It seems that authorities in Bahrain are seriously contemplating privatising certain state-operated firms and services, and for good reason. However, the ambitious plan contains a controversial element, namely restricting subsidised goods to qualified individuals.

Shaikh Mohammad Bin Eisa Al Khalifa, head of the Economic Development Board (EDB), revealed the initiatives in an interview last week.

EDB, which is in charge of Bahrain's economic policies and strategies, plans to privatise state-owned Gulf Air. The announcement follows weeks of speculation after Bahrain Mumtalakat Holding Company announced transfer of the national carrier to the government. Set up in 2006, Mumtalakat is commissioned to run state-owned enterprises. The Government of Bahrain solely owns Gulf Air.

Not surprisingly, many legislators censured Mumtalakat's move of transferring Gulf Air to the government as proof of inability to carry out its mandate. The MPs rightly argue that Mumtalakat had to turn around loss-making state entities rather than stay away from them.

The trouble is Gulf Air is a loss-making airliner, with estimated operating loss put at $500 million in 2009. Against this backdrop, the authorities may need to entice an investor to hold a strategic stake in the company rather than rely on public ownership of the company. Obviously, investors like to invest money in promising enterprises.

Determination

In addition, the EDB chief uncovered new governmental determination to privatise petrol stations and a state-of-the art hospital under construction.

Petrol stations should prove to be popular with private investors, as they get opportunities to offer integrated services to the general public. These include selling grocery stuff and car repair services besides attracting fast-food outlets. Already, some investors own petrol stations in prime locations operating 7/24.

Surprisingly, the plan calls for privatising Kind Hamad Hospital despite the presence of numerous private clinics. In fact, many locals including expatriates, who in turn make up 52 per cent of Bahrain's 1.1 million population, prefer treatment at government-owned hospitals due to cost.

Still, a controversial part of Bahrain's EDB economic transformation scheme relates to restructuring the country's subsidised goods. Shaikh Mohammad advised in an interview with Reuters that the plan calls for restricting subsidised services such as electricity to the neediest, but in a phased manner.

Several weeks ago, Bahrain experienced a general public outcry. After that the authorities revealed their intention of ending subsidies extended to petroleum products. The price of premium fuel oil is fixed at $0.26 per litre for all.

Bahrain's programme comprises three major categories — namely, petroleum products, utilities and three strategic products, specifically red meat, chicken and flour. Total cost of the subsidy programme averaged around $1.3 billion annually in the past few years. Undoubtedly, this is a sizeable amount by virtue of comprising around 18 per cent of the annual state budget and 6 per cent of the country's gross domestic product.

Actual cost

Still, actual cost of the subsidy programme differs due to factors such as oil prices in the international market. Thus, cost of subsidy for petroleum products is calculated through subtracting prices in international markets from those at pumping stations. The authorities put cost of petroleum products category at $622 million in 2008 only to drop to $304 million in 2009. The difference reflects cost of petroleum products in international markets, with crude oil reaching a record $147 per barrel in July 2008 but then dropping sharply towards year-end reflecting emergence of the global financial crisis.

Certainly, subsidy is regarded as revenue lost or opportunity cost. Still, the authorities need to convince a weary general public that economic restructuring schemes are not meant to stay away from ensuring availability of public goods at reasonable prices.

 

The writer is a Member of Parliament in Bahrain.