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Liquidity drives another Egypt diesel crisis

The new diesel shortage on the Egyptian market appears to be the result of a liquidity crisis in the cabinet

Ahram Online, Wednesday 12 Sep 2012
Liquidity shortage drives
An employee of a petrol station fills a car tank in Cairo (Photo: Reuters)
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Egyptians started feeling another diesel crisis at the end of last week, with amounts available shrinking and prompting lengthy queues at stations. A shortage liquidity in the Ministry of Petroleum has delayed payments to refineries that provide the crude needed to produce diesel. "The Finance Ministry is late delivering the required funds to the Ministry of Petroleum," Hossam Arafat, head of the division of petroleum industries at Egypt's Chambers of Commerce, explained. The total daily supply of diesel on the Egyptian market has fallen to 33,000 tonnes from 40,000, press reports estimate.

On Tuesday, Egypt’s Finance Ministry said it allocated an additional $100 million for fuel purchases to meet the country's diesel needs for electricity generation and fuel. The problem is most apparent outside Cairo, mainly in the south. Cement and paper factories were reported by Al-Ahram daily newspaper to be close to halting operations due to the energy shortage. "There is some 25-30 per cent shortage in Upper Egypt," Arafat added. Similar crises have taken place in the last 15 months at more frequent pace than before; and previous shortages included petrol of various octane grades. 

Gouda Abdel-Khaleq, the Minister of Social Solidarity during the transitional period, believes the recurrence of the problem is due to corruption and mismanagement: "Two of the public sector companies of oil distribution are highly linked to the mafia smuggling subsidised oil products abroad.” Unlike subsidised wheat and bread, he adds, the process of production, transportation and distribution of oil products isn't closely observed. The lack of facilities for storing such sensitive products makes the situation fragile. Butane gas used for gas cylinders arrives in ships, for example; bad weather or lake of foreign currency simply delays its delivery causing a shortage.

In Egypt, diesel is the main source of fuel for heavy transport and electricity generators. In some areas, such as the Red Sea coast, diesel shortages and its high prices on the black market caused major problems for the hotel business. Egypt's local production of diesel fuel covers some 75 per cent of the country's consumption needs, while the rest is covered through import. Diesel takes up one half of total government fuel subsidies, at LE35.7 billion ($5.9 billion) in the 2012/13 state budget.

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