SAUDI AUTHORITIES STILL MULLING OVER HOW TO

C O N F I D E N T I A L RIYADH 000176 SIPDIS E.O. 12958: DECL: 02/28/2020 TAGS: EFIN ENRG EPET ECON PREL SA SUBJECT: SAUDI AUTHORITIES STILL MULLING OVER HOW TO APPROACH FUEL SUBSIDIES REF: 09 RIYADH 916 Classified By: Ambassador James B. Smith for reasons 1.4 (b) and (d) ¶1. (C) Assistant Minister of Petroleum Prince Abdulaziz bin Salman told EconCouns on February 8 that his ministry would love to see domestic prices for oil (and gas) raised. The Ministry of Petroleum, like many other ministries, acutely understands the clear economic benefits of raising prices, which would reduce the drain on the budget, and induce greater conservation, which in turn would free up more oil for export. Saudi economic ministries see the same persuasive case for imminent action to raise electricity tariffs to abate the incessant high growth in domestic electricity demand, which consumes an estimated 1.5 million barrels of oil and oil equivalent per day. As the Prince reminded, however, increasing domestic energy prices remains a politically sensitive issue. The government wants to minimize potentially destabilizing political opposition by adopting a carefully staged approach. ¶2. (C) Prince Abdulaziz also noted that the task of adopting a strategy on energy prices is complicated by the fact that no single SAG entity is in charge. The Ministry of Finance attended the G20 meetings in Pittsburgh, and reported the decision of leaders to design plans to phase out subsidies. Prince Abdulaziz said his ministry, like other SAG entities, has been waiting on the Ministry of Finance to define the tasks and the financial issues involved. A further complicating issue is that the Saudi government is in the midst of trying to determine how to introduce electricity tariffs that would promote the adoption of clean energy, particularly from solar. ¶3. (C) Ministry of Finance officials are working on the issue, but are waiting on the outcome of an IEA-OPEC-OECD-World Bank meeting expected to take place later in February or March to analyze the scope of energy subsidies and draft suggestions to implement this initiative, as called for in the Pittsburgh G20 communiqu. South Korea has been talking to Saudi Finance Ministry officials about scheduling a workshop, perhaps in April or May, to discuss the technical details of the subsidy issue. Finance officials have begun telling Western embassies that they want to make sure that G20 discussions about subsidies discuss all aspects of this issue, including subsidies provided by producers and consumers. They also want to factor in subsidies to support public transportation, which the SAG is looking to reintroduce into major cities to reduce congestion and fuel consumption. ¶4. (C) Comment: The Saudi economic ministries clearly understand the business case for increasing domestic fuel prices, and recognize the clear economic benefits on a number of fronts of implementing a plan sooner rather than later. Before they proceed, they would prefer to sort out how they want to support renewable energy, particularly solar. They have been working very hard on implementing regulations to do so, which we understand may be presented to the Council of Ministers as early as June. The Saudi Government also needs to sort out which agency will be in the lead, which is likely to take a few more months. We get the clear impression that Saudi economic ministries believe they will be in a better position to make the case to the Council of Ministers to take the politically sensitive step of increasing prices for energy once they have completed these steps. We believe the best way to encourage the Saudi economic ministries to continue pressing forward is to explore ways of helping them resolve the technical issues, which will bolster their case within the SAG. In that regard, it would be very useful to receive more information from Washington agencies on where the World Bank-IEA subsidy analysis stands. We would also welcome any information that might be available about the workshops the Korean government may be planning in preparation for this fall's G20 meetings. SMITH