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Imported petroleum bill goes up

Dec 03,2017 - Last updated at Dec 03,2017

It is estimated that the cost of Jordan’s imported oil and derivatives will reach JD2.1 billion in 2017, up 17 per cent from the previous year.

Only 2.5 per cent of this cost is due to an increase in imports quantity, as a result of economic and population growth, an indication that the global petroleum price has risen by 14.5 per cent.

Until recently, the price of petroleum was fluctuating around $50 or less per barrel. It now rose to $62 or more.

There is no reason to prevent the price from reaching $62 or more.

Furthermore, there is no reason to prevent the price from reaching $100 per barrel in a not too far future. If this happens, Jordan will be back to its energy crisis, especially when production of clean energy, solar and wind, is still in its initial phase.

The government used to tell citizens that electricity tariff will not be raised as long as the price of petroleum does not exceed $55 per barrel.

If this price is applied in the present tariff, it will put the National Electricity Petroleum Company (NEPCO) on a break-even basis. Then an increase in the tariff of around 12.5 per cent will very soon be needed if world prices continue to rise. The present Saudi-Iranian situation could threaten the flow of oil to the West. Hence the losses of NEPCO, a 100 per cent government owned company will soar to an unacceptable state of affairs. 

The rise in the cost of imported oil has several consequences, most of which are on the negative side. Local fuel prices will rise from one month to another. Electricity and water tariffs will have to be hiked, budget deficit will rise, inflation rate and the cost of living will push the government towards more borrowing. Generally speaking, such a development — if this happens — will amount to a setback in Jordan’s endeavour of reaching or approaching self-sufficiency.

The only benefit of higher world prices of petroleum that one may think of is that it may encourage more interest in the renewable energy industry.

 

All the figures used in this column are rough estimates made only to clarify the possible outcome. They are not real numbers. They can only point to the possible direction. The actual figures will have to wait until official statistics are issued.

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