CAIRO: The government will reduce energy subsidies by gradually increasing the price of natural gas over the next three years, announced Minister of Trade Rachid Mohamed Rachid in a press conference Tuesday.
“Under the new system, the price of natural gas for industry will increase gradually over the next three years, from $1.25 to $2.65 per BTU, with an average rise of 7.5 piasters per cubic meter. The price of electricity will also increase gradually over three years, from 18.3 to 29.5 piasters per kilowatt for medium power consumers, Rachid said.
Besides the energy pricing mechanism, the government will also focus on enhancing the cement and steel sectors; as well as developing small and medium enterprises (SME) in the industrial sectors. These initiatives mark the start of the second phase of Egypt’s industrial policy, which centers on a series of initiatives that seek to enhance the efficiency and competitiveness of Egyptian industry.
“After three years of sustained economic reforms, we have successfully put Egyptian industry on the map as a key driver of growth, investment and job creation, Rachid said. “Now we are taking our industrial policy to a new level, with a set of initiatives that build on our efforts to create a competitive, transparent and predictable investment environment for the growing numbers of foreign and local investors looking to enter Egypt’s industrial sector, Rachid said.
The new mechanism for pricing the use of natural gas and electricity will be applied to 40 companies operating in industries that consume large volumes of energy – more than 66 million cubic meters of natural gas per year and more than 50 kilowatts per hour.
Over the coming three years, prices will gradually increase until they reach cost recovery. The result will be an energy price free of any subsidies, minimizing the fiscal burden on the government.
After this transitional period, the price of natural gas and electricity for energy intensive industries will be variable, set according to a formula linked to cost and world market prices. A ceiling of 15 percent price increase per annum will ensure the competitiveness of Egyptian industry and give investors predictability.
The new mechanism, which has been developed in coordination with the Ministries of Petroleum, Electricity and Energy will be implemented once it has been approved by Egypt’s Supreme Energy Council.
Rachid also announced measures to increase the efficiency and competitiveness of sectors such as cement and steel. “The ministry will seek to increase the number of local operators, by issuing 14 new licenses for cement factories to start operating with an average capacity of 1.5 million tons per line, he said. Currently, 54 requests for cement licenses have been received by the Industrial Development Authority.
In addition, two licenses will be issued for the establishment of billet factories and another two for DRI steel production factories with a total capacity of 7 million tons per year. Also, the export duty on cement will be raised to LE 85 per ton in an effort to stabilize local market prices. By increasing Egypt’s local production of DRI and billets, these licenses should reduce the need for imports and satisfy local demand, the minister said.
The ministry will introduce a new package of incentives and financial support for SME development as part of efforts to boost Egypt’s industrial competitiveness. This package includes the allocation of LE 280 million by the Industrial Training Council, for specialized training of new entrants into Egypt’s labor intensive industries.
Special support will be given to new industry entrants through schemes to aid land allocation and the financing of new entrepreneurial ventures. A new Industrial Entrepreneurship Council will be launched with a budget of LE 20 million per year to support industry start-ups. In addition, a new Designers’ Forum will also be launched to promote young Egyptian industrial designers to compete on an international level.
Finally, the ministry will introduce measures that improve the regulatory environment for internal trade by simplifying procedures and reviewing current legislation and regulation.