Friday,20 October, 2017
Current issue | Issue 1124, 29 November - 5 December 2012
Friday,20 October, 2017
Issue 1124, 29 November - 5 December 2012

Ahram Weekly

Subtle moves

The doubling of the price of 95-octane gasoline went almost unnoticed this week, writes Niveen Wahish

Al-Ahram Weekly

Someone tweeted this week that there could not be a better time to increase 95-octane gasoline prices. With all the political squabbling, nobody would notice. In fact, this is exactly what happened. The government on Sunday night implemented a decision it had been delaying for weeks, if not months. It lifted subsidies from 95-octane. It now sells for LE5.85 up from LE2.75 per litre.
The 95-octane is the highest quality gasoline sold in Egyptian gas stations. It is mostly consumed by the upper class fraction of the population.
The price rise move is part of the government’s broader plan to reform fuel subsidies that eat up around 20 per cent of the budget. But subsidies on 95-octane are a fraction of what the government directs to fuel subsidies. Fuel subsidies reached around LE115 billion in fiscal year 2011/12 at a time when they had originally been targeted at LE95 billion.
Lifting subsidies off 95-octane will translate into a saving of only around LE55 million, Prime Minister Hisham Kandil told Reuters. But for Malak Reda, senior economist at the Egyptian Centre for Economic Studies, it is a step in the right direction. She fears, however, that many of those who used to fill their cars with 95-octane will move over to the slightly lesser 92-octane grade. 92-octane is still subsidised and sells for LE1.85. Reda worries that new demand for 92-octane could cause shortages if the government has not planned its actions carefully.
Reda also questioned to what extent the government would be able to make the estimated savings. “Unless demand for 95-octane remains constant, there will not be much savings.”
There is no exact estimate as to the number of cars using 95-octane in Egypt. Khaled Hosny, spokesperson for the Automotive Marketing Information Council (AMEC) told Al-Ahram Weekly that luxury cars that have a capacity exceeding 2000cc (2.0 litres) are around five per cent of the total number of cars in Egypt. He said that a study by AMEC showed that 87 per cent of passenger cars are 1600cc or less. Nonetheless, he said that this is not an exact indicator of the number of cars using 95-octane. Some individuals have a preference for the higher quality gasoline even if they drive smaller cars because it delivers more efficient performance.
“What matters,” said Hosny, “is the individual’s need and their ability to pay, not what type of car they are driving.”
Hosny supports the increase in the price of 95-octane because it will mean better utilisation of government resources. And he supports an increase of the price of other types of gasoline as well.
He believes this decision will only affect the sales of high-end cars “momentarily” and until individuals take account of the decision.
Owners of high-end cars are meanwhile reflecting on their added expenses. Hussein Yehia, who drives 40 kilometres to and from work daily, has to fill up his tank twice a week. While he used to fill up at around LE200, he now pays LE400. But he is not complaining. He believes that this move was long overdue by the government. “It does not make sense that the government should subsidise expensive cars.” Yehia might consider selling his car for a smaller one that consumes cheaper gasoline.
According to a 2010 policy viewpoint by the ECES, the government’s fuel subsidy system resulted in a maldistribution of subsidies. Only 3.8 per cent of total subsidies go to the poorest 20 per cent of urban population, the paper said, while “the richest 20 per cent receives one third of total subsidies.”
The paper added: “The difference reflects excessive consumption by the richest group that could be rationed if they are forced to deal with higher prices that they can afford. Moreover, benefits to the rich entail a waste of government resources that could be saved to increase targeted transfers and supporting social services to the most vulnerable groups.”
To rectify this situation the government plans to restructure the whole subsidies system. However, to date no increase in the price of other more widely used fuel products is scheduled. Government officials had previously said that as far as gasoline is concerned, there is a plan that drivers will receive a certain amount of subsidised fuel through a coupons system. Any excess quantities would be bought at market price.

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