World Bank project to cut Egypt's energy subsidies by $301.5 million

Ahram Online, Friday 25 Jul 2014

The Household Natural Gas Connection Project is designed to reduce energy costs for households and lower the government's subsidy bill

Washington-based World Bank (Photo: Reuters)

Egypt's government looks set to save $301.5 million annually in subsidies by connecting 1.5 million households to the natural gas grid.

The World Bank, which approved a $500 million loan to fund the Egypt Household Natural Gas Connection Project, said in a statement published on Thursday that the project would reduce costs for households and lower the government's bill.

"Switching households from highly-subsidised, mostly imported LPG, to locally-produced natural gas, will help lower the government’s bill, with each household representing a saving of US$201 a year."

Egypt imports 50 percent of its consumption of LPG, which stands at roughly 4.5 million tonnes per annum. In November, Hamdi Abdel-Aziz said: "The remaining 50 percent is locally produced in refineries, or from deposits of natural gas."

Egypt's budget for the Financial Year 2014/15 trimmed energy subsidies by LE44 billion as President Abdel-Fattah El-Sisi approved raising fuel prices by 78 percent for the popular low-quality Octane 80 and by 64 percent for diesel.

Some 75 percent of Egyptian households rely on subsidised gas cylinders which officially cost LE8, according to the World Bank.

Despite raising prices of gas cylinders last year from LE2.75 to LE8, the government estimates that the subsidy per cylinder is LE70 ($10).

However, the gas cylinders distribution network is mostly inefficient as people end up standing in long queues with uncertain hopes of getting a cylinder.

As a consequence, a black market for gas cylinders has risen to substitute the official inefficient distribution network with prices ranging from LE20 to LE50 per gas cylinder.

A tough law did not stop the black market from expanding, even with sanctions ranging from suspending a depot's permit, to fines reaching up to LE20,000 ($2,850) and jail sentences that can range from six months to five years. According to the supply ministry, 1,200 complaints were filed since the start of the crisis.

The project is planned to be implemented in 11 Egyptian governorates, including three in underdeveloped Upper Egypt. About 52 percent of the neighbourhoods targeted demonstrate high poverty rates.

"The project will provide financial support to finance the connection charges in disadvantaged areas so that poor households can also connect to the gas grid,” said Husam Mohamed Beides, the project’s Task Team leader. 

The project is being undertaken in collaboration with both the European Union and the French Development Agency, said the statement.

Egypt's government aims to connect eight million households to the natural gas grid in five years, reported Turkish news agency Anadolo in June.

The World Bank total commitments to Egypt currently stand at $4.9 billion, financing 25 project and $190.2 million in grants.

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