Rise in diesel consumption sparks concerns in Algeria

29/07/2007

As Algeria's diesel consumption overtakes domestic production, the Algerian government looks for ways to reduce losses from the fuel's falling exports and rising imports.

By Mohand Ouali for Magharebia in Algiers – 29/07/2007

[Getty Images] Energy Minister Chakib Khelil said Algeria might increase the price of diesel

Diesel consumption rose by nine percentage points annually between 2000 and 2006, increasing from 3.6 million tonnes to 6.1 million tonnes, according to 2007 data from Algeria's Ministry of Energy and Mining, which announced on July 7th that consumption has overtaken national production capacity.

Algeria's five refineries produce a total of 22.2 million tonnes per year, including all fuel types. Diesel production in recent years has averaged 6.1 million tonnes per year, or 28% of total fuel production, according to the Energy Ministry.

The increased use of diesel comes at a high cost. According to Minister Chakib Khelil, "The expected increase in diesel consumption for 2007 will show itself as a drop in export receipts of roughly 265 million dollars." Additionally, the forecasted deficit of 100,000 tonnes of diesel per year will have to be made up by imports costing Algeria approximately 52 million dollars per year.

Costs are also high in ecological terms, as public health and the environment are threatened by the fuel's highly polluting nature.

Yet the growth of diesel consumption is explained largely by its low price at the pump. At present, one litre of diesel costs 13.70 Algerian dinars, about half the price of petrol. Use of petrol is split almost evenly between the transport and agricultural sectors. The growth in diesel consumption has been pronounced among car drivers, as the proportion of vehicles using diesel rose from 27% in 2000 to 31% in 2006.

The government has responded to the emerging diesel crisis by announcing its intention to discourage people from using the fuel. Algerian experts recommended at a 'study day' on July 7th that the government introduce measures to encourage the consumption of alternative fuels such as liquefied petroleum gas and natural gas, in combination with more stringent vehicle efficiency and emissions regulations, a tax regime on diesel vehicles, the development of other transport methods for passengers and goods, and the use of solar energy in rural areas.

The most significant factor in discouraging the use of diesel is a proposed price increase. Khelil made no secret of the plan, openly stating "We are going to try to change the price of diesel relative to other fuels."

"For the time being," a member of National Economic and Social Council told Magharebia, "what dissuades the government from increasing the price of diesel is the risk of worsening inflation, which would seriously undermine Algerians' purchasing power, which has already been severely compromised by general price increases for food products. The people are very disquieted by this, as has been demonstrated by the minor shortage of fuel in recent days, which gave rise to much speculation and concern."

"An increase in the price of diesel will set the market on fire," President of the Food Processing and Dairy Producers' Federation Abdelwahab Ziani told El Khabar on Wednesday (July 25th). Because 80% of merchandise transport vehicles run on diesel, an increase in the price of that fuel would result in a de facto price hike for all products on the market, Ziani said.