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Egypt govt to phase out energy subsidies for heavy industry: Minister

Industry Minister Hatem Saleh says government will not provide subsidised energy to new cement factories, announces plans to phase out subsidies for all energy-intensive industries

Ahram Online, Monday 27 Aug 2012
Hatem Saleh
File photo: Hatem Saleh Egypt's new minister of industry and external trade (Photo: Al-Ahram archive)
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Egypt's government will not be responsible for providing subsidised energy to 14 new cement factories, Hatem Saleh, minister of industry and external trade, told reporters on Sunday.

Existing factories in Egypt will see subsidies gradually cut until the prices they pay for energy match those paid by the fourteen new ventures, Saleh said on Sunday at his first press conference as minister , where he laid out the ministry's policy orientations for the upcoming period.

The government has traditionally supported existing cement ventures by providing the fuel they require to generate electricity at prices significantly lower than market rates. In their quest to reduce the budget deficit, consecutive Egyptian governments have announced plans to slash the costly subsidy.

"The subsidy reduction will include the 14 new cement factories, licenses for which have already been granted," Saleh explained.

Saleh's statements constitute the implementation of Egypt's 2012/13 budget – prepared by the previous government of Prime Minister Kamal El-Ganzouri and approved by Egypt's military council – which stipulates a whopping 27 per cent cut in fuel subsidies to LE70 billion, down from LE95 billion in last year's budget.

The budget recommends the abrogation of all fuel subsidies for energy-intensive industries by the end of the 2012/13 fiscal year.

Similar subsidy cuts are expected in other industries, including steel and fertiliser production.

Back in July, Mohamed Shoeib, CEO of the Egyptian Natural Gas Holding Company (EGAS), said that natural gas prices would be raised from $3 to $4 per million British thermal units (MBTU) for fertiliser factories, while non-intensive industries – such as glass and ceramics – would pay between $2.3 and $3 per MBTU.

Energy prices for small industries will remain at $2 per MBTU, according to Shoeib, who added that changing this remaining subsidy would put the local petroleum sector at financial risk.

Egypt is currently preparing an economic programme to be attached to its request for a $4.8 billion facility from the International Monetary Fund (IMF). Little is known about the programme, but a significant budget cut is anticipated to be one of its main pillars.

Fuel subsidies make up 48 per cent of Egypt's total subsidy bill, which amounts to LE148.5 billion, including food subsidies. In general, subsidies contribute almost one third of total state expenditures.

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