Egypt's govt to raise octane prices for first time in 8 years

Bassem Abo Alabass, Sunday 27 Apr 2014

No date set for price hikes, however, which come after officials determined a LE100 billion hole in budget's energy subsidies

gas station
People jostle for a fuel dispenser nozzle as a worker fills the tank of a car at a petrol station in Cairo (Photo: Reuters)

Egypt's interim government is mulling over when it will raise prices on fuel and petroleum products for ordinary consumers, Al-Ahram's Arabic news website reported on Saturday.

The price hike is an attempt to trim around LE30 billion ($4.2 billion) of the state's energy subsidy budget, which is expected to reach more than LE130 billion ($18.5 billion) by the end of the current fiscal year 2013/14, according to Al-Ahram.

The energy subsidy bill was targeted to be LE20 billion ($2.8 billion) less than the previous fiscal year 2012/13, but the government has since delayed steps to restructure the subsidy system.

An official source told Al-Ahram that the cabinet led by interim Prime Minister Ibrahim Mahlab is considering raising the costs of three widely-used forms of petrol – 92 octane, 80 octane and diesel, all of which will be LE1 ($0.14) higher per litre.

Former oil minister Osama Kamal told Ahram Online on Sunday that the new rise on petrol, the first in eight years, comes after the government realised that it would not meet its targeted LE100 billion ($14.3 billion) for energy subsidies in the current budget.

"The actual cost of fuel hasn't been moved up since 2006, but in 2008 the petroleum products' prices were raised due to the imposition of a sales tax," Kamal explained.

Currently, 80-octane gasoline sells at LE0.9 ($0.15) per litre, 92-octane at LE1.85 ($0.3) per litre and diesel at LE1.10 ($0.16) per litre.

In late 2012, the government liberalised the price of the highest quality gas, octane 95, to be sold at LE5.90 ($0.84) per litre instead of the subsidised price of LE2.75 ($0.39) per litre. It also raised prices for cement companies that use Mazut for production by 130 percent to reach LE2,300 ( $328) per tonne, compared to the previous price of LE1000 ($143) per tonne.

According to Al-Ahram, the government has two time options to announce the price rises. The first is to include the new price scheme in the coming fiscal year's budget 2014/15, which will start this July.

However, the second option would be in favour of imposing the new tariff after implementing a system of governmental fuel smart cards by end of the current year.

"There is no nice time to cut subsidies, but the government has to," said Kamal, who added that public irritation will be inevitable when the new prices are announced.

Earlier this month, it was announced that the government had issued two million fuel smart cards to be ready for use in petrol stations nationwide.

Reuters reported that the government aims for a total of 4.5 million cards to be issued over the programme’s second phase, which began last July.

Egyptian authorities have already implemented the first phase of the smart card system, which consisted of issuing cards for tanker trucks and gas stations and building a database of companies and depots for fuel distribution.

The smart card system aims to curb the smuggling of subsidised fuel and thus help to rationalise state subsidies for petroleum products, which registered LE50 billion ($7.1 billion) in the first eight months of the fiscal year 2013/14.

Last week, Al-Ahram quoted interim PM Mahlab as saying that Egypt would start restructuring energy subsidies as of July, coinciding with the coming fiscal year 2014/15, without affecting poor or low-income segments.

He added that the new energy subsidy system would not touch the price of butane gas cylinders or electricity consumption charges for medium and low income segments of society. Meanwhile, the government has not decided on raising petrol and fuel prices.

Two days after Mahlab's statements, the government approved a new pricing structure for natural gas for households that will take effect as of May.

Consumption below 25 cubic metres of gas per month will now be charged at LE0.4 ($0.06) per cubic metre.

Consumption between 25 and 50 cubic metres per month will cost LE1 ($0.14) per cubic metre, while consumption above 50 cubic metres per month will be charged at LE1.5 ($0.21) per cubic metre.

The new maximum price is triple the current limit, which was raised in July 2012 to LE0.5 ($0.07) from LE0.3 ($0.04) per cubic metre.


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