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Monday, March 8, 2021

Qatar government foots $642m bill for home electricity each year

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Photo for illustrative purposes only.
Photo for illustrative purposes only.

Though electricity bills went up across Qatar last fall, the government still covers an average of 45 percent of our energy consumption, according to credit ratings agency Moody’s.

But that may not be the case for much longer, as Qatar faces fresh pressure to cut spending amid its first deficit in 15 years.

In a new report, Moody’s said the typical Qatar household pays an average of 2.3 cents per kilowatt hour (kWh), even though that costs 4.2 cents to generate, the Gulf Times states.

That means the government covers US1.9 cents for every kWh consumed by residential users.

Using 2014 consumption figures published in media reports citing Moody’s, that adds up to $641.9 million in subsidies, or some 5 percent of the $12.78 billion deficit Qatar is projected to run this year.

High subsidy bill

Qatar’s overall subsidy bill is much higher than that, as the government also subsidizes electricity for industrial and commercial users, as well as water consumption and petrol.

New Woqod petrol station
New Woqod petrol station

Subsidies have long been regarded as a drag on the balance sheets of GCC countries. However, Moody’s is one of the first publications to quantify some of the specific costs.

The agency is one of several organizations encouraging Qatar and the GCC countries to curb subsidies as low oil prices erode government revenues.

In a 2014 paper, the IMF argued that discounting prices for electricity, fuel and other consumer goods are an inefficient way of sharing a country’s wealth with residents because it disproportionately benefits well-off individuals with large homes and vehicles.

Options

Theoretically, Qatar could maintain its subsidies and run deficits for several years, covering the shortfall by liquidating assets held by its sovereign wealth fund.

Photo for illustrative purposes only.
Photo for illustrative purposes only.

But the government has previously said it would prefer to borrow money and leave its savings untouched.

Still, earlier this month, Moody’s warned that it could downgrade Qatar’s government bonds – which would raise the country’s borrowing costs – unless officials produce a credible and sustainable way of cutting expenses.

In September, Qatar’s finance minister said the government has no plans to reduce consumer subsidies.

However, local utility firm Kahramaa quietly raised prices for electricity and water last fall. More recently, petrol prices were hiked up in January.

Elsewhere, some other user fees have gone up, including the rates for sending parcels and renting a PO Box from Qatar Post.

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