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Egypt: Demands to reprice gas

Demands are growing for the government to reprice the gas sold to industry so that it can cut costs and increase competitiveness

Safeya Mounir , Thursday 20 Feb 2020
Demands to reprice gas
The ceramics industry is a heavy consumer of natural gas (photo courtesy of Ceramica Cleopatra official website)
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Businessmen working in industry have been having meetings with government officials in recent weeks to urge the cabinet to reconsider the price of gas being sold to Egypt’s factories.

They argue that they are currently paying more than the international price of gas, standing at $3.5 per cubic metre, and that this is having knock-on effects on costs and competitiveness.

According to Khaled Abul-Makarem, head of the Export Council of Chemical Industries, the practice of selling gas at different prices for each industry is unjust. It reduced the competitive edge of local production and put off foreign investors, he said.

The government has said it will review energy prices twice a year starting in April to keep up with international prices, said Nevine Gamea, the minister of trade and industry, at a press conference on Saturday.

Reuters reported that local gas prices stood at less than $2 per million British thermal units (MMBTU) at the end of January, down from $2.57 per MMBTU in 2019 and an average of $3.15 per MMBTU over the past four years.

Repricing the gas is not in the hands of the Ministry of Trade and Industry, Gamea said, but instead was a matter for a committee of ministers, including those of petroleum and electricity.

Gas prices in Egypt are determined by how much an industry consumes. Industries with a heavy consumption of gas, such as those making fertilisers, cement, and petrochemicals, buy gas at higher prices.

In the chemical industries, the price of the gas used represents up to 30 per cent of the price of products. In the fertiliser industries, the price of the gas can comprise up to 50 per cent of the price of the final product.

Repricing gas was fundamental for Egyptian industry, Abul-Makarem said, since it would increase the competitiveness of industries that employ large numbers of workers, help increase production, increase their contribution to GDP, and generate more jobs.

He said the government would comply with the demands of the businessmen based on its interest in developing the industrial sector. The government has recently issued decisions that have impacted positively on the sector, such as a Central Bank of Egypt initiative recently announced to support industry.

In October 2019, the cabinet reduced gas prices in the cement sector to $6 per MMBTU, and $5.5 per MMBTU in the steel, aluminium, copper, ceramics, and porcelain industries.

However, according to Ahmed Gaber, chairman of the Chamber of Printing Industries at the Federation of Egyptian Industries, “the paper-manufacturing sector is an example of industries that have been severely harmed by high gas prices.”

While the global prices of paper “have gone down, the cost of paper manufacturing in Egypt is rising, making local paper prices higher than their international peers by LE2,000 per ton. This is killing the competitive edge of the local industry,” Gaber added.

Parliament’s Industrial Committee has promised to review a complaint from the Chamber of Printing Industries on the matter, he said. Gas is currently sold to local paper factories for $5 per MMBTU.

Many economic analysts say the government will likely now support the industrial sector and lower the prices of the gas sold to factories.

Egypt has an abundance of natural gas, and since prices in export markets are currently not encouraging, it would be logical to reduce gas prices locally, Mohamed Abu Basha, an economic analyst with investment bank EFG Hermes, told Reuters.

Amr Al-Alfi, head of research at Shuaa Securities, added that “it is imperative to reduce energy prices for Egyptian industries to revive this vital sector.”

Egypt’s industrial sector employs the largest percentage of the workforce and is a key source of foreign currency.

*A version of this article appears in print in the 20 February, 2020 edition of Al-Ahram Weekly.

 

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