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Chart 16: Breakdown of non-hydrocarbon fiscal revenues Chart 17: Budgeted non-oil subsidies form a small portion of spending 40 ma Non-oil revenues (SARbn) SARbn Pr ——— % of total non-oil revenues 50 —— Budgeted subsidies 7 25 45 === % of total budgeted spending (rhs) 6 20 40 15 35 5 5 4 0 25 = © © &§ © $< &G F&F 8B © G&G Hw @ o 2s y, 28 kF BLkekeks eV —& ¢ 6 Ss Bw N £ © £F ww 2 DB 15 2 Zo 63 2 3S = 2 zee eve o® 2&2 €& DB @ Ee © > £= s&s E£ 10 e528 E 8 € 6 S » S 1 = oO aD a =] 4 a n ~~ S$ 5 S £ 8 — ££ 5 5 6 € g a) Ee 2 a A ££ OD @ 2 0 0 e oF 8 2 KH MMONnArTMMORATMMONRA “MMW = LL oO DMADDADDDADWHABDOAODAODOCCCOrT = ® DDD DAADADAOADADODWDODWDTOOTCOC FD a a a a ae ON ON ON BO ON ON Source: MoF, BofA Merrill Lynch Global Research. Data as of 2015. Source: SAMA, MoF, Bank of America Merrill Lynch Global Research. Further energy subsidy reform is likely The figures announced by the Deputy Crown Prince regarding proceeds of subsidy reform suggests material changes over the next 3-4 years, with annual savings close to the landmark first round of administered price changes in late 2015. However, his suggestion that the changes could be accompanied by partially offsetting cash transfers to poor households suggests policy-making caution. We do not think such a redistributive system could be technically put in place in a short time span. Recall that concurrently with the 2016 budget, a first round of energy subsidy reform saw sweeping energy, water and electricity administered price changes being instituted in late December. We estimated the natural gas price hike on petrochemical firms, domestic crude oil price hike as well as the combined gasoline and diesel price hike introduced could add US$2.2bn, US$2.0bn and USS$3.8bn to central government revenues if fully passed to the budget (a combined 1.2% of GDP). Impact of continued similar policies on domestic prices would be a further 1.5-2ppt annual increase in headline inflation, and a gradual squeeze to household incomes (where gasoline, water and electricity likely represented c.1.5%, c0.4% and 1.6% respectively of consumer spending basket prior to the late December 2015 administered price adjustments). Table 7: Administered energy price adjustments carried out in December 2015 Product Price prior to Dec 2015 Currentprice % change Methane (US$/mn BTU) 0.75 1.25 66.7 Ethane (US$/mn BTU) 0.75 1.75 133.3 Arab light (US$/bbl) 4.24 6.35 49.8 Arab Heavy (US$/bb!) 2.67 44 64.8 Diesel (US$/bbl) 9.8 14-19.1 68.5 Heavy Fuel Oil (HFO) 380cst 2.08 3.8 82.7 Heavy Fuel Oil (HFO) 180cst 2.08 4.25 104.3 Propane (USD/metric ton) . . 3 Naphtha (USD/metric ton) - - - Butane (USD/metric ton) - - Natural gasoline (USD/metric ton) - - Kerosene (US$/bbl) 25.7 95 octane gasoline (SARIItr) 0.6 0.9 50.0 91 octane gasoline (SARIItr) 0.45 0.75 66.7 Source: SPA, BofA Merrill Lynch Global Research. Propane, naphtha, butane and natural gasoline used to be: price using the following formula: Japanese Naphtha price less transportation from Saudi multiplied by 0.72. The formula now is differentiated by product and is as follows: Japanese price of the underlying product less transportation from Saudi multiplied by 0.8. Fiscal consolidation plan looks challenging to fully achieve The US$100bn target in additional non-oil revenue through 2020 appears difficult to reach and is likely to leave a sizeable financing gap based on the current proposals, in 20 GEMs Paper #26 | 30 June 2016 38 Merrill Lynch HOUSE_OVERSIGHT_016130