Defending subsidy cuts, govt officials accuse wealthy of abusing the system
Courtesy: Courtesy of Nicholas Simcik-Arese

Egypt’s wealthiest citizens are abusing energy subsidies, a government official claimed in a panel discussion on Thursday.

Of citizens belonging to the wealthiest 20 percent of Egyptian society, 72 percent were taking advantage of ration cards for subsidized energy, claimed General Abu Bakr al-Gendy, the head of the governmental Central Agency for Public Mobilization and Statistics (CAPMAS), reported the state-owned Middle East News Agency (MENA).

“Subsidies were made to assist the poor — and not just for petroleum products, but in regards to food commodities as well,” Gendy argued in the discussion.

The Regional Center for Strategic Studies organized the event under the title, “The government’s options to modify energy subsidies.”

“A way of communication has to be established between involved state bodies and citizens to solve the energy subsidies crisis,” the CAPMAS official urged.

In 2012, the government spent LE130 billion on subsidies, LE13.3 billion of which covered electricity subsidies alone, according to Hafez al-Salmawy, executive director of the Electricity Regulation and Customer Protection Agency.

The energy sector at large received a total of LE95 billion in that year. Four percent of that amount went to butane gas, 26 percent to mazut, 30 percent to diesel, 41 percent to gasoline and 66 percent to natural gas subsidies.

The subsidies have increased every year due to high consumption and unit cost, Salmawy said.

“We have to take real and practical steps towards amending the subsidy system,” he asserted.

“These steps include revising the consumption rates database and developing appropriate mechanisms like smart cards, in addition to reviewing the costs of these services and studying ways to reduce them.”

Salmawy echoed the Cabinet’s insistence that subsidy cuts are necessary — he proposed lowering costs to compensate by reverting to less expensive fuel and promoting energy efficiency.

He also suggested establishing a social security network that provides monetary support as opposed to in-kind aid through subsidies, and also encourage citizens to use public transportation.

However, in December 2013, the Minister of Supplies and Internal Trade Mohamed Abu Shady told MENA that the government had no intention of shifting food subsidies to monetary plans.

“Eighteen million cards have been allocated for subsidized supplies, benefiting around 69 million citizens,” Abu Shady added.

Excessive spending on energy subsidies has led to a decrease in efficient consumption, warned Ahmed Ragab, an assistant economics professor at Cairo University.

Maintaining low energy prices has not helped to establish social justice and improve poverty levels, Ragab argued, adding that low fossil fuel prices had also contributed to higher consumption rates.

The gradual withdrawal of subsidies according to a product-specific and thoughtfully set timetable is an important step, according to Ragab.

“We have to set a clear strategy to be shared with the society to raise awareness around energy prices and take measures to compensate groups negatively affected by removing subsidies,” he asserted.

Prime Minister Hazem al-Beblawi told the French news agency Agence France-Presse (AFP) in late November 2013 that the interim government “will start to gradually lift energy subsidies before it leaves office at the beginning of 2014, without affecting the poor.” 

The plan is to lift subsidies in the coming five to seven years, although the interim government would only “moderately” execute the plan’s first stage, “with focus on energy and without affecting food subsidies […] in an acceptable way and with extreme caution,” Beblawi assured.