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Updated: Egypt to cut energy subsidies for heavy industries

Steel, cement and ceramics makers will pay a third more for gas and electricity as part of a government plan to shave LE20 billion from the country's budget deficit

Ahram Online, Monday 2 Jan 2012
The finance minister said that the government make sure that cutting energy subsidies does not affect domestic fertiliser prices (Photo: Reuters)

Egypt's government will hike the prices for natural gas and electricity paid by heavy industries by 33 per cent to narrow its growing budget deficit, the country's finance minister said this weekend.

Speaking to Al-Ahram newspaper, Momtaz El-Said said higher rates will be applied in January to steel, cement and ceramics industries in a move to shave LE20 billion from Egypt's deficit.

Last week, the governor of Egypt's central bank was quoted by Al-Ahram as saying the deficit for the 2011-12 financial year which began in July could be as high as LE182 billion, significantly above the LE134 billion it forecast in June.

Energy subsidies represent about 20 per cent of total government spending. Economists say slashing them is one of the few realistic options Egypt has to cut its deficit.

"By applying this measure, the government will save LE3 billion subsidy petrochemical and LE1 billion on subsidies for electricity," says a source at the Ministry of Finance who requested anonymity.

Thie figure, however, is small when compared with the subsidies on petroleum products, which amounted to LE95.5 billion in the 2011/2012 budget, alongside electricity subsidies which totalled LE5 billion.

Said told Al-Ahram that changes in subsidies would be implemented in a way that avoided hurting lower income families.

"The government will take care that the increases do not affect domestic fertiliser prices," he said. Subsidies on gasoline and other petroleum products will remain untouched, and no new taxes will be introduced, he added.

Most of Egypt's fuel subsidies are for gasoline and butane cooking gas.

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