Thursday,20 September, 2018
Current issue | Issue 1143, 11 - 17 April 2013
Thursday,20 September, 2018
Issue 1143, 11 - 17 April 2013

Ahram Weekly

Problems cooking

The government’s attempts to deal with its fuel subsidies bill have not been plain sailing, writes Ahmed Kotb

Al-Ahram Weekly

One week after the decision to increase the price of butane gas cylinders used for cooking, many of the country’s warehouses through which cylinders are distributed have gone on strike, refusing to receive their designated share of butane canisters and saying that the decision to increase the price of the cylinders has eaten into profit margins.
According to the new prices, a 12.5kg household canister is now sold to the end consumer for LE8 instead of LE5, with a profit margin of LE2 for the warehouses. The cost of a 25kg commercial canister has gone up from LE12 to LE16, with a profit share of LE4.
The profit margin of the household canister used to be LE2.7, and the owners of the warehouses are demanding that margins move up to at least LE3 by increasing the price of the canister to LE9.
The strike by the warehouses, of which there are more than 2,800, with only 170 owned by the government, has resulted in a shortage of cooking cylinders, thus increasing prices on the black market.
This was already flourishing even before the strike, due to the absence of any proper inspection of the distribution process. A household butane gas cylinder costs between LE25 and LE60 on the black market, depending on the area and the availability of cylinders.
Almost one million canisters are normally distributed on a daily basis to cover the needs of the 78 per cent of Egyptians who use butane gas for heating and cooking, against the 23 per cent who are supplied with natural gas via pipes.
One cylinder warehouse owner, who preferred to remain anonymous, said that the government’s decision was not fair to warehouse owners because it did not take into account their growing operational spending amid demands from workers for increases in wages.
“Instead of raising our meagre profit margin, the government has decided to cut it,” he complained.
Hossam Arafat, head of the General Division of Petroleum Products at the Federation of Chambers of Commerce, agreed that the current profit margin was not sufficient and should be increased to LE3.
He added that the government had not consulted the Federation before deciding on the new prices, resulting in the current crisis with the warehouses. “The General Division of Petroleum Products is the representative of the traders. Warehouse owners should have been consulted on the proper profit margins, which should be increased not lowered,” Arafat said.
Some say that the new prices of commercial canisters will increase the costs of basic meals consumed by the poor. One of these is Mahmoud Al-Askalani, head of the consumer group Citizens Against High Costs of Living, who believes that upping the costs of butane canisters will increase the prices of several goods and “poorer citizens cannot afford higher prices.”
However, a number of restaurant owners in poorer areas said that their meal prices would temporarily stay the same, but agreed that if they had to pay more for the butane gas canisters eventually they would have to charge customers more for food.
The inhabitants of most poor areas depend to a great extent on the black market to get their cylinders.
“The warehouse owners who refuse to receive their designated deliveries are against the new system of pricing and distributing the butane canisters, which will help end the persistent black-market problem,” said Abdallah Shehata, a professor of economics at Cairo University and an advisor to the minister of finance.
Shehata added that many warehouse owners contributed to the black market by selling canisters clandestinely at higher prices.
Shehata refused to confirm that the new higher price of the canisters was part of the conditions required by the International Monetary Fund (IMF) to finalise a $4.8 billion loan deal with the Egyptian government.
“This has nothing to do with the IMF. Instead, it is part of an economic reform strategy that the current government is adopting, especially regarding the subsidies bill,” he said.
Shehata also said that one household canister cost the government about LE80 to produce, and that the subsidy bill for gas canisters alone was estimated at LE25 billion a year. Total fuel subsidies cost the government some LE115 billion in fiscal year 2011/12 and the government had planned to cut this bill to LE70 billion in the current fiscal year.
Minister of Petroleum and Mineral Resources Osama Kamal was quoted this week as saying that the subsidies bill in the current fiscal year could be as high as LE120 billion, particularly as a result of the depreciation of the Egyptian pound.
The minister also announced plans to remove subsidies on petroleum products entirely within three to five years. However, he said that that elimination would be accompanied by better incomes and services for the public.
The new prices for the cooking cylinders are expected to save the government about LE2 billion a year. A new system to distribute the gas cylinders through coupons, which is currently in effect in a number of governorates and is expected to be generalised next July, is meant to make sure that everyone will be able to access canisters at the official price and is expected to save another LE4 billion.
The prime minister has told the country’s media that technically prices have not gone up, since many people were in effect already buying cylinders on the black market at average prices of LE20 to LE40.
At the time Al-Ahram Weekly went to print, warehouses were still refusing to receive their shares of gas canisters, and the black market was continuing to benefit from the situation.

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