Sparks fly as government announces heavy industries will be retroactively charged new energy prices (Photo: Reuters)
The Egyptian government’s plan to retroactively charge steel producers for an increase in energy prices has met strong criticism from the country’s federation of industries.
On Monday, the government told producers the new prices would be applied retrospectively from 1 January 2012, a move that has upset representatives from the metal industry.
"They are not ready to accept such a decision given that it’s being retroactively applied," said Mohamed Hanafi, head of the Egyptian chamber of metal producers.
The government announced in January its plan for a 33 per cent hike in the prices it charges heavy industry for supplies of natural gas and electricity in a bid to narrow its growing budget deficit.
Natural gas prices will be raised from $3 to $4 per million British thermal units while electricity prices will climb from LE0.24 to LE0.30 per kilowatt hour.
Some suggested that metal producers were over-reacting to a price hike that was already anticipated.
"This is nothing new, since the start of the year we knew energy prices were supposed to increase. The changes will cost steel producers between LE50 and LE70 per tonne – quite insignificant for them,” one steel expert at an investment bank who requested anonymity told Ahram Online.
Steel and cement producers who are also subject to the hike in energy costs, raised the selling price of their final products to compensate by around LE100 per tonne in January despite comments from analysts that new prices were unlikely to have much effect on their profit margins.
Steel prices now average around LE4,560 per tonne ($760) on the local market after the LE100 price rise, while cement now retails for around LE400 per tonne.
Producers opted to leave prices untouched in February.
"Steel and cement imported from Turkey are cheaper than those which are locally produced even though Turkish producers don't benefit from energy subsidies. Egyptian steel is sold in Libya for less than it is on the local market. Can you imagine?" said Ahmed Al-Zeiny, head of the construction materials division of the Egyptian Federation of Chambers of Commerce.
Steel is sold domestically at around $100 per tonne more than international prices, he added.
Subsidies granted to energy-intensive industries have long been a contentious issue given the heavy burden they place on the state budget.
Opponents argue that such subsidies bring little broader benefit to the economy and that industries benefiting from them sell their products at international prices, or produce for export.
Energy subsidies as a whole, for industry and citizens, make up over 70 per cent of Egypt’s total subsidies bill.
Short link: