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Costlier fuel
Published in Al-Ahram Weekly on 30 - 04 - 2014

The prices of presently heavily subsidised petroleum products are expected to increase in the coming months, coinciding with the new fiscal year 2014/15 which will start on July 1.
Though the government has announced plans to hike electricity and gas prices, it has not decided on raising petrol and fuel prices, but there are two scenarios on the table. An official source told the daily Al-Ahram this week that the government would either raise fuel prices as soon as the new budget goes into effect, or would opt to wait until it finished distributing the new smart cards to car owners by the end of this year.
The interim government has pressed ahead with a new smart-card system that aims to rationalise fuel subsides and prevent the smuggling of subsidised petroleum products. Under the new system, car drivers will get a specified amount of subsidised fuel and should they need to consume more they will have to buy it at cost price.
Earlier this month, it was announced that the government had issued two million fuel smart cards to be ready for use in petrol stations nationwide.
The government is seeking to hike the prices of petroleum products in order to cut back on the energy subsidies bill by LE25-30 billion. The subsidies bill for the current fiscal year to 30 June is expected to reach some LE130 billion.
The source said that if the government intended to raise prices in July, this would entail a one pound increase in the prices of 80 Octane and 92 Octane fuel, which in turn would save the government some LE6 billion a year. This scheme would also include a rise in diesel prices by LE1, saving LE16 billion annually.
A litre of Octane 80 fuel is currently priced at LE0.9 ($0.12), while Octane 92 sells for LE1.85 ($0.30). In November 2012, the government lifted subsidies on the finest quality of fuel, 95 Octane, selling it for LE5.85, up from LE2.75 per litre. A litre of diesel is currently priced at LE1.1 ($0.16).
Consecutive governments since the 25 January Revolution have been reluctant to cut down on the state's ballooning subsidies bill, fearing public reactions. However, reducing the bill now seems to be inevitable after three years of political turmoil has strained the country's economy.
Hossam Arafat, head of the General Division of Petroleum Products at the Federation of Chambers of Commerce, said that it was unlikely that the government would raise fuel prices soon, at least not before the election of a new parliament.
One of the main concerns about raising fuel prices is that it will lead to a spike in commodity prices, but Arafat noted that fuel constituted only 15 per cent of production inputs, a percentage that would not cause significant price hikes.
“Massive price hikes will be caused by sellers who will take advantage of the situation to raise commodity prices.” Arafat told Al-Ahram Weekly. As a result, he said that raising fuel prices should be accompanied by strict government supervision of the market to prevent irrational price hikes.
This is not the first time the government has increased fuel prices. In 2008, it increased petrol prices after the parliament agreed to a 30 per cent raise for state employees. “In order to finance such a raise, the government opted to increase fuel prices by more than 30 per cent,” Arafat said.
Consequently price hikes were reported at the time, with Arafat commenting that the state had been able to control the markets.
The 2008 increases did not include butane gas cylinders or 80 Octane. But in April 2013, under ousted former president Mohamed Morsi's rule, the government increased the prices of butane gas cylinders from LE2.5 to LE8 for the first time in two decades. The move came in the light of the then government's efforts to cut the subsidies bill.
Egypt's petrol consumption amounts to between 20 and 22 million litres daily, and the government pays LE20 billion to subsidise it. Diesel consumption stands at 42 to 45 million litres a day, costing the government LE50 billion in subsidies.

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