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Dubai — Saudi Arabia, the world's largest crude exporter, is set for a new round of domestic fuel and energy price increases from the middle of this year, as the government seeks to drastically cut spending on subsidies, sources in the country said Tuesday.

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Price increases of around 25-30% for gasoline and diesel have been discussed, the sources said, but the government is still waiting for approval and to establish a mechanism which will protect lower income households from any sharp jump in costs.

The ministry of finance was not available for comment.

"Along with electricity price hikes, we see an increase of 30% for gasoline coming in July too. We have had to reshape our forecasts for 2017 based on this," one source at a major international bank in Saudi Arabia said.



Increases of up to 40% had been widely expected to be included in the kingdom's 2017 budget late last year, but didn't materialize.

Instead the government announced a few details of its planned economic reforms up to 2020, known as the Fiscal Balance Program, which it hopes will save around Riyals 362 billion ($97 billion).

If the increased fuel and power prices are confirmed, it would be the second major hike after the kingdom's dramatic change in policy last year.

In its 2016 budget, it increased long-standing prices for gasoline and domestic gas for power generation as well as ethane feedstock as part of a broader program to cut subsidies and reduce the budget deficit.

The 2016 price rise saved the government as much as Riyals 29 billion, Riyadh-based Jadwa Investments said in a research note Monday. With additional increases in prices by 2020, it could save Riyals 209 billion.

The price of 95 RON gasoline was raised 50% to Riyals 0.9/liter (24 cents/liter), while that of 91 RON gasoline was raised two-thirds to Riyals 0.75/liter.

Gas prices were increased to $1.25/MMBtu from 75 cents/MMBtu, and ethane, the main feedstock for petrochemicals, to $1.75/MMBtu, more than double the long-standing fixed price of 75 cents/MMBtu.

The delay comes as the government prepares a Household Allowance Program, which aims to protect lower income Saudis from the effect of the reforms.

Under the scheme, households are split based on earnings to determine the amount of allowance given.

The first round of allowances is expected to be paid in June, ahead of the increase, the Riyadh-based Jadwa Investments said in a research note Monday.

Strategically important industries such as petrochemicals are also expected to be shielded from the price reforms until at least 2020, Jadwa said.

--Adal Mirza, adal.mirza@spglobal.com
--Edited by Maurice Geller, maurice.geller@spglobal.com