Shaking up Egypt's energy subsidies a tough proposition

Annual subsidies of LE114 billion ($18.7 billion) disproportionately benefit the wealthier in society, Petroleum Minister Osama Kamal told Al-Watan, a local independent newspaper, on Sunday. Egypt's budget for the year ending 30 June was LE476.3 billion pounds, according to the draft budget for 2012/13. Kamal said introducing the programme would need "strong political will", unlike previous governments which baulked at taking unpopular austerity measures. A vote on the coupon system is expected after a constitution is approved by a constituent assembly is approved, a process that could take many months. Prime Minister Hisham Kandil said earlier this month the government wanted to tackle fuel and other subsidies via a coupon or smart card system in October to ensure the poor, rather than everyone, gets subsidised butane cooking gas. Subsidies would also be cut on 95-octane gasoline and other fuel handouts would be reviewed, Kandil said. An official from Egypt's Cabinet on Sunday denied recent rumours that subsidies cut -- which would spark an immediate hike in fuel prices --  was imminent. The government is struggling to reduce a budget deficit running at 11 per cent of gross domestic product and has to sell economic restructuring to Egypt's 83 million people, many in dire poverty and desperate to see the benefits of last year's popular revolt. The oil minister told al-Watan that the government had a produced a database of about 65 million people, or 12 million families, who would get coupons for two cylinders of cooking gas a month at the current subsidised rate. Gas bought without coupons would be priced much closer to world prices. "We also have a database of families who have natural gas piped into their houses. These (also) will not get coupons. This will save the state about 80 million butane cylinders, because the state will offer 280 million cylinders compared to the current 360 million," al-Watan quoted him as saying. Most Egyptians now pay only around LE5 per cylinder. Kamal said the price outside the coupon system would initially be LE30 compared with a world price of LE68. Kamal said the subsidy on 95 octane gasoline, commonly used by luxury cars and which the state sells at LE2.75 per litre, should be removed and it should be sold at its free-market cost of LE4.85. Other officials have ruled out a reduction in the price of the 80 octane gasoline widely bought by the poor, which Kamal said was sold at LE0.90 per litre but whose true cost is LE3.35. Kamal said subsidised diesel would also be sold at the current LE1.10 per litre using coupons, with transport and taxi drivers and certain other diesel users such as farmers eligible to receive them.  All other diesel would be sold for LE4.75 a litre. This would trim an initial LE12 billion off the government's LE48 billion-a-year subsidy bill for diesel. On Sunday, the head of the Egyptian Petroleum Company said that state reserves of oil have reached 3.4 billion barrels. Quoted by the state-owned Al-Ahram newspaper, Hany Dahi said annual production had risen by 30 million barrels. From : Ahram online