We could just sit on the huge savings we’re making from plunging oil prices. Or we could plough them into developing renewable energy sources that reduce our reliance on expensive and polluting fossil fuels.
A quick calculation of the savings Jordan made last year on its oil bill shows it effectively gained around an extra JD1.6 billion in terms of foreign currency pressure on the balance of payments. It also made around JD700 million in real savings on its budget due to the cut on NEPCO’s cost subsidies and the elimination of fuel direct cash transfers.
So in all, Jordan is looking at about a $1 billion cash saving that used to be included in its state budget but wasn’t needed for 2015, and for sure won’t be on the books for 2016. The question facing us now is what should we do with the saving? Should we just do nothing and be relieved that we don’t need to spend this big amount of money over the coming year?
A wiser policymaker would adopt a different approach. After all, we need to keep in mind that oil prices aren’t going to stay this low forever. From an economic point of view, this is an opportunity cost that we shouldn’t pass up. A smarter way to deal with this manna from heaven is to invest it in developing more renewable energy. If we are really serious about finding a sustainable solution for our energy challenges, then this is the perfect time to do it. It’s not enough to make profits at NEPCO for reasons that aren’t due to a policy solution, but rather as a result of a windfall. We need to find a permanent solution to our expensive energy bill which is harming both living standards and investors’ appetite to come to the country, especially in the industrial sector.
Jordan’s unique geography and climate are ideal for generating solar and wind power. The government should create a fund, worth at least JD500 million, to invest in renewable energy. It should be part of the sovereign fund HM King Abdullah called for last year and its financing could partly be met by the remainder of the Gulf grant. With this level of backing, many investors would surely jump at the chance to get involved. Of course, this should be run as a fully commercial investment opportunity and might even be more lucrative if the government decides to set aside an additional 25 percent of the fund for an IPO. This could trigger a new phase for our stock market as well.
In the end, short sighted policy makers will feel happy about the temporary improvement in Jordan’s budgetary health and NEPCO’s financial performance. Policy makers with an eye on the long-term should insist on using this opportunity to put forward a sustainable solution to our energy challenges.