Sherine Nasr reports on the ongoing dispute over reducing subsidies on energy An increase in energy prices to the industrial sector is imminent. Although the Energy Pricing Committee (EPC), which convened Tuesday last week, could not decide on the rate of the increase, it is widely believed that energy prices for low consumption and intensive-energy industries will be raised by a rate ranging from 10 to 50 per cent. Further, there is also news that an increase in the price of gasoline 90, 92 and 95 is just around the corner. "I have to note that the committee is not responsible for deciding energy prices. We investigate the situation, study alternatives and come up with recommendations to concerned ministers," said Tarek El-Hadidi, first under- secretary for gas affairs at the Ministry of Petroleum and member of the committee. El-Hadidi made no reference to the nature of those recommendations or alternatives. "Only the cabinet is entitled to announce the news." But until that happens, the door is open for speculation. However, Aktham Abul-Ela, advisor to the minister of electricity, made it clear that it is about time the industrial sector in Egypt pays the actual cost of the energy it consumes. "The Ministry of Electricity purchases oil at concessional prices to subsidise the industrial sector. This constitutes a burden on the Ministry of Petroleum," said Abul-Ela, adding that the cabinet would take a final decision in the next few days. The EPC is formed of representatives of the ministries of petroleum, electricity, finance, trade and industry, and investment. Plans to reduce subsidies on energy prices for the industrial sector go back to August 2007, when Rachid Mohamed Rachid, minister of trade and industry, announced that a gradual removal of subsidies on natural gas and electricity would be implemented over three years. The new pricing targeted 40 of the most energy intensive companies operating in industries that consume up to 66 million cubic metres of natural gas per year. Meanwhile, non-intensive energy industries were given a one-year grace period before the decision included them. In 2008, the Supreme Energy Council passed a resolution to increase natural gas prices for low consumption industries to $2.65 per million British thermal unit (Btu) from $1.25 per million Btu. The lingering global economic crisis, though, seemed to change the government's plans. Electricity prices were reduced by 30 per cent for three industries: namely, glassware, chemical and ceramics in February 2009. But now that the Egyptian economy is expected to grow by five per cent in 2010/11, the call to eliminate subsidies on energy prices has been revived. "There is no way the government will continue to put up with the burden of an ever-growing bill of subsidies on energy," said Abul-Ela. Just before the People's Assembly was dismissed for summer recess, it approved an additional credit of LE32.8 billion of subsidies on oil products for the year running. Subsidies on oil products in the 2010/11 budget went up to an all time high of LE66.5 billion constituting almost 71 per cent of the total volume of subsidies allocated by the government to different sectors. According to Ramadan Abul-Ela, professor of petroleum engineering at Alexandria University, when oil prices range between $70 and $80 per barrel, gas should be sold at around $13 per one million Btu. "This does not come close to the price at which gas is sold in the Egyptian market," commented Abul-Ela, adding that most industries, particularly energy-intensive types, are owned and run by business tycoons. "Isn't it ridiculous to continue to subsidise for businessmen while depleting energy resources that should be better planned and managed for the coming generations?" The fact that some of those businessmen are decision makers asmembers in the parliament can be detrimental to the interests of the public. Indeed, liberalising the energy market has been advocated by experts as the first step towards developing a strong, competitive, market-based industrial sector in Egypt. Natural gas constitutes the main component in various industries, such as petrochemicals (90 per cent) and fertilisers (70 per cent). "To say that these industries make huge profits is a lie, because natural gas is sold to these industries at marginal prices." According to statistics released by the Ministry of Petroleum, Egypt's proven natural gas reserves have reached 70 trillion cubic feet (tcf) which constitutes less than one per cent of global reserves, compared to 900 tcf in Qatar and 1200 tcf in Iran. "We should immediately stop this harmful depletion of our natural resources. Selling natural gas at market prices will directly have a positive impact on the state's budget," said Abul-Ela.
