Dubai’s decision to increase power and water tariffs will not be enough to reduce consumption levels in the emirate, according to industry observers.

Dubai Electricity & Water Authority (Dewa) is due to introduce a new sliding scale of tariffs from 1 March, based on consumption levels.

The current tariffs of AED0.20 ($0.005) a kWh for electricity and AED0.03 for a gallon of water will remain the same for most domestic, commercial and industrial consumers. From the beginning of March, heavier users will have to pay up to AED0.33 a kWh for power and up to AED 0.04 for a gallon of water.

However, UAE nationals will be exempt from the changes and will continue to pay significantly lower rates than expatriates. Locals currently pay AED0.07 a kWh for electricity and AED0.015 for a gallon for water.

“The biggest criticism you might make is that it does not apply to Emiratis,” says one Abu Dhabi-based industry source. “They are the biggest users by a long way.

“Unless they include Emiratis, it does not really make sense, especially for water.

“Their per capita consumption is much higher because of the kind of accommodation they live in.”

Another source in Dubai agrees, adding that the government itself is one of the largest consumers. “Even though they are a minority of the population, locals are the majority of water users,” she says. “The biggest users are the palaces. The government is now pushing sustainability in Dubai and Abu Dhabi. It needs to get a handle on government consumption.”

Dewa’s decision to change its tariff structure was triggered by its poor financial performance in 2007. The authority made a loss of AED223m over the first seven months of the year, in part because tariffs have been unchanged since January 1998, even as consumption levels have risen.

At the same time, a lack of gas feedstock has forced Dewa to import power from neighbouring Abu Dhabi and run its power plants on fuel oils, which are more expensive than gas.

It would be politically difficult to extend the tariff hikes to UAE nationals, because of the booming economy. “With the high oil price, it is a very difficult decision to take because the state is rich,” says one water industry source.

Dubai’s tariffs were already the highest in the GCC. In Abu Dhabi, UAE nationals pay AED0.05 a kWh for domestic electricity consumption. Expatriates pay AED0.15 a kWh, as do commercial and industrial consumers.

Locals do not pay anything for domestic water use and expatriates are charged AED0.01 a gallon.

Dubai’s move could encourage other emirates to look at changing their tariffs too.

But with expatriates accounting for about 80 per cent of its population, it is probably only Dubai that can afford to exclude locals from the changes (MEED 19:2:08).

Power consumption in Dubai is thought to be 20,000 kWh a year for every person in the emirate, while water consumption is 130 gallons a day per person.

Dewa could not be reached for comment.