Jordan Feeling the Impact of Increased Fuel Prices

UNCLAS AMMAN 000628 SIPDIS SENSITIVE SIPDIS STATE FOR EEB AND NEA/ELA E.O. 12958: N/A TAGS: ENRG EPET ECON JO SUBJECT: Jordan Feeling the Impact of Increased Fuel Prices REF: A) Amman 603 B) Amman 407 C) Amman 296 C) 07 Amman 1452 Sensitive but unclassified; please protect accordingly. Not for distribution outside the USG. ¶1. (SBU) Summary: After the decision to lift remaining fuel subsidies went into effect on February 8, the prices of fuel derivatives were set to market prices, rising by 3% to 110.9% (Ref B) depending on the product. Liquefied Petroleum Gas (LPG) will remain partially subsidized until April, when the cold season ends. In anticipation of the GOJ's decision, Jordanian consumers stocked up on cheaper fuel products before the price hikes went into effect, causing a significant drop in consumption in February. Transport operators have also demanded rate increases to compensate for higher fuel prices. End Summary. ¶2. (U) On February 8, the GOJ implemented its decision to lift fuel subsidies and begin the switch to unleaded fuel, by replacing regular leaded (87 octane) gasoline with regular unleaded (90 octane) gasoline (refs A, B). Retail prices of fuel products rose accordingly for the month of February 2008: Item New Price % Increase -------------- -------------- -------------- Premium gasoline, 660 fils/liter 3% Unleaded (95 Octane) ($3.53/gallon) Regular gasoline, 575 fils/liter 33% Unleaded (90 Octane) ($3.07/gallon) Kerosene 555 fils/liter 76% ($2.97/gallon) Diesel 555 fils/liter 76% ($2.92/gallon) Heavy fuel oil (industry) 348 JD/ton 110.9% ($491.52/ton) *LPG (12.5 Kg) 6.5 JD/cylinder 52.9% ($9.18/cylinder) Fuel oil for ships 348 JD/ton ($491.52/ton) Jet fuel-local companies 540 fils/liter ($2.89/gallon) Jet fuel-foreign companies 545 fils/liter ($2.91/gallon) Jet fuel-charter flights 560 fils/liter ($2.99/gallon) Asphalt 364 JD/ton ($514.12/ton) *The price of LPG cylinders will remain partially subsidized until March 31, after which prices will be set according to international prices. ¶3. (SBU) The increase in fuel prices has caused the GOJ to adjust transport tariffs. Taxi charges are now set at 100 fils ($0.14) per 54 meters rather than 60 meters. Ministry of Industry and Trade Secretary General Montaser Oklah said that the transportation sector SIPDIS had overestimated and was taking advantage of the impact of the fuel increases, particularly for gasoline, asking for 45% increases in tariffs. The Jordan Petroleum Refinery Corporation (JPRC) has also adjusted rates for the transport of crude oil within Jordan based on the amounts of diesel used by trucks. ¶4. (SBU) A committee composed of representatives from the ministries of energy and mineral resources, industry and trade, and JPRC was established and tasked to meet monthly to determine the fuel prices for the coming month, based on the average market oil prices for the preceding 30 days, factoring in transportation and handling costs. The committee's mandate ends in two years, after which prices will be left to the market to decide. JPRC CEO Ahmed Refai asserted to Econoff February 21 that the committee would be guided by prevailing world market prices. ¶4. (SBU) Refai also told Econoff that total consumption dropped about 25% in February, reflecting that consumers had stocked up on fuel before the decision to eliminate subsidies went into effect. He said that demand used to be around 15,000-20,000 tons/day, but now stood at about 6,000 tons/day. For LPG, average daily distribution dropped to about 28,000 cylinders, compared to 138,500 cylinders before the price hike. As a result, JPRC has been building up its reserves, which Refai noted was not necessarily a bad thing. He also projected that consumption would eventually return back to normal after the initial shock of the price hikes subsided. ¶5. (SBU) Refai was particularly pleased that the GOJ finally agreed, with the Prime Minister's assistance, on signing a service agreement with JPRC, which will allow the refinery to continue providing services after its concession ends March 3 (ref C). The agreement will likely be extended to the end of 2008 and then become renewable every three months, until the new distribution framework is established to open up the market. Visit Amman's Classified Website at: http://www.state.gov.sgov.gov/p/nea/amman/ Hale