The government took the plunge on July when it raised fuel prices by 78 per cent in a move aimed at reducing the country's budget deficit by LE48 billion to LE240 billion, or 10 per cent of GDP. Energy subsidies were cut by LE44 billion to around LE100 billion, and though the timing of the move was sudden it had been expected because of the government's introduction of a new smart-card system, also aimed at trimming fuel subsidies. The government had billed the smart-card system as the first step in reforming the country's untenable subsidies programme and part of its plan to cut fuel subsidies by 25 to 30 per cent in five to six years. But the price hikes were implemented even before the introduction of the smart-card programme, raising fears that an additional hike in fuel prices would soon follow. Under the smart-card system, drivers will receive specified amount of subsidised fuel, and, should they need to consume more, they will have to buy it at cost price. Minister of Planning Ashraf Al-Arabi told Reuters last month that the government would not be setting quotas on the smart cards this year, as the recent price increases had affected everyone equally. However, implementation of a second round of reduced petroleum subsidies next year will go hand-in-hand with quotas for different income segments. People on higher incomes will see their quotas for subsidised products reduced in 2015, he said, adding that the smart-card system will start nationwide in September. The authorities have already implemented the first phase of the system, issuing cards for trucks and petrol stations and building a database of companies and depots for fuel distribution. The government is currently carrying out the second phase, distributing smart cards to car owners. Some 2.3 million cards have been issued, and the remainder will be distributed over the next few months. Hossam Arafat heads up the Division of Petroleum Products at the Federation of Chambers of Commerce. He told the Weekly that implementation of the new smart-card system will not be accompanied by an increase in petroleum product prices. “The programme will merely monitor petroleum product deliveries to petrol stations,” Arafat said, adding that any further price hikes will not be made through the smart cards. He said that prices will increase again by next year, however, indicating that the government wants to reduce fuel subsidies to zero over four years. “Fuel prices will increase by LE1 at the beginning of each financial year,” Arafat said. The smart-card system is an “organisational measure” designed to monitor the distribution of subsidised petroleum products, he explained. Quotas are not appropriate for the smart-card system because it does not include all agricultural and industrial activities that use fuel. “If fuel can only be consumed through smart cards given to licenced vehicles, what will happen to unlicenced vehicles such as tuk-tuks and agricultural machinery using diesel?” Arafat asked. The government has not released details of when and how quotas will be assigned to the smart cards. The Ministry of Petroleum could not be reached for comment. The smart-card programme was originally introduced by the administration of former president Mohamed Morsi, prior to his removal from office last July. On 5 July, the government took the country by surprise by increasing the price of petrol, diesel and natural gas by 40 to 175 per cent. The last time such comprehensive fuel subsidy cuts were applied was in 2008. Limited reforms were carried out in 2012, removing subsidies on 95 Octane, the highest-quality gasoline on the market. According to the recent decision, prices of diesel, mostly consumed by mass transportation vehicles, have gone up from LE1.10 to LE1.80, an increase of 64 per cent. The widely used 92 Octane and 80 Octane have increased by 40 and 78 per cent, respectively. The move came after successive governments were reluctant to reform the costly subsidies system, which represents a fifth of all state spending, because of fears that higher fuel prices would spark unrest.
