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Egypt hikes fuel prices by up to 100% to save LE35 bn in budget

Egypt increased fuel prices on Thursday morning by almost half their previous value, a move which is expected to save LE35 billion in fuel subsidies Petroleum Minister Tarek al-Molla said in a press conference earlier today.

Prices of diesel and 80-octane gasoline, used by the vast majority of the population, were raised by 55 percent to LE3.65, up from LE2.35 per liter. A cubic meter of gas for gas-powered cars will now cost LE2 instead of LE1.60, a 25 percent increase.

The higher value 95-octane gasoline rose by 5.6 percent and will now cost LE6.60, up from LE6.25, per liter. Gasoline of the 92-octane category saw the steepest increase with an almost 43percent hike, bringing the price up from LE3.5 to LE5 per liter. The price of butane gas cylinders (LPG), mostly used to power household cooking stoves, has increased by 100 percent, reaching 30 pounds per cylinder for household consumption – up from LE15 – and LE60 per cylinder for commercial use – up from 30. In initial round of price hikes in July 2014, butane cylinders were left untouched, as they most directly affect Egypt’s lower-income households. But the most recent increases in November 2016 saw their price jump from LE8 to LE15 per cylinder.

Natural gas supply to households has increased the most, by 33 percent, for the lowest consumption bracket (0 – 30 cubic meters) reaching LE1 per cubic meter, up from LE0.75. For the mid-range consumption bracket from (30 – 60 cubic meters) prices increased by 14 percent to LE1.75 per cubic meter, up from LE1.5. The highest consumption bracket (more than 60 cubic meters) saw the smallest increase of 12.5 percent, bringing the price per cubic meter up from LE2 to LE2.25.

 

According to Molla, the hike will reduce Egypt’s fuel subsidy bill by around LE35 billion, bringing the total budget deficit for the fiscal year 2017/2018 – due to start this Saturday – down from LE145 billion to approximately 105 to 110 billion. This increase comes as part of a five year plan that commenced in July 2014, said el-Molla, adding that the savings will be used to invest in upgrading the downstream infrastructure, which should improve availability of high quality fuel and allow Egypt to export.

Egypt began its restructuring of its fuel subsidy bill in July 2014, one month after President Abdel Fattah al-Sisi took office, in an effort to check its growing budget deficit and liberalize the energy sector.

In November, Egypt applied a second round of fuel price hikes after securing a $12 billion loan from the International Monetary Fund, to be doled out over three years. By accepting the agreement, the Egyptian government has committed itself to a program that targets a near complete cost recovery ratio by fiscal year 2018/19.

Within that agreement Egypt was expected to cut LE35 billion in costs from the state budget’s fuel subsidy bill. But as the pound proved more vulnerable than originally estimated by both the government and the IMF, and as international oil prices continued to blaze on an upward trajectory, the fuel subsidy bill inflated to LE101 billion in FY2016/17, comprising 2.97 percent of GDP, as opposed to the original target of 1.8 percent.

The pound has fallen to LE18 to the dollar after the exchange rate was liberalized in November, weaker than the original budget assumption of LE13 to LE14 to the dollar, while international oil prices have also increased more than the original estimate of $35 per barrel.

 

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