the politics of energy policy in the gulf arab states ... · cambridge eprg presentation. june 11,...
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www.electricitypolicy.org.uk
The Politics of Energy Policy in the Gulf Arab States: Shortage and Reform in the
World’s Storehouse of Energy
Jim KraneCambridge EPRG presentation
June 11, 2012
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Contents
• Motivation and Overview
• Gulf Energy Consumption Dynamics
• Theory
• Research Plan
• Preliminary Results
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The six Gulf Cooperation Council (GCC) states
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4
Section 1
MOTIVATION and OVERVIEW
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Overview
• GCC is expected to supply the world with hydrocarbons• Regional consumption threatens that assumption• Consumption is exacerbated by government subsidies• Five of the six states are short of natural gas
– Three are importing now. Four soon. Five possible.
• Theory is pessimistic about reform – So are prevailing opinions
• I want to ask: Why have the Gulf monarchies been unable to reform energy subsidies, even as rising domestic consumption threatens their exports?
Section 2
GULF ENERGY CONSUMPTION DYNAMICS
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Saudi Arabia Depletion profile
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Kuwaitis pay 5% of electricity cost
0
5
10
15
20
25
30
35
40
2004 2005 2006 2007 2008 2009 2010 2011
fils pe
r kW
h
Kuwait Electricity: Government's Cost vs. Consumer Price 2004‐2011 (MEW)
Cost of electricity Price of electricity
9
GCC countries rank high among global subsidizers
10
$0
$10
$20
$30
$40
$50
$60
$70
Iran
Saud
i Arabia
Russia
India
China
Egypt
Vene
zuela
Indo
nesia
UAE
Uzbekistan
Iraq
Kuwait
Pakistan
Argen
tina
Ukraine
Algeria
Malaysia
Thailand
Banglade
shMexico
Turkmen
istan
South Africa
Qatar
Subsidy value (US$ bn)
Fossil Fuel Subsidies by country and type, 2009 (IEA 2010)
Oil Gas Coal Electricity
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
Kuwait
UAE
Qatar
Saud
i Arabia
Iran
Turkmen
istan
Vene
zuela
Libya
Uzbekistan
Iraq
Algeria
Russia
Kazakhstan
Ecuado
rEgypt
Malaysia
Ukraine
Argen
tina
Thailand
Azerbaijan
Per capita fossil fuel subsidies in USD 2009 (IEA)
Section 3
THEORY
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Rentier State Theory (RST)
• RST is the chief construct used to examine GCC regime behavior and state-society relations– Useful macro-level explanation that remains surprisingly resilient– Rents substitute for democracy in the social contract– State unable to tax or “extract” from citizens (without triggering
democracy quandary)– “Social contract won’t allow it” is frequent refrain in the Gulf
• Subsidies difficult to reform in autocratic no-tax context– Theory and popular opinion (conveyed in survey results) holds that
cheap energy is a “right”
• Legitimacy-versus-sustainability dilemma
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0
10000
20000
30000
40000
50000
60000
70000
80000
90000
100000
0
10
20
30
40
50
60
70
80
90
GDP pe
r capita (U
SD)
% oil rents in GDP
Oil rents in GDP vs GDP per capita (World Bank)
Oil rents % of GDP (LEFT scale) GDP per capita (US$) (RIGHT scale)
High oil rent in GDP High GDP per capita
Low oil rent in GDP High GDP per capita
High oil rent in GDP Low GDP per capita
Low oil rent in GDP Low GDP per capita
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Section 4
RESEARCH PLAN
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Research objective
• Document evidence (or likelihood) of subsidy reform, especially on electricity delivered to citizens, in a way that confronts domestic energy demand– Frame the results in terms of RST and expected regime (and
citizen) behavior– Contrast behavior of Gulf monarchies with that of other
hydrocarbon exporters (including those facing depletion)
• This serves two purposes:– To document attempts to preserve HC-export economic models– To test Rentier State Theory
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Datasets
1. Statistical Data: National and international sources2. YouGov Public Survey: 800+ respondents
- Status: Collection complete
3. Expert Elicitation 1: Predictions of energy policy- Status: Collection complete in Summer 2012; 82 responses
4. Expert Elicitation 2: UAE policymakers’ predictions- Status: Collection complete; 35 responses
5. Interview Data: Several dozen subjects in key sectors; four countries- Complete in Summer/Fall 2012
6. Focus Group Data: In-depth public attitudes in Kuwait and UAE- Two complete. A third may be attempted
Section 5
PRELIMINARY RESULTS
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Expert Elicitation demographics*
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Bahrain54%
Kuwait2016%
Oman1310%
Qatar2218%
Saudi Arabia2621%
UAE3831%
124 Responses by Country; 79 Respondents who chose 1‐6
countries
*As of May 2012. EE is ongoing.
Bankers 6
Academics 11
Journalists 9
Consultants 8
Economists 4
Government/Ministry 6
Regulator 1
Minister 1
Government (research) 2
IPPs 4
IOCs 3
NOCs 6
Analysts (Think Tank) 4
NGOs 4
Utility operators 4
Expert Elicitation demographics II
19
0% 10% 20% 30% 40% 50% 60% 70% 80%
Yes
No
Are you a GCC citizen?
Bahrain00%
Kuwait4
17%
Oman6
26%
Qatar29%
Saudi Arabia3
13%
UAE8
35%
Citizenship of 23 GCC respondents
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EE results: Tariff hike by 2020?
3.25
4.29 4.27
4.80
3.19 3.11
3.82
1
2
3
4
5
6
7
Bahrain Kuwait Oman Qatar KSA UAE GCC
1=Virtually certain; 7=excep
tion
ally unlikely
Will rising consumption trigger residential electricity tariff hike?
(lower score=more likely)
2.75
3.94
2.92
3.45
2.712.45
3.04
1
2
3
4
5
6
7
Bahrain Kuwait Oman Qatar KSA UAE GCC
1=Virtually certain; 7=Excep
tion
ally unlikely
Will rising consumption trigger comm'l/industrial electricity tariff hike? (lower score=more likely)
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EE results: Economic threat and oil price
3.00
2.56 2.62
4.35
2.18
2.84 2.92
1
2
3
4
5
6
7
Bahrain Kuwait Oman Qatar KSA UAE GCC
1=Strongly agree; 7=Stron
gly disagree
Does energy consumption growth threaten the economy? (lower
score=stronger threat)Expert Oil price 2020
Ed Morse (Citibank) $51 - $100
Mehdi Asali (OPEC) $101 - $150
Mustafa Babiker (ARAMCO) $101 - $150
Mike Wood (Kuwait MEW) $101 - $150
Mohammed al-Rumhy (Oman Minister of Oil and Gas) $101 - $150
Simon Williams (HSBC) $101 - $150Caroline Bain (EIU CommoditiesEditor) $101 - $150John Cunneen (ElectricityRegulator, Oman) $151 - $200Bruce Smith (Abu Dhabi Water and Electricity Authority) $151 - $200
Badr Jafar (Crescent Petroleum) $251 or more
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Public Survey: Demographics
0
5
10
15
20
25
30
0
100
200
300
400
500
600
700
popu
latio
n (m
)
Num
ber o
f res
pons
es
Public survey responses by country/ population
Respondents by country population (m)
0%
10%
20%
30%
40%
GCC Bahrain Kuwait Oman Qatar KSA UAE
Public survey responses by age
18-24
25-29
30-34
35-39
40+
0%5%
10%15%20%25%30%35%
Income of public survey respondents (YouGov only)
Bahrain
Kuwait
Oman
Qatar
KSA
UAE
GCC
Perspectives on subsidy rationale: Experts vs. the public
23
0%
10%
20%
30%
40%
50%
60%
70%
80%
Why did the government pay a portion of your electricity bill?
GCC citizens
Experts
0%
10%
20%
30%
40%
50%
60%
70%
80%
Why did the government pay a portion of your electricity bill (UAE)?
UAE citizens
UAE policymakers
Willingness to pay more for electricity (scenario 1, no explanation)
24
0%
10%
20%
30%
40%
50%
60%
Very willing
Quite willing
Neither willing nor
opposed
Quite opposed
Very opposed
Don’t know
How willing are GCC citizens to paying full electricity cost (EE and
public survey)
GCC citizens
Experts
0%
10%
20%
30%
40%
50%
60%
Very willing
Quite willing
Neither willing nor
opposed
Quite opposed
Very opposed
Don’t know
How willing are UAE citizens to paying full electricity cost (UAE policymakers and public survey)
UAE citizens
UAE policymakers
Public Survey: Combined results
25
0%
5%
10%
15%
20%
25%
30%
Strongly support
Tend to support
Neither support nor
oppose
Tend to oppose
Strongly oppose
Willingness to pay cost‐reflective tariffs under all three scenarios
(GCC)
Full cost only
Full cost with explanation
Full cost with compensation
2.30
2.40
2.50
2.60
2.70
2.80
2.90
3.00
3.10
0%
5%
10%
15%
20%
25%
30%
Willingness to pay cost‐reflective tariffs under all three scenarios
(GCC)
Strongly support
Tend to support
Neither support nor oppose
Tend to oppose
Strongly oppose
mean
Arab Spring effects and sensitivity to citizen opinion on tariffs in UAE
Text response: “Frankly, much, much, more sensitive and less willing to raise prices or antagonize anybody, anywhere ,at any time.”
26
1
9
15
More willing to raise electricity and water prices
Neither more nor less willing to raise electricity and water prices
Less willing to raise electricity and water prices
Have the recent events of the Arab Spring made the UAE government ... (25 responses)
6
15
5
0
0
Extremely sensitive
Very sensitive
Neither sensitive nor insensitive
Very insensitive
Not at all sensitive (government pays no attention to citizen opinion)
From a policymaking perspective, how sensitive is the UAE government to citizen opinion on these issues? (26 responses)
Future orientation of the public vs. implications of current gov’t spending
27
0%
10%
20%
30%
40%
50%
60%
70%
Spend all now
Spend most now, save little for future
Spend half, save half
Spend little now, save most
Save all for future
Saudi citizen spending priorities versus experts' assessment of
government spending
Saudi public Saudi experts (EE)
0%
10%
20%
30%
40%
50%
60%
Spend all now
Spend most now, save little for future
Spend half, save half
Spend little now, save most
Save all for future
UAE citizen spending priorities versus experts' assessment of
government spending
UAE public UAE experts (EE) UAE policymakers
Expert assessments of government spending and citizen preferences for government spending do not match
28
1.00
1.50
2.00
2.50
3.00
3.50
4.00
Bahrain Kuwait Oman Qatar KSA UAE
Future orientation: Citizen preferences vs expert
assessment (lower score=spending focused on current consumption)
citizen mean experts mean
0%
10%
20%
30%
40%
50%
60%
Spend all now
Spend most now, save little for future
Spend half, save half
Spend little now, save most
Save all for future
Omani citizen spending priorities versus experts' assessment of
government spending
Omani public Oman experts (EE)
Includes Oman's energy minister
Conclusion: Findings → Theory
• RST is holding in GCC– Arab Spring is buttressing it – Governments more beholden than citizens– Cracks are showing below the macro level– The UAE most likely to reform (Dubai already started)– Wide divergence among countries expected to act in unison
• The big question: Will the theory lose explanatory power before the demise of the Gulf rentier economies themselves?– Upended by government reforms?– Or by the end of the Gulf monarchies?
THANK YOU!QUESTIONS?
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Rising oil price needed to balance gov’t budgets
$0
$20
$40
$60
$80
$100
$120
BAHRAIN KUWAIT OMAN QATAR KSA UAE
GCC 2012 breakeven oil prices (IIF)
$0
$20
$40
$60
$80
$100
$120
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
KSA Breakeven Oil Price 2005‐15 (IIF)
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SUMMARY → Quick Hits
1. Citizens believe cheap electricity is their share of the national resource
2. Experts: UAE most likely to reform tariffs by 2020 (Qatar least)
3. Experts say Saudi Arabia faces direst economic threat
4. Experts more pessimistic about public acceptance of tariff increases than the public itself
5. Citizens more willing to pay cost-reflective tariffs when given an explanation
6. Arab Spring effects – increased gov’t caution
7. Citizens more future-oriented than experts’ assessment of government policy (albeit less likely to support CR tariffs)
Willingness to pay more (scenario 2: to preserve resources for export)
34
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
Strongly support Tend to support Neither support nor oppose
Tend to oppose Strongly oppose Don’t know
Public Survey result: Willingness to pay full cost of electricity to conserve energy for export
Kuwait
Oman
Qatar
KSA
UAE
GCC
Support rises
Strong opposition
drops
Future orientation
35
2.00
2.20
2.40
2.60
2.80
3.00
3.20
3.40
3.60
0%
10%
20%
30%
40%
50%
60%
Bahrain Kuwait Oman Qatar KSA UAE GCC
How best to distribute resource benefits? (public survey)
Spend it all now Spend most now, save a little for future generations
Spend half, save half Spend a little now, save most for future generations
Save it all for future generations Mean (RH scale; higher = more future orientation)