Egypt govt struggles with ongoing diesel fuel shortages

Marwa Hussein, Ahram Hebdo, Tuesday 12 Feb 2013

The state appears caught between acute diesel shortages and planned reductions of energy subsidies, upon which a proposed $4.8 bn IMF loan is conditional

Trucks and tractors queuing in search of fuel in a gas station in Cairo. (Photo: Bassam Al-Zoghby)

In queues often hundreds of metres long, trucks, tractors and microbuses can be seen outside gas stations across Egypt waiting to fill up on diesel fuel. "I've been waiting here for six hours," lamented Mahmoud, a microbus driver waiting on line in 6 October City, west of Cairo.

Another driver complains: "The last time it took me a day to find diesel so I could finally start working." And in yet another microbus, 14 female passengers wait patiently with the driver – for a full hour – while he refuels before they return to their homes.

Apart from time lost, drivers complain about the emergence of a black market in which a litre of diesel is sold at double the normal price. Many say they are buying 20-litre jerry cans of the commodity for between LE40 and LE50, as compared to the usual LE20 (roughly $3).

In light of these tensions, fights and arguments outside gas stations have become commonplace. "My truck's windshield was broken yesterday in a fight with sticks outside a petrol station," said one driver.

Near a small gas station on downtown Cairo's Ramses Street, a police vehicle has been stationed to break up altercations between microbus drivers who represent the station's main customers.

The government, meanwhile, has been slow to provide explanations for the acute diesel shortfall.

"We have not cut supplies to distributors," said Sherif Hadara, head of the state-run Egyptian General Petroleum Company (EGPC). "General worries and concerns are prompting consumers to line up at gas stations."

Hadara dismissed speculation that a lack of foreign currency was at the root of the crisis.

In the Warraq district on the outskirts of Cairo, all five stations visited by Ahram Online were suffering diesel shortages.

"I'm receiving less than half the amount I usually receive," said Mustafa El-Tahan, owner of a local Shell petrol station. He says he is currently receiving 12,000 to 30,000 litres of diesel per day, as opposed to the 45,000 to 60,000 he used to receive.

Petroleum and Mineral Resources Minister Osama Kamal on Tuesday attributed the crisis to smuggling activities, stressing there was "no shortage" of diesel fuel.

"The ministry has drawn up a short-term plan to deal with the crisis by reorganising distribution," Kamal was quoted as saying by Reuters. "Gas stations found to be acquiring diesel illegally will be excluded [from the official distribution scheme] and their allotments will go to other stations."

According to an official at a major oil company, who is responsible for supplying diesel to the Giza governorate, his company is still receiving normal amounts of the fuel. He attributed the queues seen outside his company's petrol stations to a "lack of fuel in other areas."

Slashing subsidies

The shortages come at a time when the government is keen to reduce fuel subsidies, a move that has been postponed more than once for political reasons. On Tuesday, the petroleum minister said that the government would delay a plan to ration subsidised fuel – initially slated for April – by up to three months.

"The use of 'smart' cards for making petroleum purchases will be implemented sometime between April and July," Kamal said. The new system is intended to provide consumers with limited amounts of subsidised fuel, beyond which they will have to pay market prices.

One oil ministry official, who requested anonymity, told independent daily Al-Shorouk that each vehicle would be entitled to a maximum of 10,000 litres of subsidised diesel every year (this figure, however, could not be officially verified).

The EGPC's Hadara, for his part, says that while he is responsible for the initiative's technical aspects, the issue of ending diesel subsidies was a "political question" that fell on the petroleum ministry.

"The ministry has asked me to consider three possible scenarios for subsidies reduction," Hadara said. "The first is a gradual reduction of 10 per cent annually across the board; the second is to limit subsidies to certain socio-economic categories; and the third is to replace subsidies with cash-in-hand grants."

Due to a popular backlash in December of last year, the government suspended planned subsidy reductions and a raft of planned tax increases.

Ashraf Al-Arabi, Egypt's minister of planning and international cooperation, recently declared that the government would cut fuel subsidies for companies working in the tourism industry in May.

But on Tuesday, Tourism Minister Hisham Zaazou told financial daily Al-Mal that the subsidies cut would be postponed until November, stressing that planned price increases would be carried out in two phases.

"As of November, a litre of diesel will sell for LE2.10," the minister told Al-Mal. "And in May of next year this will rise to LE5.30 per litre."

Investors in Egypt's tourism sector, however, have vociferously criticised the planned price hikes, pointing to the country's rapidly declining tourist numbers due to ongoing political instability.

"Price increases now will mean more tourist cancellations," said Mohamed Fathi, owner of local tourism company Visit Egypt. "It will also mean that local companies will end up eating the price differential, which will be very difficult under current circumstances."

"Given the current state of political turbulence, the Egyptian tourism sector's only asset is the lower prices it can offer," Fathi said. "An increase in the prices we offer would-be tourists – because of higher fuel prices – would be fatal to the industry's profitability."

Diesel subsidies currently cost the state some LE50 billion (nearly $7 billion) annually, accounting for more than 40 per cent of total energy subsidies, which reached a whopping LE120 billion in the 2012/13 state budget. Meanwhile, Egypt continues to import roughly 40 per cent of its diesel needs.

The reduction of overall subsidies represents a key aspect of a government plan for economic reform, upon which a proposed $4.8 billion loan from the IMF is conditional. Precise details of this reform plan, however, remain vague.

What's more, no official announcement has yet been made regarding subsidies on diesel fuel used in the production of electricity, which represents the main component of national diesel consumption. 

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