Successive governments since 2013 have been talking about the imminent implementation of a smart-card system to distribute petroleum products in the country, one aiming to rationalise the costly energy subsidies that have long weighed on Egypt's budget and created distortions in the economy. The share of fuel subsidies in the government's budget increased from nine per cent in 2002 to 22 per cent in 2013. Egypt has earmarked LE61 billion ($8 billion) for fuel product subsidies in the draft 2015/2016 budget, almost half the amount paid on subsidies in 2013 thanks to the drop in global oil prices. The smart-card system is also designed to help monitor the distribution of petroleum products in such a way as to end smuggling and the selling of these products on the black market. However, the implementation of the new scheme has been put off several times due to political developments and the ouster of former president Mohamed Morsi in July 2013. Earlier this year, the government announced that the smart-card system would be rolled out in mid-June, only for it to be put off again with no information about the new date of implementation. President Abdel-Fattah Al-Sisi asked the government in June to postpone the application of the system until all sectors that do not have cards are covered. The postponement came on the back of reservations on the new system presented to the president by the country's Petroleum Chamber, said Hossam Arafat, head of the Division of Petroleum Products at the Federation of Egyptian Chambers of Commerce. According to Arafat, the new system is a good one, but it faces major challenges when it comes to implementation. He said the system did not cover all sectors because of the lack of a database of all sectors consuming fuel, the most important of which are tuk-tuks, or motor-operated rickshaws, which consume a huge amount of diesel, yet are not registered with the authorities. Arafat said there were some two million tuk-tuks in Egypt, along with motorcycles that consume around 60 per cent of the 80-octane fuel Egypt produces. Tractors and other machinery used in agriculture use up to 30 per cent of the diesel produced, and these are also often unregistered. “You cannot press ahead with the new system and achieve results without covering these heavy fuel-consuming sectors,” Arafat told Al-Ahram Weekly, adding that integrating them into the system would be a difficult task given that they were not registered with the traffic department. In a recent meeting between Minister of Petroleum Tarek Al-Molla and the head of the E-Finance company tasked with implementing the smart-card system, it was revealed that E-Finance is currently collecting data on unlicensed agricultural tractors and other machinery from local supply directorates across the country in coordination with the Egyptian General Petroleum Corporation (EGPC) and the Ministry of Supply. The company has so far collected information on 4,000 pieces of machinery, and coordination continues on collecting the rest, a statement from the Petroleum Ministry said. The same mechanism will be used to integrate the tuk-tuks into the system. The statement said that information on about 90,000 tuk-tuks had been collected from distributors, and the government was studying ways to include the rest in the system as soon as possible. However, Arafat had doubts about this mechanism and recommended that the government offer incentives for tuk-tuk owners to formally register and cancel the penalties imposed on them. He said the tuk-tuks would be hard to track down in order to charge the penalties and they should be encouraged to formally register instead. Meanwhile, E-Finance has finalised the issuing of 5.4 million smart cards for the distribution of petrol and diesel, which represents 100 per cent of all registered vehicles in Egypt. It has also issued smart cards to bakeries in 26 governorates that are now being distributed to owners. Smart cards for some fishing boats have also been issued and a process is ongoing to include all of them. However, according to Arafat a lack of vision and know-how in implementing the smart-card system will hinder its execution, and he added that he did not expect it to come into operation anytime soon. The programme had so far cost the government LE500 million, he said. Egypt is pinning its hopes on the new system to further reduce the cost of heavily subsidised fuel. The government took the plunge in July 2014 when it raised fuel prices by 78 per cent in a move that cut energy subsidies by LE44 billion to around LE100 billion. The move was lauded by economists, who have been calling for more cuts over the coming years. As a result of the cuts, the price of diesel, mostly consumed by mass transportation vehicles, has gone up from LE1.10 to LE1.80 a litre, an increase of 64 per cent. The widely used 92 octane and 80 octane fuels have increased by 40 and 78 per cent, respectively. 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. Egypt's fuel subsidy bill for the first half of the 2014/2015 year fell by about 30 per cent, the finance ministry said in March, thanks to sharply lower global oil prices and the 2014 subsidy cuts.
