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Raising fuel prices increases corruption and burden on the poor: Petroleum expert

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Government reduced allocations for petroleum subsidies to approximately EGP 104bn from EGP 134bn in 2013/2014, raising fuel prices in the local market, according to the proposed 2014/2015 budget

Energy subsidies land in the pockets of officials, and are not channelled to the poor, petroleum expert Ibrahim Zahran says. (AFP Photo)

Energy subsidies land in the pockets of officials, and are not channelled to the poor, petroleum expert Ibrahim Zahran says.
(AFP Photo)

By Mohamed Adel

The government will be unable to achieve the reductions in petroleum subsidies it specified in the coming fiscal year’s budget, according to Osama Kamal, the former Minister of Petroleum.

The failure to reduce subsidies, Kamal said, is due to the government’s not failure to announce the measures at least one month before the budget‘s announced.

Kamal stressed that it will be difficult for the incoming government to move price levels given the unstable economic situation for citizens. The State must popularise the use of natural gas in cars, keep abreast of technological development, and provide electric-powered cars.

According to petroleum expert Ibrahim Zahran, Egypt does not pay the value of petroleum that is pumped out to consumers on the domestic market; instead, it obtains 68% of oil production, and 50% of natural gas at no cost, buying from foreign partners without repaying them.

Zahran stressed that accumulating energy subsidies resulted from corruption in the government and not increasing consumption rates. The Ministry of Petroleum, he says, pays about EGP 70bn in expenses each year.

According to Zahran, the subsidies land in the pockets of officials, and are not channelled to the poor, adding “if subsides on petroleum are lifted, corruption will increase and rising prices will [hurt] the poor”.

Zahran informed Prime Minister Ibrahim Mehleb that the key to restructuring subsidies lies in restructuring the petroleum sector and all the state agencies. Should the government approve price rises in the near future, this would be met with significant price hikes for all product types Zahran said.

The domestic market requires 18bn litres of diesel during the coming fiscal year (FY). For the government to implement its rationalisation plan according to the budget, it must raise diesel to EGP 2.10 from EGP 1.10, which will save EGP 18bn, according to Medhat Youssef, petroleum expert and former Vice President of the Egyptian General Petroleum Corporation (EGPC)

Approximately 10bn litres of gasoline is needed during FY 2014/2015, and the government must raise the price of a litre by EGP 1 in order to save EGP 10bn on its subsidy bill. Youssef pointed out that the government will raise prices of butane gas cylinders outside the smart card system according to the share allocated to each family. Butane gas will remain at free market prices, which will save the government at least EGP 5bn.

Youssef stressed that price increases for petroleum products with the implementation of smartcards will greatly contribute to rationalising consumption and preventing smuggling.

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