CNBC Transcript: Interview with Suhail Mohamed Faraj Al Mazrouei, Energy Minister of the UAE

HG: Your Excellency, thank you so much for joining CNBC. I want to kick off this conversation by talking about what we're seeing in the oil markets. A lot of people here at Davos say that OPEC is pretty much irrelevant. Would you say that that's the case?

SM: No, I disagree. I think OPEC still plays a key role, and what we are seeing in the market is definitely an oversupply, but it's not-, I mean, all of the signs say it's going to get better, and I can give you some figures, but what's important in the slow cycle of oil prices, the reforms that happened in the Arab world and especially in the Gulf states, and that's what we need to continue doing. So we are-, I'm happy, actually, that this is happening and we are doing something about it. We all know that the current prices are not sustainable, and I think if I ever see both the producers and the consumers agreeing on something related to the price, all of them, they will tell you today those are low prices, which means that they are not sustainable. The market will balance itself, ultimately, and the timing is not going to be way far from either-, there are two camps, there are optimistic people and there are pessimistic, and I am with the first camp, and I think this is a year of correction. The first half of the year is definitely not going to be easy, but on balance I don't see this year as hugely different than the year 2015 pricewise, therefore we are going to see correction in my view in the second half, because I cannot see from where additional oil is going to come from, except from Iran, and their announcement, and that is not going to offset the growth in demand, so I am optimistic.

HG: Give me a little bit of insight here, because obviously you're the representative for the UAE at OPEC, and a lot of people, especially in the United States, were incredibly surprised that when oil went below $30, there wasn't an emergency meeting called. Can you give us a little insight into that kind of decision?

SM: Well, first of all, let's go back, if you want an answer, let's go back and look at the situation. So what happened in 2014? OPEC produces around one third, and two thirds comes from the rest of the world. The rest of the world introduce 2.7 million barrels of additional capacity, so they've basically flooded the market, and this is not a million, or a 500,000 oversupply, they created a big glut back in 2014, and OPEC, between 2013 and 2014, the growth was almost zero, so we did not contribute anything of this oversupply. So it's not logical, it's not fair, it's not whatever you want to put it, for OPEC to step in and correct the market, 100% of the market, of this oversupply, by itself. So we started talking to other major producers and no one was willing to do anything, so I think it was obvious for OPEC not to do anything on a glut that it did not create, so this is part of the issue, but that glut is going to be taken out by the market itself, if we just wait a reasonable time for that glut to be removed from the market. So what happened in 2015, that's why I'm telling you I'm optimistic, those who produced 2.7 million, they were only able to produce 260,000, so there is a drop on that contribution by almost 88% or 90%, and that gives me hope that we are moving towards correction, but because the size of the glut was so huge, it takes time for it to dissipate from the market and to be removed. Now, what's the relevance of OPEC? OPEC still represents 30% of the lowest producers in the world, and it's relevant for them at least to coordinate with each other to agree on their relative contribution for the market. They cannot correct, and I can say this ten times, they cannot correct the whole market, but they, I think, are still ready to contribute in the correction of whenever, in the future, needed. I think we are discussing always between ourselves our role among the bigger players. Yes, we are having some political tensions among ourselves sometimes-,

HG: Between Saudi Arabia and Iran, specifically?

SM: Yes, but that's not going to change the fact that we need to coordinate with each other. We are neighbours, we are producing from the same region. I think we are eligible for a market share in the future. you cannot eliminate OPEC and say we will give you zero growth potential, and that's what happened in the past four years when the price was 100, OPEC growth contribution was zero, and that was not fair, but we were willing to take zero growth because we wanted the share revolution to contribute, because we could see that alone we could not balance the market. We need newcomers, and we were very happy to work with the newcomers, but it cannot continue, because it's not sustainable, for those newcomers to take 100% of the world demand growth, and that was the correction was needed for the benefit of the consumers and for the benefit of the market.

HG: So you're saying that you think we're going to have a correction by the second half of this year.

SM: Starting to have a correction. Not fully recovery, but you will start to see a reasonable correction that makes this year closer to, in terms of price, to 2015, even if it's a little bit less. It's not going to be significantly less, in my opinion.

HG: Talk to me a little bit about the impact that this low price environment is having on investors in the region. We've seen regional markets really tumbling off the back of these lower oil prices, people are worried, people are scared to put their money out there. Give me a sense of what the UAE has planned in terms of diversification, in terms of sustainable energy. I mean, you guys, sort of, saw this coming from a long way off, and there were plans, were there not?

SM: Actually, in the energy sector, because I am representing also the electricity sector, in that sector, this is good news, because we are buying 50% of our requirements, gas requirements, from abroad, so it's partially good news for those who are in the power generation business, because they are buying a commodity at a lower-, gas prices have dropped also from $14, $15 and higher to $6 and lower, so partially it's good news, but collectively, UAE is moving away from just depending on gas to become 30% dependent on zero emission or greener sources of energy ,whether they are solar, or, to a greater extent, nuclear. By 2020, or by 2017, we will start the contribution of the nuclear power plants, and by 2020 we will have around 25% of our energy mix coming from that lower, relatively lower cost of energy. So UAE is doing its share, and this is going to reduce significant impact, significant reduction in the CO2 emissions, so we are moving toward zero emission sources of energy, and we are reducing the percentage, not the absolute dependency, on gas imports. In the UAE we are diversifying the sources of energy, as I have just mentioned, and also we are diversifying the sources of income. We are developing our economy, and we are-, year on year we are seeing that the non-oil economy's contribution is growing, and as a matter of fact, in a week we will have a ministerial retreat on discussing how we can develop our economy so in the future the impact of the oil prices' fluctuation is not going to impact the budget of the United Arab Emirates and all of its states, and I think it's doable. We are also investing a lot outside Emirates, and I think collectively we can manage that transition to have the revenues from the oil industry as a luxury, or as an additional profit that's going to be reinvested and not to have it as a major contributor in our budget.

HG: So you feel pretty confident about where the UAE is. Talk to me a little bit about Saudi Arabia. We understand in the coming days they're going to be announcing some major reforms, they're going to be trying to revitalise that economy and to essentially move it away from being dependent on the oil sector. Do you think that it's possible? Do you think that they're going to be able to do it in the timeframe that they're hoping for, and how does that impact the rest of the region?

SM: I think let's talk about the whole GCC states and the region, rather than talking about the biggest country which is the Kingdom of Saudi Arabia. I think it's relevant for us now to be transparent and talk about major reforms and I was part of our session this morning just talking about that with my colleague from Kuwait, the minister who is responsible for energy. It's relevant and it's an opportunity. The difference now in the reform, the removal of the subsidy from gasoline and diesel that we did in the summer of 2015 in United Arab Emirates-,

HG: That's a pretty big shift.

SM: It created everyone to think about the same lines, because everyone was preparing studies, and they know that it needs to happen. Actually, we started in 2010 when we removed the subsidy from diesel, and diesel was sold at a relatively very expensive, compared to any of the neighbouring states, in United Arab Emirates, and as you know, diesel is affecting the economy much more than gasoline, and we did that, and when we did it people were saying people and ex-pats are going to go out of the Emirates because it's going to-,

HG: There would be an exodus.

SM: Actually what happened? More people came, and more industry came. When you have a liberal economic system, people know that they are not going to be sleeping fearing when they are going to remove it. They will manage it and they will grow their businesses on that prospective, and that's what creates healthy and vibrant economies, and that's the plan that we are having in the UAE. I think if you look at the electricity prices, as well, we are not subsidising this except for small percentages of the whole population.

HG: And it's not driving businesses away?

SM: No, but the challenge is going to be to have more gas imports and more LNG coming into the system, and I think one day we'll need to charge the reasonable international prices for electricity, that even when that happened, we are going to bridge the difference in increase by higher efficiencies, more wise consumers, we're talking to them today, we're introducing changes. We are actually doing. We are stepping to your house, if you are a resident there, and introducing changes into your house, if you will let us do so, and that will drop your electricity and water bills by 20-30%. So if there is an increase, you will not see it, nothing, the efficiency improvements that we are adopting into the consumers around the country, and then the companies.

HG: Covering the Middle East, and Africa, as well, there have been years of studies and years of reports about what to do when that day finally arrives, that oil isn't going to be able to carry these countries for the longer term. It's interesting to note that you are the youngest member of OPEC, and we now understand that the Deputy Crown Prince of Saudi Arabia, who is in charge of not just the defence portfolio, but also the economic portfolio, as well, is about to implement some major changes to that economy. Do you think that this is the younger generation really stepping to the fore? And what kind of changes are we going to see going forward?

SM: I think age, first of all, I'm glad that I am in a government in the UAE that they don't discriminate against you because-,

HG: It's just a number.

SM: It's just a number, and it's what you add as an individual. We don't discriminate if it's a female or a male, and we wouldn't discriminate if you are older or younger. It depends how much you can benefit and deliver, and I think this younger generation is more realistic on the challenges. We have challenges. Let's not delay the solution, we need to talk about them. Something else that is happening also is the information age. Today we need to speak to the people, so we cannot, as ministers, hide behind our offices and not talk to the people. I had a very interesting experience when we did the reform on the gasoline and diesel prices. I went to the people, and I spoke to the people on the social media and to different stations, and we worked with the media to deliver that message, because that message needs to be convincing. If I cannot convince you as a user, or as a consumer, then I will not be successful, and if I can convince you on the reform, then you will work with me instead of working against me, and that's what we are hoping for, and the people are changing, and the demographic of the ages of the population is very important, and we need to look at that and we need to capitalise on it.

HG: So making the government even more user friendly, very important.

SM: Yes. We are an e-government now, and we are a smart government, so if we are a smart government then your view and your voice is going to be the measurement of how good we are. We are a servant, we are public servants as government officials, and if we are not doing the job of convincing you to work with us, well then we will fail. Our rating, and making you happy, because that's the measurement, anyway. I have to make you happy, and if you are not happy and if you are complaining, then I need to work harder to make you happy. If I didn't deliver that, then I have to be out, then I have to exit, I have to go out, someone else needs to come and measure your happiness, because that's what's going to keep me serving you. If I cannot serve you and make you happy, and make your life easier through the use of technology and all of the services that we provide to the individuals, then we're not doing our job.

HG: Your Excellency, thank you so much for joining CNBC.

SM: Thank you.