CAIRO: The Ministry of Electricity, it’s safe to say, is not the government’s biggest earner. But a new plan, announced by the government this week seeks to remedy the problem.
The ministry said for the first time that it is enacting a plan to partially privatize domestic electrical production.
The government, through the Electricity Holding Company, is currently Egypt’s sole producer of electricity, a service for which it racks up an annual deficit of LE 7 billion.
Now, in an effort to reduce debt, the government will begin selling contracts to private firms, who will co-own plants with the government.
“The government is liberalizing the energy sector gradually to reduce its debt and subsidy burden, and restructure the sector to allow more private sector participation, wrote investment bank Beltone Financial.
According to local media, the decision will affect only new plants, and the government aims to entice those in the private sector by offering loans of more that LE 2 billion to fund the projects.
None of this is to say, though, that the government is taking its hands completely out of the energy production business. First, all existing plants will remain nationalized. Second, even with the new plants, the government has proposed a public-private partnership in which it would continue to own 51 percent of all future projects.
The new system will be applied first to the Ain Sokhna plant in partnership with the National Bank of Egypt (NBE).
This new program is also part of a broader government effort to reduce its subsidies. The current cabinet has expressed a desire to cut back on its broad subsidy programs as part of an effort to cut back on expenditures.
And by the time consumers pay for electricity, it has already been made less expensive by two subsidies.
“Electricity is subsidized twice through the subsidy of the natural gas or mazot used in powering the plants and the subsidy on electricity prices, wrote Beltone.
The government’s efforts to cut back on electricity subsidies reaches back several years. As part of its restructuring effort, the ministry has started a slow shift from universal subsidies to target subsidies only for low-income groups. This new public-private plan, say analysts, is a part of that continued effort.
“Electricity prices have been rising on an annual basis since 2004, progressively, so as to reduce the subsidies paid for the high income group, wrote Beltone.
The way the government has typically done this is by selling electricity at more expensive rates when a household or business consumes above what a typical low-income does.
Moving electricity to the private sector also meant a shift in its annual price increases. The government announced earlier this month that it would not raise prices this October as it had done every year for the last five.
Total subsidies for Egypt hit around LE 3.5 billion this year.
The numbers, though, suggest that reforming the payment structure for household electricity may do little to ease the deficit that the government incurs every year.
Households are responsible only for about 3 percent of annual electricity consumption, while industry takes up about 60 percent.