $0.63, while in Turkey motorists generally pay up to $1.50. Some citizens, meanwhile, express anger that shortfalls caused by smugglers will be passed on to consumers. “I can’t understand the relationship between the fuel crisis and smuggling,” said one Damascene taxi driver, who declined to give his name. “Should the citizen shoulder the responsibility for combating smuggling?" Queuing now to save later The past few weeks have seen motorists queuing at petrol stations, in hopes of stocking up on the vital commodity. Concerns about domestic shortages and rising prices – not to mention possible international sanctions on Damascus in the wake of a UN report on the assassination of a former Lebanese prime minister – have left many unsure of the future. "I’ve run this station for 10 years,” said Summar Nassar, a 38-year-old petrol station manager in Damascus. “But this is the first time I’ve faced difficulties getting enough diesel fuel.” “If prices increase much, car owners will simply start travelling by bus,” he added. Easing public apprehension Syrian Oil Minister Ibrahim Hadad recently told the state press that his ministry planned to build a new petrol refinery in the eastern governorate of Deir Ez-Zour, with the aim of offsetting the current shortage.. In an effort to calm public anxiety, he added that there was “no crisis in petrol supplies,” only a “misdistribution of petrol following increases of oil prices in neighbouring states.” Progressive economists in Damascus have long urged the end to the subsidies policy which they argue is inefficient and a massive burden on the national economy. However, many recognise the social costs that such a move will bring. “Abolishing the subsidies will lead to inflation and a drastic increase in living costs,” said Abdul Kader Husrieh, a Syrian economist. “However, given the current unbearable cost of subsidies, their gradual abolishment seems to be the only option.” In response to popular concerns, the government announced that the subsidies reductions would be accompanied by a number of measures designed to limit the social consequences of rising prices. According to statements from the prime minister, state employees would be given purchase-slips enabling them to buy 200 litres of diesel per year at subsidized prices. Plans were also announced to increase state salaries by 15 percent annually for the next five years. Mini-bus drivers, meanwhile, would be exempted from tax on their vehicles so current ticket prices could be maintained. Diesel fuel sold to bakeries, too, will remain at subsidised levels to avoid jumps in bread prices, while 20 percent of the money saved from the cuts will go towards helping low-income segments purchase diesel. Otri was quoted as saying that, as subsidies are gradually phased out, “more social aid will be offered, in order to achieve a balance.”