The government has said that it intends to raise fuel prices again soon in an attempt to reduce the cost of fuel subsidies in the state budget in the coming fiscal year that begins in July.
“There is no other choice for the government except to raise the prices of petrol once again this year in order to slash subsidy costs in the coming fiscal year that could rise to more than LE140 billion if prices are not hiked,” said a source at the Ministry of Petroleum and mineral resources who preferred to remain anonymous.
The source said the government was looking into raising the price of petrol. “There are discussions about the rate of increase and its timing, but no decisions have been taken so far,” he said.
The Egyptian General Petroleum Corporation (EGPC) estimates that petrol subsidies in the coming fiscal year will be between LE140 and LE150 billion if no steps are taken to cut subsidies.
However, the Ministry of Petroleum has earmarked only LE110.148 billion for petrol subsidies in the new budget. “This indicates there will be measures to cut subsidies by LE30 to LE40 billion in the coming fiscal year,” noted the source.
Minister of Finance Amr Al-Garhi said his ministry would earmark between LE140 and LE150 billion in petrol subsidies compared to the LE100 billion expected by the end of the current fiscal year. Al-Garhi added that fuel subsidies, including on petrol and electricity, would amount to more than LE200 billion in the coming fiscal year.
According to statements by the Finance Ministry, the average price of one barrel of crude oil has been set at $55 at an average exchange rate of LE16 to the dollar in the draft budget for next year.
Reham Dessouki, a senior analyst at the investment bank Arqaam Capital, agreed that the government intended to raise the price of fuel this year. “There is no other choice,” she said. “Prices will go up in the second quarter of this year or the beginning of the third quarter.” She added that the expected hike in fuel prices “could be between 35 and 40 per cent”.
The government raised fuel prices in November 2016 by 45 per cent for 80 grade petrol at a cost of LE2.35/litre instead of LE1.6/litre. 92 grade rose by 35 per cent to reach LE3.5/litre instead of LE2.6/litre; diesel fuel rose by 30 per cent to reach LE2.35 instead of LE1.8; the price of liquefied natural gas rose from LE1.10/cubic metre to LE1.60/cubic metre; the price of 95 grade petrol remained the same at LE6.25; and the price of butane gas cylinders rose from LE8 to LE15.
Medhat Youssef, an oil industry expert, believes the government wants to pass on some of the financial burdens of floating the pound and the rising prices of crude oil to the public. “The cost of oil subsidies will rise at the end of this fiscal year to more than LE100 billion despite the estimated LE35 billion at the beginning of the fiscal year because of the floating of the Egyptian pound,” Youssef said. “Therefore, the government has no other option except to raise prices.”
The government had earmarked LE35 billion in the current budget for oil subsidies based on an estimated exchange rate of LE9 to the dollar and $40 per barrel.
Youssef said that one of the ways to cut oil subsidies was by using smart cards to distribute fuel products. “This is expected to begin at the start of the new fiscal year,” he said.
The writer is a freelance journalist.