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Friday, 25 September 2020

2019: The year Egypt ended fuel subsidies

This year marked the end of fuel subsidies after a fifth and final increase in fuel prices in July, reports Ahmed Kotb

Ahmed Kotb , Thursday 2 Jan 2020
Fuel subsidies
LE37 billion had been saved in 2019 due to lifting subsidies photo: Reuters
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Fuel prices were raised this year by 16 to 30 per cent depending on the product, including on octane 95, 92, and 80 fuel, diesel, natural gas used for vehicles and cooking gas cylinders, and the mazut fuel used by brick factories. 

The prices of these products went up by 16, 18.5, 22.5, 22.5, 27.5, 30, and 28.5 per cent, respectively.

The final price increase was the lowest on a year-to-year basis, however, as the first rise in fuel prices in 2014 averaged 50 per cent, while the second, third and fourth increases in the following years averaged 30 to 47 per cent, 50 per cent, and 67 per cent, respectively.

The government announced that LE37 billion had been saved in 2019 due to increasing fuel prices and the lifting of subsidies. LE52.8 billion was allocated in the 2019-20 budget for fuel subsidies, compared to LE89 billion in the 2018-19 fiscal year. About LE540 billion has been spent on fuel subsidies since 2014, according to the government.

The money saved this year, the government said, has gone on building new schools, renovating poorer villages in Upper Egypt, improving health services, increasing the salaries of government employees and pensions, and improving social-protection programmes.

Exceptions from the lifting of the subsidies have included bakeries that are still able to buy diesel at a subsidised price to ensure bread prices remain stable. The government has decided to continue subsidising goods available through ration cards to ensure that the prices of staple goods remain unchanged.

According to the Ministry of Supply, daily monitoring of bakeries is in place to ensure the availability of flour and the non-manipulation of prices. The government started to implement a quarterly price-indexation mechanism after the last fuel-price increases in June that is meant to review fuel prices every three months.

According to a decree published in the official gazette in June by Prime Minister Mustafa Madbouli, starting from the end of June the quarterly price-indexation system has been based on global fuel prices, the exchange rate of the Egyptian pound against the US dollar, and other local factors.

According to the decree, the prices of petroleum products should not increase or decrease by more than 10 per cent on a quarterly basis.

As a result of the new quarterly system, the Ministry of Petroleum’s Automatic Fuel Pricing Committee decided to decrease the prices of petrol and diesel products in October for the first time in years after a series of annual price increases.

The price of a litre of octane 95, octane 92, and octane 80 fuel went down by 25 piastres to reach LE8.75, LE7.75 and LE6.5, respectively. The price of the natural gas used for vehicles as well as diesel prices were kept without change at LE3.5 per cubic metre of gas and LE6.75 per litre of diesel.

The price of mazut fuel for industrial use was lowered by LE250 per ton and is currently at LE4,250.

The committee said in a statement that the decisions had taken into consideration the decline of Brent crude oil prices on international markets between July and September to $62 per barrel, in addition to the decrease in the value of the US dollar against the Egyptian pound.

The government also lowered natural gas prices for the cement, metallurgy and ceramics industries, in a long-awaited move for industry. Natural gas prices for industry are to be reviewed every six months.

The price of natural gas for cement factories went down to $6 per MMBtu (million British thermal units) from $8, while metallurgy and ceramic manufacturers will be able to purchase natural gas for $5.5 per MMBtu instead of $7.

Brent crude oil prices and the value of the dollar had gone down by two per cent, helping the committee to decide on the PT25 decrease on octane products. Brent stood at around $58 per barrel at the time of the decision, while the dollar was priced at approximately LE16.3.

Brent currently stands at about $63 per barrel, and the dollar is priced at nearly LE16, signs that the committee might keep fuel prices without change in the expected revision of prices in January 2020.

 

*A version of this article appears in print in the  26 December, 2019 edition of Al-Ahram Weekly under the title:  Fuel subsidies end 

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