Oman to Start Removing Utility Subsidies January Next Year

Oman, which hasn’t changed electricity costs for residential consumers since 1987, will start removing power and water subsidies for the biggest consumers as soon as next month as it tries to tame one of the Persian Gulf’s largest budget deficits.

Electricity subsidies will be removed completely by January 2021 for big non-residential consumers, including industrial, tourism, commercial and government entities. Utility tariffs will be raised gradually for all until the subsidies are completely lifted in 2025, and a national support system will be implemented to help low-income consumers.

Cash-strapped Oman has been hammered by the coronavirus pandemic as well as lower crude prices, forcing it to cut spending. The country has embarked on various measures to reduce spending and raise revenue including a plan to impose a 5% value-added tax from next year and tax the income of high-earning individuals beginning in 2022. It’s also planning to leverage its biggest oil block and expand visa-fee exemption to more countries in a bid to spur tourism.

Oman subsidizes electricity and water to all consumers without differentiating between rich and poor. Factories, farms and government entities have benefited from state subsidies for utilities, according to the ministry.

Subsidies for electricity and water total about $1.95 billion, according to the 2020 budget.

To cushion the blow for poorer Omanis, the Sultanate will adopt a new tariff structure aimed at helping low-income households. The program, based on a 2019 census, will take into account the monthly income of households as well as the number of people living at a single residence.

For example, households of nine people that earn 1,250 rials a month or less would be eligible for a subsidy. Households with monthly earnings above that would not qualify for relief, according to the ministry.

Oman’s electricity subsidy bill alone surged 15% from 2016 to 2020 and currently amounts to some 750 million rials annually. That’s about 5% of the budget and about 20% of the forecast deficit for this year, the ministry said. Left untouched, it said, the electricity subsidy will hit 900 million by 2025.

©2020 Bloomberg L.P.

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