Egypt to spend EGP 55 billion in annual diesel subsidies despite raising fuel prices: PM
Newspaper Title: https://english.ahram.org.eg/
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Thursday - 14 July 2022
Egypt is expected to spend EGP 55 billion in annual diesel subsidies during the fiscal year FY 2022/23 after the government’s Wednesday decision to raise diesel prices for the first time in 30 months by EGP 0.5 per litre, Prime Minister Mostafa Madbouly has said.
Madbouly made the remarks in a speech addressing the nation on Thursday following Egypt’s Fuel Automatic Pricing Committee’s decision to raise the price of fuel products by up to EGP 1 per litre in quarterly review, the biggest rise in fuel prices since October 2019.
As per the decision, a litre of 80-octance gasoline and 92-octane rose by EGP 0.5 to EGP 8 and EGP 9.25 respectively, while a litre of 95-octance rose by EGP 1 to EGP 10.75. The price of diesel and kerosine also rose from EGP 6.75 to EGP 7.25 per litre.
Following the decision, the government said that the rise in fuel prices aims to preserve the country’s petroleum resources and spare the general budget further burdens so the state can face global inflation pressures amid the Russia-Ukraine crisis.
This decision came while the government is pressing ahead with plans to convert petrol-powered vehicles to run on natural gas, a step that should contribute to reducing the cost of subsidised petroleum products in the state budget.
“We were very keen last year to not increase the price of diesel in hope that the conditions of the war will be exceptional,” Madbouly said during his Thursday speech.
He added that the state had to replan its budget in an effort to avoid part of the huge losses amid predictions that the Russia-Ukraine war will last for a year or more from now.
The recent hike in fuel prices will allow the state to spend only EGP 55 billion in annual diesel subsidies instead of EGP 63 billion in the previous FY 2021/22, Madbouly said.
The state will provide diesel at EGP 7.25 after the recent hike although it costs the state EGP 11, Madbouly said, affirming that the government bears the largest portion of the rise in global fuel prices and makes citizens pay for a small portion.
The government had not raised the price of diesel over the past months as it is used in many fields, including mass transportation, cargo transport, and operation of agricultural machinery, he added.
Egypt consumes 42 million litres of diesel per day and EGP 15 billion litres annually, Madbouly said, noting that the recent rise in fuel prices will cause the state to incur EGP 157 million daily in diesel subsidies instead of EGP 178 million over the last fiscal year.
To contain the global spike in brent crude, which has reached $120 up from $60 per barrel during the past period, the Egyptian state has increased fuel and butane subsidies in FY 2022/23 to EGP 30 billion instead of EGP 18 billion last year, Madbouly said.
The new budget sets EGP 85 per petroleum barrel, Madbouly noted, saying that the state has also allocated EGP 130 billion in general reserves to provide the basic needs for citizens as per presidential directives. This includes covering the difference in price of petroleum barrels.
The state’s subsidy for butane cylinders will also increase during the current fiscal year, Madbouly said, noting that the cost of butane cylinder has increased over the past period to EGP 200 instead of EGP 150, while it is provided to citizens at EGP 75.
Top 10 cheapest diesel countries
Despite its recent hike in fuel prices, Egypt remains one of the top 10 countries with the cheapest diesel prices and among the top 20 countries worldwide with the cheapest gasoline prices, Madbouly said.
Also, fuel prices are much higher in dozens of countries where per capita income is lower than that of Egypt, he added.
Although Egypt produces a part of its required consumption of petroleum products, it imports 100 million barrels per year from abroad, the premier added.
Egypt has worked on removing fuel subsidies as part of its economic reform programme endorsed by the International Monetary Fund (IMF). In 2019, Egypt’s government formed the Fuel Automatic Pricing Committee tasked with setting fuel prices according to global prices, reviewing the prices every three months.
Madbouly said the state succeeded by the beginning of 2021 to remove fuel subsidies before the prices of petroleum barrels increased owing to consecutive global developments, including the coronavirus pandemic and the Russia-Ukraine war.
Adjusting fares, preventing exploitation
Madbouly said he has communicated with governors and Minister of Local Development Mahmoud Shaarawy to set new fares for public transportation in a way that suits the recent rise in fuel prices.
He added that public transportation fares have increased by 5-7 percent, urging citizens to file complaints with the Cabinet, local development ministry or governors against any exaggerated rise in fares.
In a statement today, Shaarawy announced that all Egyptian governorates had finished setting the new rise of public transportation fares, which will not exceed 7 percent.
Governors and their deputies have concluded inspection visits at transportation stops to make sure new fares do not exceed the determined ratios, Shaarawy said, urging police to take legal measures against violators.
The minister urged citizens to report any violations by contacting authorities via the hotline 15330, which will work round the clock, or via email at Info@mld.gov.eg or via Facebook (https://www.facebook.com/sotakmasmwo).
Maintaining bread subsidies
Despite the “crazy” rise in wheat prices globally, the Egyptian government has been keen to subsidise the bread system, Madbouly said during his speech.
The Egyptian state provides subsidised bread to citizens at a cost of five piastres, although it costs the state 80 piastres, up from 60 piastres amid the rise in global wheat prices, the premier said.
Egypt consumes 270 million bread loaves on a daily basis and almost 100 billion loaves annually, Madbouly said
He added that the state is buying wheat with an average cost of $260 per tonne, while one tonne of wheat now costs the state $500 due to the war.
New programme for wheat supply
Egypt will announce a new programme before the coming wheat cultivation season, which starts in October, to encourage local farmers to cultivate wheat and supply it to the state with better mechanisms, Madbouly said.
The new system will especially encourage young farmers to supply wheat to the government, especially as the majority of farmers prefer to keep wheat for personal use or sell it to the private sector, the premier said.
He added that providing wheat to the private sector is also beneficial because the wheat will enter the Egyptian market and therefore decrease the amounts the country needs to import.
He added that the state aims to collect 5-5.5 million tonnes of local wheat from farmers to use it in making subsidised bread, and has already obtained 80 percent of this amount.
He added that the newly applied wheat supply system has raised the price of wheat supplied by citizens to EGP 810 instead of EGP 710 per ardeb (1 ardeb is equivalent to 150kg). After additional incentives, the price of a wheat ardeb has totaled EGP 880 on average.
Tempering rise in power prices
To alleviate the suffering of citizens amid the current circumstances, the government is tempering the rise in electricity prices starting January next year instead of July, Madbouly said.
He noted that this six-month subsidy will lead the state to incur around EGP 10 billion.
Last month, President Abdel-Fattah El-Sisi said the government decided to postpone the scheduled rise in household electricity prices for the third time in a row to ease the people's burden, especially low-income citizens.
Egypt was initially planning to entirely phase out electricity subsidies by the end of the 2018-2019 fiscal year, but it extended the period until the end of 2021-2022, before announcing in June 2020 that subsidies will be phased out even more gradually through 2024-2025.
Social protection, unemployment
El-Sisi has instructed the government to prepare new packages of social protection programmes, Madbouly said, noting that the government is already preparing these packages.
Madbouly highlighted a decision to include an additional 450,000 families in the cash transfer programme Takaful and Karama. This increases beneficiaries to 4.2 million families with total allocations of EGP 22 billion in the new budget compared to EGP 11 billion in FY 2015/16, he added.
Despite challenges, Egypt’s unemployment rate dropped to less than 7.5 percent, down from 13 percent in 2014, owing to national projects implemented nationwide, the premier said.
Madbouly said that expansion in the implementation of national projects is the way to increase the citizens’ income, adding that Egypt’s GDP has witnessed an unprecedented rise over the past five years owing to the national projects.
He added that the national projects also led the per capita GDP to increase.
“We are all keen to increase the income of the Egyptian citizen,” Madbouly said, adding that increasing the income of citizens in any country requires an increase in GDP.
“This can be achieved in the event of acquiring natural resources, such as petroleum resources or some precious metals, or else through the expansion in the development and production process by implementing mega development projects,” he added.
