Egypt: The end of fuel subsidies

Ahmed Kotb , Saturday 13 Jul 2019

The government has announced that fuel prices will now be subject to a quarterly price-indexation system replacing the older subsidies system, reports Ahmed Kotb

Almost all kinds of Octane gasoline are now sold at their cost price

After the newly increased prices of fuel and cooking gas went into effect on Friday, the government announced it would implement a quarterly price-indexation mechanism that is meant to review fuel prices every three months.

Prices were raised by 16 to 30 per cent depending on the product, including on Octane 95, 92, and 80, diesel, natural gas used for vehicles, cooking gas cylinders, and Mazut fuel used by brick factories. The prices of these products went up by 16 per cent, 18.5 per cent, 22.5 per cent, 22.5 per cent, 27.5 per cent, 30 per cent, and 28.5 per cent, respectively.

This is the fifth time that the government has increased fuel and energy prices on an annual basis.

Starting from the end of June 2019, according to a decree published in the Official Gazette on Friday by Prime Minister Mustafa Madbouli, the quarterly price-indexation system will be based on global fuel prices, the exchange rate of the Egyptian pound against the US dollar, and other variable local factors.

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

“The decision has been taken at the right time,” said Fakhri Al-Fiqi, an economist and former advisor to the International Monetary Fund (IMF). About LE37 billion will be saved as a result of lifting fuel subsidies this year, he added.

Al-Fiqi said the money would be used to improve health and education, increase the salaries of government employees and pensions, and improve social-protection programmes. He said that the better-off had been benefiting from the subsidy system over the last 60 years more than the poor, and that they had become wealthier as a result.

“Prices may now go up or down after a review every three months, depending mainly on international oil prices,” he stressed, adding that subsidies on diesel and cooking gas would continue until 2021.

The government announced in 2014 that it would gradually lift energy subsidies over five years as part of an economic reform programme that aims to trim the budget deficit and as part of a $12 billion loan deal with the IMF.

Fuel subsidies in the budget for the current fiscal year were reduced by about 40 per cent to reach LE52.96 billion, down from LE89.07 billion in 2018/2019.

However, cooking gas cylinders and natural gas for power stations are still being subsidised, according to the Ministry of Petroleum. It said that Egypt imports about 40 per cent of its needs of the different types of Octane fuel used by vehicles in the local market.

The latest increase in fuel prices raised fears of price hikes on several products and subsequently higher inflation rates. Consumer price inflation stood at 13.2 per cent in May, according to the Central Agency for Public Mobilisation and Statistics (CAPMAS).

“The prices of poultry are expected to increase by around five per cent,” said Abdel-Aziz Al-Sayed, head of the Poultry Division at the Cairo Chamber of Commerce. The increase might go a little higher in the winter as more energy is consumed heating the farms, he added.

There must be strong monitoring of the market to prevent exploitation of the increased fuel prices to hike food prices, Al-Sayed stressed.
Madbouli has ordered officials to step up campaigns in all the governorates to ensure the availability of cooking gas cylinders and other petroleum products, as well as to meet any attempt to violate set fares for buses, microbuses, and taxis.

The Ministry of Supply and Trade also announced on Saturday that bread prices would remain as they were without any increase, and that the government would continue subsidising goods available through ration cards to make sure the prices of staples remained unchanged.

Bakeries would still be able to buy diesel at a subsidised rate, according to the ministry, and there would be daily monitoring on all bakeries to ensure the availability of flour, commitment to specifications and the non-manipulation of prices.

 *A version of this article appears in print in the 11 July, 2019 edition of Al-Ahram Weekly under the headline: The end of fuel subsidies

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