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Electricity price rises

Last week’s increases in consumer electricity prices were essential to help the industry modernise the grid and meet its performance targets, writes Ahmed Kotb

Ahmed Kotb , Tuesday 16 Jun 2020
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Consumer electricity prices went up by an average of 19.1 per cent last week based on consumption levels. The new prices are part of an annual plan that targets the gradual lifting of subsidies on electricity consumption.

The new rates, effective 1 July, were increased across seven tiers of usage. The first tier from zero to 50 kilowatts per hour (KWH), went up from 30 piastres to 38 piastres per kilowatt. The second level of consumption from 51 to 100 KWH will pay 48 piastres instead of 30 piastres per KWH, while consumers in the third tier, consuming 101 to 200 KWH, will now pay 65 piastres instead of 50.

Consumers falling in the fourth and fifth category with consumption of 201 to 350 KWH and 351 to 650 KWH will have to pay 96 piastres instead of 82, or 118 instead of 100 piastres per KWH, depending on their level of consumption.

The sixth tier charges consumers of 651 to 1,000 KWH a fixed rate of 140 piastres, and those who consume more than 1,000 KWH will pay 145 piastres per KWH. The last two groups do not receive subsidies.

The government’s plan to lift electricity subsidies began in 2015, and it was initially scheduled to end in 2019. However, the devaluation of the pound in late 2016 led the government to push the programme to 2021 before announcing last week that the subsidies would be phased out more gradually until fiscal year 2024/2025.

 “This move is intended to alleviate the economic burdens on the public as a result of the coronavirus crisis,” said Mohamed Shaker, the electricity minister, adding that the delay in lifting the subsidies completely was estimated to have cost the government LE26.7 billion.

Lifting energy subsidies is part of Egypt’s economic reform programme that involved a $12 billion loan from the International Monetary Fund (IMF) in 2016. Egypt received the final tranche of the loan in 2019, and it was conditional on large-scale reforms intended to restore Egypt’s macroeconomic stability and sustainable growth.

One main condition was to lift energy subsidies, in addition to the devaluation of the pound.

Shaker also announced a reduction of 10 piastres per KWH for the industrial use of super, high, and medium voltage electricity and announced no additional increase for industry over the next five years. “The government will bear a total cost of LE22 billion to keep electricity prices for industry stable during this period,” Shaker stated.

According to the Ministry of Electricity and Renewable Energy, household consumption accounts for more than 41 per cent of total use, while industrial consumption uses about 30 per cent.

As a result of the economic hardships suffered by many Egyptians in the wake of the Covid-19 crisis, calls have surfaced asking the government to delay the price increases, especially since they come in the summer when household electricity consumption soars due to the use of air-conditioning units.

Some MPs said they had requested a briefing by the electricity minister, adding that the decision to implement the price increases was inconsistent with the repercussions of the coronavirus crisis on many citizens.

Statements by the MPs praised the actions taken by the government to mitigate the economic effects of the crisis, but said that the electricity price hikes could have been delayed to relieve economic burdens.

Mohamed Hamza, spokesperson for the Ministry of Electricity, said in a TV interview that the ministry had costly obligations including the modernisation of the grid and the construction of new power plants, and these had made it difficult to postpone the increases.

“The state cannot bear all these costs alone, especially in the exceptional circumstances of the coronavirus crisis,” Hamza said, adding that the price increases would aid the electricity sector in meeting its needs and performance targets.

The electricity grid had a total production capacity of about 56,000 megawatts (MW) at the end of 2019, compared to approximately 35,000 MW in 2015. Until 2014, Egypt experienced frequent power cuts that began to end in 2015 when several new power stations started operations.

The Egyptian Electricity Utility and Consumer Protection Regulatory Agency announced on Monday that peak electricity consumption had reached 26,500 MW nationwide.

CI Capital Holding, a financial services group, believes that the recent electricity price increases will not have a major impact on inflation since they will not impact the industrial and commercial sectors, which are exempt.

Osama Geneidi, head of the energy committee of the Egyptian Businessmen’s Association, said that the decision freezing electricity prices for industry for five years would make manufacturers more competitive and enable them to boost exports.

*A version of this article appears in print in the 18 June, 2020 edition of Al-Ahram Weekly

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