Abu Dhabi leads the way with tariff reform

20 November 2014

Enforcing new utility tariffs may provide stiff challenge for government

Abu Dhabi’s decision to reform electricity and water tariffs is one that should be welcomed. While subsidy reduction and the introduction of charges for water was inevitable at some point, the UAE capital’s decision to make the change before many of its GCC neighbours and implement new tariffs from 2015 is a bold move. However, the hard part is still to come.

While GCC governments have been aware for close to two decades that subsidy reform needs to be addressed, the rising price of oil and the influx of expatriates meant local citizens could be spared the burden of paying for utilities. However, with residential and industrial growth continuing to rise at a rapid rate, the demands on public budgets are becoming vast and unsustainable. The impact of utility subsidies on government accounts have become even greater in recent months as oil prices have plummeted.

Abu Dhabi’s decision to lead the GCC on its path to subsidy reform is also a matter of timing. In addition to falling oil prices, the emirate is facing a capacity crunch for electricity and water in the next couple of years, and a reduction of consumption is important to maintain a healthy demand-supply balance and potentially remove the costs of having to build new utilities.

While the decision to reform tariffs is a brave one, implementing them will prove the real challenge. As other countries have found, introducing new costs for any essential services can be met by resistance. Now the first step has been taken, it is important Abu Dhabi is able to ensure it has its people on board.  

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