By Abdelkader Ramadan
The President of the Energy Committee of the Federation of Egyptian Industries, Tamer Abu Bakr, has outlined a plan to gradually end the government’s involvement in the sale of natural gas to factories and focus completely on electricity stations, households and vehicles.
As Egypt struggles to come to grips with the effects of an impending economic crisis, government support for subsidised fuel has decreased, leading to energy shortages in many of Egypt’s factories. Abu Bakr claimed that many of these factories have reaped enormous benefits in previous years from purchasing subsidised gas. However in the last two years the amount of subsidised gas available on the local market has become scarce and is no longer enough to satisfy the production needs of many of these factories. These factories then face a dilemma, either continue to rely on government subsidised gas and face inevitable closure, or look to alternatives to satisfy their demands.
Abu Bakr’s plan is based on a recent study conducted by the Federation of Egyptian Industries that calls for private import companies to supply Egyptian factories with natural gas in order to satisfy their energy needs. Many of these import companies claim that they will not sell natural gas to Egyptian factories for less than $11 per million BTUs; a price higher than that of the government’s, something which has turned off some factory owners. However, Abu Bakr points out that many foreign factories buy their fuel for anywhere between $14-17 dollars per million BTUs and are still able to export products onto the world market.
The federation’s plan calls for a transitional period to gradually wean Egyptian industry off subsidised gas. Egyptian industry is responsible for 25 per cent of the country’s natural gas consumption and 24 per cent of its oil consumption. Although a timeline was not put forth, the plan would see Egyptian industry eventually rely entirely on the private sector to satisfy these demands. Under the federation’s plan, the government would continue to provide subsidised oil and natural gas to residential, commercial and government sectors.
Another part of the plan includes weaning Egyptian industry off oil, replacing it entirely with natural gas. Abu Bakr pointed to the fact that many Egyptian oil companies possess a weak logistical infrastructure, making it difficult for them to properly store and transport petroleum products. Abu Bakr estimated that re-building this infrastructure would cost tens of billions of dollars.
The plan discusses the need for private import companies to reassess their contracts with Gasco, the Egyptian Natural Gas Company responsible for transporting natural gas along Egypt’s national grid, in addition to a host of other logistical issues. The plan calls for the government to reassess its seven per cent tax on imported natural gas, and to exempt the steel, cement and fertiliser industries from paying a tax. In the plan, the role of the government is limited to providing a regulatory framework that would help set prices and create an environment friendly to free trade.