Expensive energy for all
A decision to raise price of natural gas sold to non energy-intensive industries is a step towards rationalising the ballooning subsidies bill, Ahmed Kotb reports
The Egyptian Natural Gas Holding Company (EGAS) has decided to apply a government decision to increase the price of natural gas for heavy industries and some industries that consume less gas.
Mohamed Shoaib, head of EGAS, announced last week that glass, porcelain and ceramic factories would pay $3 per thermal unit of natural gas instead of $2.3. The increase is part of a government plan to save LE4 billion of the total amount of subsidies allocated for energy every year. In November 2011, the government decided to increase the prices of gas sold to steel and cement factories from $3 per thermal unit to $4 for the same reason. The government had allocated LE95 billion for subsidising energy in the past fiscal year, as opposed to the LE70 billion slated for the current fiscal year.
According to Shoaib, the new prices will be applied retroactively as of January 2012, after forming a committee that would classify factories according to their level of energy consumption in order to determine the percentage of increase in the prices of gas that each factory receives.
He added that factories that sell subsidised products would be supplied with natural gas at lower prices. Bakeries that sell subsidised bread, for example, would not pay more for energy prices. Shoaib said during a press conference that the committee should be done with the classification process by the end of this month.
Government officials, including Mahmoud Eissa, minister of industry and foreign trade, promised to prevent any price increase in end products from factories affected by the new gas prices.
However, Ezzeddin Abu Awad, head of the Central Association of Cement Dealers, says the government cannot prevent cement factories from increasing their prices. "The problem is that more than 90 per cent of cement factories in Egypt are owned by non-Egyptians who can raise the prices of their product at any time because the law allows them to do so, he explained.
These factories already sell a tonne of cement for approximately LE450 while the actual cost of production is less than half that, Abu Awad stated.
Factory owners, of course, are not happy with the new gas prices, but Sherif Fouad, an economic analyst, says that their profit margin will fall by only a small percentage. "The products of these factories are already overpriced. The subsidised energy heavy industries are receiving only benefits owners," he said.
As for the government's ability to control any increase in prices of products, Fouad said that in his view it can do so by issuing strict rules to restrict acts of monopoly.
Electricity prices will not be increased for less energy-consuming industries, but they have already been raised early this year for heavy industries and vary according to the type of voltage. Industries that use super voltage electricity now pay 24 piastres per kilowatt, while others that use high voltage pay 29 piastres.
"The decision to raise the prices of gas and electricity for heavy industries, taken by the government in November of last year, was not implemented because officials were afraid that upping natural gas rates would lead many factories to use diesel because it would be cheaper," said Fouad.
He explained that the average international price of natural gas is about $5 per British thermal unit, while diesel's global price stands at around $1,000 per tonne. Subsidised diesel is sold locally at LE1,300 (about $220) per tonne.
EGAS mentioned in a press release that, "due to current economic difficulties in the country, the company has agreed to facilitate the dues of factories affected by the new energy prices."