Egypt's energy crisis: Morsi cites success, Upper Egyptians differ

Bassem Abo Alabass, Monday 8 Oct 2012

President's 100-day promise to bring an end to periodic fuel and cooking gas shortages has seen some success in Cairo and surroundings but it's a different story down south, say residents

Cooking gas queue
No longer waiting in vain? Egyptians line up for cooking gas canisters in Giza governorate (Photo: Bassem Abo Al-Abass)
Even as President Morsi told a rapt Saturday night audience that he had solved 85 per cent of the country's cooking gas problems, poorer families in Upper Egypt were tightening their belts so they could afford butane canisters.
Part of Morsi's 100-day programme promised to solve the problem of fuel supplies in Egypt, a country stricken by periodic fuel, diesel and butane shortages.
Morsi's approach viewed security as key to the problem, vowing to crack down on smuggling, assign extra observers to accompany fuel shipments, and use local co-operatives to monitor sales at gas stations.
He also promised to reduce the opportunities for profiteering by middlemen by arranging direct deliveries of butane cooking gas canisters from government depots to Egypt's residents.
Morsi's focus on security wasn't wrong. Heavy government subsidies make Egypt's fossil fuels some of the cheapest in the world, selling well below market value, and making the supplies a tempting proposition for profiteers. 
The official price of a government-sold canister is LE2.75 ($0.45), rising to LE5 or LE10 with transport costs, depending on the area. Prices haven't changed since 1991. Those who get their hands government-priced energy can make hefty profits reselling it on the black market.
Butane, the longstanding problem
Morsi's crackdown on profiteers, however, doesn't seem to have reached every part of the country, with some in Upper Egypt saying they have had little respite from sky-high prices.
Speaking to Ahram Online, Mohamed Mahmoud managed a chuckle when he described this week's cooking gas prices as "much better" than last's.
"I bought a canister for LE60 ($9.80) rather than LE110 ($18), I suppose that's an improvement," scoffs the lawyer from the city of Sohag, 450km south of Cairo.
Queues for gas may have shortened at the butane depots in Cairo and the Delta, but those like Mahmoud who live in Upper Egypt can only conclude that the president's pledge is an "illusion."
Distance could compound the problem of inefficient distribution, the most common reason given for butane shortages.
Speaking before the now-dissolved parliament in February, then petroleum minister Abdallah Ghorab said Egypt had enough gas to meet local consumption needs. The problem, he declared, was that it was being siphoned off by profiteers and corrupt officials.
"There is a well-connected cartel controlling the distribution of butane cylinders and it is very hard to take apart," an Egyptian energy expert who requested anonymity told Ahram Online. 
"If you have a business generating 5 or 10 million pounds per month, you will fight with all your power to defend it."
He claims that butane distributors cause periodic freezes in supplies, allowing them to sell the cylinders they have at higher prices.
"Everyone including local authorities takes a cut," he says. "That's why reforming things is so hard."
Officially distribution of butane is evenly divided between state-owned companies and the private sector. Around 360 million cylinders are subsidised each year, costing the government around LE20 billion ($3.3bn). 
Morsi echoed the claims of profiteering during his Saturday speech, but said that his clampdown on perpetrators was largely successful.
"We have thwarted the trafficking of 23 million litres of oil and diesel between August and September," he said.
The president also revealed that two senior officials in Egypt’s ministry of petroleum were recently convicted for illegally trading some five million litres of diesel and oil per month, worth LE686 million ($112.5m).
Just talk
But Morsi's claims are finding resistance from many quarters.
"Don't talk me about statistics, just go down the street or try to take a train to Upper Egypt then you will see the crisis is still going on," Mohamed Saad Eddin, a member in Egypt’s federation of investors involved with the gas and petroleum sector, told Ahram Online.
Saad Eddin believes the problems go deeper than mere smuggling. For him they are an inherent feature of the way subsidies are being handled.
His suggestion is that fuel subidies in their current form should be removed then rellocated via a coupon system to those in need.
"They should distribute the subsidy directly to people rather than injecting it into commodities," he said. "Then the smuggling and the black market will disappear."
Such ideas are not new.
In September 2011, former minister of supply Gouda Abdel-Khaleq announced plans for a coupon system for distributing butane gas cylinders, in a drive to limit profiteering.
Such a system would have involved 14 million ration cards, benefiting 65 million citizens, Abdel-Khaleq said at the time. It would have crushed the black market, he claimed. 
But as yet the plan has still not been implemented.
Morsi's 100-day plan for fuel did not refer to coupons, with a member of the Muslim Brotherhood's Freedom and Justice Party saying such a system would be too complex.
"The mechanism of implementing this system is so difficult because not all Egyptians who need subsidised butane have ration cards," said El-Sayed Abdel-Aziz Ngeida the head of the party's energy committee.
Short term solutions
A crackdown on smuggling, however, may only tackle part of the problem. 
The ultimate solution to Egypt's butane crisis would be for all the country's homes to be connected to the natural gas grid, entirely removing the need for canisters. Egypt is a net exporter of natural gas.
Ngeda says Morsi's government has a plan to begin doing just that starting next winter, when 200,000 homes will join the grid, removing the need for 300,000 butane canisters.
"By the end of the current fiscal year in June 2013 around 750,000 houses will receive the gas, 200,000 of them will be in Upper Egypt," he told Ahram Online.
Constraints on financing and construction, however, could make connecting every home to the grid a slow process.
According to statistics mentioned in parliament, 4.5 million households have piped natural gas while some 12 million Egyptian homes use canisters. 
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