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