Emirates General Petroleum Corporation (Emarat) is selling the bulk of its petrol stations in the Northern Emirates to the Abu Dhabi National Oil Company (Adnoc), as retailers continue to make losses on the sale of subsidised petrol.
Adnoc is buying a total of 74 Emarat stations, according to a report by the state news agency WAM.
Emarat currently owns 100 stations in Sharjah, Fujairah, Ras Al Khaimah, Ajman and Umm Al Quwain. None of Emarat's 73 stations in Dubai will be sold.
Neither Adnoc nor Emarat were available for comment.
Emarat's finances where thrown into disarray when oil prices rose to almost US$150 a barrel in 2008. The global financial crisis caused prices to slump to $36 a barrel by the end of that year, but they have been rising again steadily since then, with crude currently selling for more than $100 a barrel in Europe.
In the UAE, petrol prices are regulated and retailers are unable to pass on the additional cost to customers. A litre of petrol currently costs Dh1.72 at the pump, which forces Emarat and its Dubai competitor Emirates National Oil Company (Enoc) to sell at a loss.
Both companies have received government cash injections.
The federal Government, which owns Emarat, raised the company's capital by Dh3 billion ($816.7 million) to Dh9bn last June, after Obaid Humaid Al Tayer, its chairman, said in January that the retailer was forced to restructure its debt and needed banks loans. Emarat's debt had stood at about Dh1.9bn at the beginning of last year, the Federal National Council said at the time.
By the end of last year, the Government of Dubai had spent a total of Dh5.59bn to make up for Enoc's shortfall in earnings.
Like Emarat, Enoc has responded to losses by cutting its exposure in the Northern Emirates. It handed over its petrol stations outside Dubai to Adnoc last July.
Unlike its UAE competitors, Adnoc does not buy its oil on the international markets, instead drawing on Abu Dhabi's vast oil production. While forgoing the opportunity to sell its crude at higher prices abroad, it still manages to sell petrol at a small profit domestically.
"The signing of the memorandum represents a step towards achieving both companies' strategic plans to expand, especially to enhance the position of the retail sector in the local market," WAM quoted Abdulla Salem Al Dhaheri, Adnoc's general manager of distribution, as saying.
Adnoc's increasing efforts in supplying cheap petrol throughout the UAE is part of Abu Dhabi's greater role in providing for citizens outside the emirate's boundaries following the Arab Spring. The federal Government last year announced a $1.6bn programme that will improve the electricity grid and roads in the Northern Emirates, with most of the money expected to come from Abu Dhabi.
* with Wam