Research and analysis

Egypt: recent developments in the energy sector

Published 9 July 2014

0.1 Detail

On 4 July, the Government announced a raft of increases in fuel prices . The fuel subsidy regime cost 143bn LE ($20bn) last year, 25% of the state budget. With consumption and world energy prices increasing and domestic production dropping, the burden on the state had become immense. The last substantive increases were in 2008. Now the Government has sought to cut almost a third from the subsidy bill, or 44bn LE ($6.1bn), in a single year, raising the price of diesel by 64% and petrol by an average of 60%. Gas prices for industries have increased by up to 75%, natural gas for taxis by 175% and electricity tariffs have also increased.

The Government had been preparing the public for fuel price rises for some time, with talk of austerity and sacrifices. Following the price rise, PM Mehlab took the unprecedented step of consulting with industry, bus drivers, farmers and others in an attempt to persuade them to take a hit to their profits margin, in the spirit of patriotic sacrifice, rather than passing on the price increases to their consumers. In the areas directly under state control, such as the public buses and the metro in Cairo, prices will remain fixed. For the ubiquitous microbuses as well as taxis and haulage firms, however, prices have already risen sharply.

The response on the streets has been limited. Small demonstrations and scuffles have been reported. Social media has been abuzz with complaints and denunciations but this has not translatedinto large-scale protests.

The head of the Consumer Protection Agency has warned that prices of some commodities may rise by up to 200% as transportation costs increase. The Minister of Finance admits that the fuel price rises will have an inflationary effect (on top of the existing 10%) but hopes that this will be short-lived and partially offset by state-run grocery shops selling products at cost. The Government have also said that half of the 44bn LE saved will go to improving the health and education sectors. Some of the savings will also go to expanding the existing social protection payments system from 1.5 to 3 million households.

While fiscally necessary, the decision to raise energy prices across the board without any cushioning measures for the poor presents challenges. The long-awaited smart card system for subsidised fuel, which would have allowed the Government to provide higher quotas for buses and haulage vehicles while slowly reducing the quotas of the richest car owners, was not ready to produce the kind of savings the Government needed this year.

0.2 Disclaimer

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