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Saudi Arabia’s subsidy reform takes a bite from the industry

Five companies have released their expected costs following the budget announcement

Gulf News

Riyadh: Due to the recent energy subsidy reforms in Saudi Arabia, many companies have announced to the Saudi stock exchange that they are expecting a cut in profitability in the first quarter of 2016.

Saudi Arabia on Monday released the budget for 2016 with a predicted deficit of $87 billion (Dh319 billion), which include reforms that cut energy subsidies. This has resulted in an increase in gasoline prices and electricity tariffs. A meagre blanket increase in water has been applied as well, and energy prices have been increased for industrial customers.

Five companies have released their expected costs following the budget announcement. Saudi Arabia Fertilizers Co (SAFCO) said the announcement has brought in an 8 per cent increase in production costs, Saudi Basic Industries Corp (SABIC) costs will increase 5 per cent, and Saudi Arabia’s Yanbu National Petrochemical Co (Yansab) said it will see an increase of 6.5 per cent. Saudi Arabia’s National Industrialisation Co (Tasnee) and Saudi Cement Co said the changes will cost them 190 million riyals (Dh186 million) and 68 million riyals respectively.

Farouk Soussa, Citi’s head of Middle Eastern economics said, “Privatisation is positive, it can create a source of funding and let the private sector do more of the heavy lifting for growth. But this is a rather inopportune moment, markets are depressed, and there could be a tussle later when the market recovers.”

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