The Egyptian General Petroleum Corporation (EGPC) announced on Friday the new petroleum prices depicting around 77 percent price hike in the lowest value Octane 80 and around 63 percent for diesel
The price hikes, which take effect as of midnight Friday, follow a cabinet approval earlier this week
The new budget managed to trim the deficit by LE48 billion, now registering LE240 billion or 10 percent of Gross Domestic Product (GDP); featuring a LE44 billion cut in the energy subsidy bill
In the last two months, official sources have been quoted as saying that the costs of three widely-used forms of petrol – 92 octane, 80 octane and diesel – will be raised by LE0.50 to LE1 per litre
Such reports, which Hany Kadry Demian, the minister of finance, dubbed as “irresponsible,” at a press conference earlier this week, have created a nationwide state of panic among a population accustomed to heavily-subsidised fuels for decades
But the EGPC announcement shows Octane 80 will increase by LE0.5 to LE1.6 per litre, Octane 92 will rise by LE0.75 to LE2.6 per litre and Diesel will climb some LE0.7 to LE1.8 per litre
At the moment, petroleum stations are crowded with queues of motorists trying to full their tanks for the last time with the old prices
El-Sisi had refused to ratify a draft budget presented last week by his cabinet which featured a 12 percent deficit on the grounds that would result in overly elevated levels of domestic debt
The ministry of finance monthly report preminilary figures shows that Egypt’s domestic debt stood at LE1.6 trillion ($223.8 billion) in March 2014
The new budget targets a budget deficit of LE240 billion or 10-10.5 percent of GDP, with revenues totalling LE549 billion and total expenditure at LE789 billion
The fuel subsidy bill amounted to LE144 billion in the initial draft budget but was reduced to LE104 billion, before finally reaching LE100 billion, Kadry told reporters in the conference
Electricity prices saw their share of hikes as Egypt’s electricity minister Mohamed Shaker held a press conference on Thursday to announce the new tariffs for both households and commercial sectors, representing a new increase in energy prices
According to Shaker, the new tariffs, which started this July, aim to trim the state’s subsidies for the electricity sector by 67 percent over five years to reach LE9 billion – instead of the LE27.4 billion already allocated in the fiscal year 2014/15
The new rise per kilowatt/hour (kw/h) will vary from LE0.02 to LE0.07 increasingly
According to official figures, electricity recorded more than 55 percent consumption of the country’s total natural gas production
In a statement the ministry said that it will continue to pump additional amounts of petrol and diesel fuel to meet the market’s growing demands. The total amount of gasoline pumped in the past few days, since the beginning of Ramadan, has reached approximately 28 million litres per day, a 25 per cent increase from the average consumption rates. Roughly 48 million litres of diesel fuel have been pumped daily, an eight per cent increase
According to the spokesperson of the ministry of petroleum, Hamdy Abdel-Aziz, the current fuel reserves are enough for more than 10 days. He said that an oil tanker carrying 30,000 tonnes of gasoline is scheduled to arrive in Alexandria on Saturday
Minister of Finance Hany Demian said this week that Egypt will cut energy subsidies by 44 billion Egyptian pounds ($6.2 billion) during the current fiscal year
Egypt currently has 100.3 billion Egyptian pounds ($14 billion) allocated to energy subsidies. The government will need to raise energy prices, both for citizens and factories, in order to raise these funds
Prime Minister Ibrahim Mahlab said yesterday that the increase would range between two and seven per cent
The government is unlikely to succeed in controlling anticipated price jumps in markets, goods, and services vulnerable to such abnormalities in the wake of petroleum subsidy cuts in the new budget, unless it takes measure to protect the poor, said Fakhry Al-Faky, former Assistant to the Executive Director the International Monetary Fund
The government cut petroleum subsidies to EGP 100bn for the 2014/2015 fiscal year (FY), compared to EGP 134bn for FY 2013/2014
The government, however, has not revealed the timeframe for increasing petroleum derivative prices like diesel, gasoline, fuel oil, and gas, in a move to reduce the budget deficit to EGP 240bn
According to Al-Faky, the government should not shy away from “inevitable” petroleum subsidy reforms, but they must take rapid measures to control market prices. This may take place through supporting and developing government consumer cooperatives and making all services and goods available to citizens at competitive prices to protect them from inflation
But Al-Faky expects prices to respond speedily to the removal of energy subsidies. This will be exacerbated, he said, by government slowness in protecting the poor from projected increases by adjusting market prices. This may take place either via government consumer complexes or by taking measures to increase production rates, threatening an increase hunger among the poor and middle classes, he said
Energy subsidies require approximately EGP 134bn of total public spending at the expense of education, health, and government investments, Al-Faky noted, increasing the government’s opportunities to develop the country and increases the budget deficit that now amounts to EGP 244bn
“The government will not be able to control potential price jumps for all goods and services on the market against a backdrop of energy subsidy cuts in the FY 2014/2015 budget,” said Hania Al-Sholkamy, Socio-Economics Professor at the American University in Cairo (AUC)
She said: “The government may succeed in adjusting prices by increasing production and facilitating measures for producers, supporting farmers, and making all goods and services available on the market. Storage and transportation systems must also be reformed so as not to increase prices.”
Al-Sholkamy added: “It is possible for the government to distribute coupons to citizens in order for them to meet their most basic needs at discounted prices.”
According to Al-Sholkamy: “All basic goods and services are susceptible to price jumps, including fruits, vegetables, rice, oil, and sugar, when energy subsidies are cut, and the government has to race against the clock to improve production in Egypt, increase supply, regulate markets, and ensure goods are available. If not, the burden on the poor will increase.”
“Units to collect dairy in the villages are implementing an ingenious solution that must be support by the government to allow all dairy producers to sell at competitive prices on the market,” Al-Sholkamy added
Regarding President Abdel Fattah Al-Sisi’s plan to provide the market with citizen’s needs for oil and sugar produced by the army, she said this plan is “illogical in economic terms and impossible to implement,” even if it were only applied for a month or two at the most