Fuel production cost expected to increase allocated subsidies by EGP 30bn in FY 2017/2018

Ahmed Ismail
5 Min Read
30% fuel consumption increase because of anticipated price increase next Tuesday, EGPC Official (AFP Photo / Khaled Desouki)

An official source at the Ministry of Petroleum and Mineral Resources said that petroleum product subsidies are expected to exceed the sector’s allocations in the state budget for the fiscal year (FY) 2017/2018. The expected rise comes as a result of the increase in global crude oil price as well as the dollar exchange rate against the Egyptian pound.

The source, who spoke on condition of anonymity, said the draft budget for FY 2017/2018 allocated about EGP 110bn for fuel subsidies based on average of $55 per barrel of oil and an average dollar price of EGP 16. However, the price of crude oil increased to about $60 per barrel, while the dollar reached EGP 17.7.

The Ministry of Petroleum expected that the fuel subsidies in the current FY would reach EGP 100-105bn only, benefitting from the recent increase in petroleum products prices in June.

According to the source, the rise in global crude oil prices will affect the local market significantly, as every extra dollar in the price of crude oil will increase the cost of petroleum subsidies by about EGP 3bn. In addition, every extra 10 piastres in the price of the pound against the dollar leads to an increase in fuel subsidies by about EGP 2.5bn annually.

Minister of Petroleum Tarek El Molla said that the cost of producing gasoline 92 amounts to EGP 6.4 per litre, while it is still sold at EGP 5 per litre, adding that the cost of producing gasoline 80 is up to EGP 5.7 per litre, while its price for consumers is EGP 3.65 per litre.

The cost of producing diesel is about EGP 5.7 per litre, while its selling price recorded EGP 3.65 per litre. In addition, the cost of a liquefied petroleum gas (LPG) cylinder is EGP 124, while its price on the local market is EGP 30.

According to the Ministry of Petroleum, the cost of fuel production was calculated based on an average dollar price of EGP 17.7 and average oil barrel price of $52.

According to the source, petroleum product subsidies are expected to exceed EGP 140bn in the current FY, unless the government decides to increase fuel prices before the end of the fiscal year.

Pharos Holding for Financial Investments issued a report recently showing that every extra dollar in the prices of petroleum products results in an additional EGP 1.9bn on the fuel subsidies and EGP 0.4bn in revenues, creating a budget deficit of EGP 1.5bn.

The report added that every drop of EGP 0.10 in the local currency exchange against the dollar will increase Egypt’s fuel subsidies by EGP 0.8bn, creating a deficit of EGP 1.1bn.

The government raised fuel prices at the end of last June, when the price of a litre of gasoline 92 rose to EGP 5, up from EGP 3.5. The price of gasoline 80 and diesel both increased from EGP 2.35 to EGP 3.65. The price of a cubic metre of natural gas for cars was raised from EGP 1.6 to EGP 2, according to El Molla. Moreover, the price of gasoline 95 increased from EGP 6.25 to EGP 6.6, while LPG cylinders increased to EGP 30, up from EGP 15 for homes, and EGP 60 instead of EGP 30 for commercial use.

According to the International Monetary Fund’s report issued in November, the Egyptian economic reform programme aims to reduce petroleum product subsidies in FY 2018/2019 to reach EGP 47.2bn, compared to an expected EGP 108.2bn in the current FY.

The report added that the government will continue reducing fuel subsidies to reach EGP 35.1bn by FY 2021/2022


Share This Article
Leave a comment