Untouched for Half a Century, Kuwait Utility Prices to Rise

  • Citizens exempt from cost increase for expatriates, businesses
  • Oil-price drop is forcing Gulf nations to review policies

You know how much the drop in oil prices is hurting producers when Kuwait, one of the world’s richest nations, moves to raise utility prices for the first time in 50 years.

Parliament approved a government plan to increase the price of water and electricity for expatriates and businesses in the OPEC nation, but voted against including the homes of Kuwaiti citizens, local media reported on Thursday. A second and final round of voting is scheduled on April 26.

As the plunge in crude prices hurts producers’ public finances, Gulf Arab monarchies are trying to prepare their economies for the post-oil era without stirring protests from populations accustomed to decades of state largess. A poll published this week found that a majority of young Arabs want subsidies to continue, while nearly half thought that if they were removed, the resulting higher prices should apply only to expatriates.

Kuwait’s Parliament Speaker Marzouq Al-Ghanim, addressing reporters after Wednesday’s vote, said the assembly “will continue to pressure the government to shoulder its responsibilities in facing the economic crisis with responsible decisions that won’t hurt citizens,” according to the state-run Kuna news agency.

The only disagreement with the government was about extending the measure to Kuwaiti citizens, the speaker said.

The bill raises power charges in apartment buildings from the current flat rate of 2 fils (7 cents) per kilowatt gradually to as much as 15 fils, Agence-France Presse reported. For commercial uses, it will be raised from two fils per kilowatt to 25 fils per kilowatt.

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Kuwait isn’t the only Gulf Arab country taking steps to curtail one of the world’s most generous welfare systems.

The United Arab Emirates scrapped subsidies for transport fuels last year. Abu Dhabi, the richest emirate, introduced a levy of 3 percent to be collected on a monthly basis by the state utility company, though it also exempted citizens. Saudi Arabia’s Deputy Crown Prince Mohammed bin Salman said in an interview with Bloomberg that the “restructuring of subsidies” is expected to generate $30 billion a year by 2020.

Kuwait is the fourth-biggest producer in the Organization of Petroleum Exporting Countries. Its gross domestic product, adjusted for exchange rates, was more than $70,000 per head in 2015 -- ranking it among the world’s 10 richest nations, according to International Monetary Fund data. Officials also said the plan to raise utility prices aims to push users to conserve consumption rather than raise revenue.

Yet the government has repeatedly argued that the pace of energy consumption and public spending on subsidies was unsustainable.

‘Exceptional Challenge’

“The state is facing an exceptional challenge,” Finance Minister Anas al-Saleh told lawmakers, according to Kuna.

The government submitted a six-point plan to parliament last month that includes imposing corporate taxes and selling stakes in state-owned entities.

Gulf countries “are at the early stages of their fiscal reform programs, which will have to cover different sectors and areas of the economy to make a meaningful impact,” Monica Malik, chief economist at Abu Dhabi Commercial Bank, said in an e-mail.

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