CAIRO: The government will raise prices of natural gas and electricity for energy-intensive industries starting July, instead of September, to help ease pressure on the budget, the Ministry of Trade and Industry said in a press statement.
The Ministry announced Monday it would hike the price of natural gas to $2.22 per million British Thermal Units (BTUs) in July from $1.85 per million BTUs. Another increment – which was initially scheduled for late 2009 – will be moved up to January 2009, raising natural gas prices to $2.65 per million BTUs. Electricity prices will also increase a cumulative 20 percent over the same period.
“The government will not wait till 2009 to increase energy prices for intensive industries, as previously planned, said Minister Rachid Mohamed Rachid, citing continuous hikes in international energy prices.
The ministry’s new decision applies to Egypt’s steel, cement, aluminum petrochemicals, ceramics, and fertilizer industries. The ministry defined energy-intensive industries as those that consume 66 million cubic meters of gas or those that exhaust electricity that exceeds 50 million kilowatt per hour annually.
The new price acceleration comes as part of the government’s new industrial energy policy, which will gradually eliminate energy subsidies by 2009 for energy-intensive industries such as fertilizers, cement and steel. The most recent move under this policy was the increase in the prices of fuel oil by 100 percent to LE 1,000 per ton at the beginning of 2008. The higher price of fuel oil added to inflationary pressures in the construction sector, as the prices of bricks increased to LE 280 per thousand bricks in January from LE 180 in December.
Rachid added that subsidy cuts would not be limited to energy, but would also include other industrial inputs and raw material such as clay used in cement and ceramic production, limestone, and gypsum.
“These developments will have a negative effect on heavy industries – specifically cement – by expediting increase in the natural gas cash cost component, which amounts to around 25 percent, commented Beltone Financial.
While financial experts fear this new increment could further raise prices of commodities, particularly steel and cement on the market, weighing on inflationary pressures, Minister Rachid begs to differ.
“Energy-intensive industries such as fertilizers, cement, and aluminum have already placed domestic prices at par with international prices, while at the same time they receive subsidized energy and raw material, Rachid pointed out. “Raising prices of energy and raw material will not lead to [a further] hike in these commodities because they already sell at international prices.
Furthermore, lifting custom duties and import tariffs on these commodities allows consumers to import them at international prices if domestic producers raise their prices.
Earlier this month, the government abolished import duties on many foodstuffs and building materials, in a bid to reduce inflation.
The new price hikes come one day after Minister of Finance Youssef Boutros-Ghali urged Ministries of Petroleum and Trade to expedite the implementation of the increment in price of natural gas and electricity for energy-intensive industries due to rising budgetary costs.
Energy subsidies are a major contributor to the government’s budget deficit, helping to push up interest rates. The Ministry of Finance uses a price of $60 per barrel in its budgetary projections for subsidies, while international prices have soared to record highs of $117 per barrel.
Boutros-Ghali told Reuters on Monday that energy subsidies would rise to LE 60 billion ($11.13 billion) in the 2008/9 fiscal year from LE 57 billion, but the overall budget deficit would be stable at 6.9 percent of gross domestic product (GDP). He added that the government wanted to raise public-sector salaries by more than 15 percent in July if it could do so without adding to the budget deficit.
“We are trying to devise a package whereby we get additional resources, which would be directed towards a greater salary increase and more support through the ration cards, he told the news agency.
The government is currently looking into means of increasing income levels after several Egyptians took to the streets protesting high inflation rates amid minor income levels. Egypt’s urban consumer inflation soared to its highest rate in over three years in March as food prices jumped, surging to 14.4 percent in the year to March after a 12.1 percent increase in February.
Consequently, Ghali announced Monday that cost of food subsidies would grow to LE 20 billion ($3.70 billion) from 15 billion this year.
