Sunday,22 October, 2017
Current issue | Issue 1205, (10 - 16 July 2014)
Sunday,22 October, 2017
Issue 1205, (10 - 16 July 2014)

Ahram Weekly

Electricity prices rise

Who will shoulder the planned increases in electricity prices, asks Noha Moustafa

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eco03
Al-Ahram Weekly

As part of a plan to phase out electricity subsidies over a five-year period, the government last week introduced a new pricing structure that will see electricity tariffs almost doubling.

Mohamed Shaker, the Minister of Electricity, announced the new tariffs for both households and commercial sectors in a press conference last week. He said that the average price for a kilowatt hour (KW/h) of electricity would rise from around 23 piastres to around 51 piastres over a five-year period.

He added that these new tariffs should cut the existing subsidies by roughly 70 per cent and would allow the government to phase out the subsidies altogether in five years.

In the fiscal year ending on June 30, Egypt spent around LE144 billion on energy subsidies, around a fifth of its overall budget. Electricity is currently sold at less than half its production costs.

According to Mohamed Al-Yamani, Spokesperson of the Ministry of Electricity, before the new price hikes the electricity subsidy in the budget had reached LE38.7 billion pounds and after the new tariffs this would shrink to LE27.4 billion, already allocated for in fiscal year 2014/15.

The value of the subsidy is expected to decline further to LE22 billion in fiscal year 2015/16 and to reach only LE9 billion by the end of the five-year plan, which is directed at supporting household consumption.

Al-Yamani added that the cost to produce one KW/h of electricity was 47.4 piastres, while the average sale price was 22.4 piastres. The difference between production and sale prices was huge, he said, placing the ministry in a situation of permanent debt.

“The ministry is laden with debts to the ministries of finance and petroleum, and these reached LE163 billion in June 2013,” he said.

He denied that consumers would protest against the hikes as lower-income people would not be affected. Although electricity prices are set to double over five years, the introduction of a graduated pricing structure would reduce the burden on the poor, Al-Yamani explained.

“About 60 per cent of household consumers will not be affected and will see only a minimal increase of 1.6 per cent of average monthly spending, according to CAPMAS [Central Agency for Statistics] figures,” Al-Yamani confirmed.

Mohammed Al-Sobki, Head of the Energy Research Centre (ERC), said that it was not entirely true that only higher income brackets would pay more, however. All consumers would see an increase, he said.

Those who consume up to 50 KW/h, the lowest consumption bracket, usually own about two economical florescent lamps that they use for between five and eight hours a day, a small refrigerator, a small washing machine, used every two or three days, and a TV set that consumes as much energy as a lamp does, he said.

The way the rate of consumption is calculated means that any household with one air-conditioning unit will be included in the fourth consumption bracket and subjected to a high tariff, however, he added.

Electricity tariffs did not change for more than a decade before 2004, when the government announced a plan to increase prices. Consecutive governments have pledged to reduce the size of the energy subsidies but have recoiled from pushing through major reforms, fearing a hostile response from the public.

Newly elected President Abdel-Fattah Al-Sisi this year asked the government to amend what has been described as the largest budget in Egypt’s history, in order to reduce the budget deficit from 12 to 10 per cent.

Al-Sisi had previously said that he intended to tackle tough issues such as energy subsidies and asked all Egyptians to make sacrifices to help the country’s economy after three years of turmoil.

Yehia, a middle-class man with a family of four, usually receives a monthly electricity bill of 151 KW/h and pays around LE16 pounds as a result. In the light of the new tariffs, this will rise to about LE24.

“An increase of eight to 10 pounds on the bill is a significant amount, or about 65 per cent on the bill,” Al-Sobki explained. However, he believes that consumers can choose to rationalise their consumption habits and cut bills by 10 to 20 per cent by switching off unnecessary lights or cutting back on the use of air-conditioning.

He said that there was no gradual increase in electricity bills for industry because consumption was stable due to constant production patterns, compared to household consumption which is not fixed.

However, increases in electricity bills will not ensure that there are fewer electricity outages, both Al-Yamani and Al-Sobki confirmed.

While the ministry spokesperson cited the need for repairs to the grid, Al-Sobki said that the problem lay in shortages of fuel and gas.

 “The current power outages are 90 per cent due to a shortage of fuel and gas, not because the electricity network is old and poorly maintained. And even if the fuel is available, the network will only work at 27,000 megawatts, not its maximum of 30,000 megawatts, because it is old,” he said.

Proper maintenance of the country’s power stations would take months to achieve at a cost of millions of pounds, he added.

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