Egypt mulls reducing energy subsidies

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CAIRO: Egypt is currently studying the possibility of reducing energy subsidies to the industrial sector, Trade and Industry Minister Mahmoud Eisa said in a statement.

The move would reduce subsidies to energy-intensive factories as the ministerial committee of energy is currently looking for alternatives to reach a “consensual resolution to ensure the safety of the resources of the state budget.”

The decision is also meant to reduce the state’s deficit while ensuring that resources are properly allocated to the right sectors.

According to Egypt’s finance minister, the country’s deficit could hit LE 185 billion the next fiscal year.

There would be an emphasis from the Egyptian government not to damage the interests of the producers and not to make them suffer any additional burden that may affect their competitiveness both in the local and foreign market, Eisa pointed out.

As the country is seeing a shortage in fossil fuels, Magda Kandil, executive director of the Egyptian Center of Economic Studies previously told Daily News Egypt, it would be a smart move if the government reduced energy subsidies for consumers in order to encourage citizens to save energy and electricity.

“By not raising electricity prices, we are actually encouraging people to use more energy and electricity,” she said. “If it’s increased, people will rethink their usage and be more aware of their resources.”

Kandil also pointed out that since the government is not increasing prices internally and there is a surge in fuel prices, they would have to resort to other means.

“The electricity and energy issue is an eternal problem, now the prices are increasing, so this means now the government is borrowing more to cover these costs, if they aren’t increasing prices,” she said.

In a post revolution economy, the country’s still continues to suffer with a decline in tourism and little foreign direct investments.

The country has also been seeing a surge in food and fuel prices during the summer and Ramadan seasons.

In May, the government announced that they will not raise electricity prices for the fiscal year starting July 1.

At the time, many analysts said to alleviate the financial burden on citizens who already have to cope with unemployment and rising inflation in the country.

“The government now is trying to please everyone, they are trying to maintain their deals abroad and at the same time they can’t increase the prices inside the country because there is already inflation,” said Noran Ali, petroleum analyst at CI Capital.

“Any further surges now will affect the economy and right now you don’t want to antagonize the people.”

Ali also predicted that the government from now on would have “socialist” tendencies.

Alaa Ezz, secretary general of the Federation of Egyptian Industries, noted that reducing subsidies at this time might not be the decision to take.

“In my opinion, it is not the right time to make any changes at the moment,” he pointed out.

The minister also announced he plans to hold meetings with a number of industrial sectors in the country including representatives from intensive energy consumption factories such as ceramic, iron, fertilizers, and cement in order to receive their feedback regarding the possible amendments to the energy prices as well as alternative energy solutions.

There would also be a “joint working group looking at its first meeting to develop comprehensive performance standards of industrial and foreign trade sectors.”

Eisa also highlighted the importance of the business community’s participation in the decision making process. He will also be announcing soon new facilities and incentives that will encourage industrial and export development for Egypt.

“The government is keen to support the Egyptian industry and justify the relation between public interest and competiveness of the industrial sector,” said Eisa.

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