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Friday, 19 October 2018

Egypt gas prices going up

The government has raised natural gas prices for home and commercial use in the latest in a string of measures aimed at reforming the economy

Nesma Nowar , Wednesday 25 Jul 2018
Natural gas
Natural gas pipelines in Egypt (Photo: Reuters)
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The government decided on Saturday to increase the price of natural gas for home and commercial use by up to 75 per cent, setting three price tiers based on consumption.

The first tier is for consumption of up to 30 cubic metres, for which the price has been hiked from LE1 to LE1.75 per cubic metre.

The second tier is for consumption between 30 and 60 cubic metres, costing LE2.5 instead of LE1.75, while the third tier is for consumption between 60 and 300 cubic metres, hiked to LE3 instead of LE2.25. The increases are effective as of August.

The increases come a month after the government raised fuel prices for the fourth time since 2014 by up to 50 per cent as part of a $12 billion loan deal from the International Monetary Fund (IMF) signed in late 2016.

The decision is expected to result in price increases of some commodities as some manufacturers rely on natural gas to run their factories.

However, the impact of the gas price hikes on prices and inflation will likely be limited, taking into consideration the summer season when demand is weak, senior economist at Prime Holding Mona Bedeir said.

The impact could feed into inflation later in the year when demand picks up. “In general, the impact of natural gas price hikes will be limited compared to the increases in fuel,” Bedeir told Al-Ahram Weekly.

Egypt’s annual urban consumer price inflation increased to 14.4 per cent in June from 11.4 per cent in May.

The new price increases left many wondering about the reasons behind the hike given the increases that Egypt has seen in its natural gas production on the back of new discoveries that are set to help the country halt gas imports by the end of this year.

Petroleum Minister Tarek Al-Molla said recently that imports of liquefied natural gas (LNG) may stop in the fourth quarter of 2018, allowing for exports to start early next year.

The news comes as Egypt’s giant Zohr Field, discovered by Italian energy company Eni in 2015, will increase gas production to 1.75 billion cubic feet a day by August from 1.2 billion cubic feet at present.

Egypt’s total production of gas is six billion cubic feet a day, and that should increase to 6.5 billion by September, Al-Molla said.

Petroleum expert Ramadan Abul-Ela said there was no reason for the government to raise natural gas prices in the light of the new discoveries and the increased natural gas production. Instead, it should lower them, he said.

He believes the decision comes on directions from the IMF. The government should look at the social impacts of following IMF instructions, he said, adding that a decision like this could add to popular discontent at increased prices.

The gas price hikes have raised concerns over a possible increase in the price of subsidised bread as most bakeries use natural gas to run their ovens.

However, there should be no increases in the price of subsidised bread, head of the Bakeries Division at the Cairo Chamber of Commerce Attia Hammad told the Weekly.

Hammad said that an average for the increased cost of subsidised bread would be calculated and would be borne by the government.

The government also bore the extra cost when diesel prices increased last month, with the Ministry of Supply absorbing the extra cost to bakeries to ensure that the price of the country’s main staple remained unchanged.

Petroleum Ministry Spokesman Hamdi Abdel-Aziz told Al-Masry Al-Youm newspaper on Monday that the increase in natural gas prices was meant to correct the pricing imbalance with butane gas cylinders, used as an alternative to natural gas, which saw their prices go up last month.

The prices of butane gas canisters were hiked from LE60 to LE100 for commercial use and from LE30 to LE50 for household use.

The Petroleum Ministry targets connecting gas to 1.35 million housing units during 2018.

The Ministry of Finance raised allocations for connecting natural gas to households in the draft budget for fiscal year 2018/19 by 192 per cent, reaching LE3.5 billion compared to the LE1.2 billion in the current fiscal year.

Cutting energy subsidies is one of the main pillars of Egypt’s economic reform programme, and Al-Molla said that cutting the subsidies would help save up to LE50 billion in the 2018/19 budget.

In its new budget, the government is targeting cuts to fuel subsidies of 19.1 per cent to LE89 billion, down from LE120 billion in the current year. Al-Molla added that the total cost of oil-products subsidies over the past five years had hit $517 million.

*A version of this article appears in print in the 26 July 2018 edition of Al-Ahram Weekly under the headline: Gas prices going up  

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