Yemen's Houthi group says will target UAE, Saudi vital military facilities: SABA news agency    Egypt's Sisi discusses boosting ties with Canada's senate speaker    President Sisi receives citizens for Iftar at his private residence    Saudi energy minister recommends driving down oil inventories, says supply plentiful    Betis coach Setien to leave club after beating Real Madrid    Argentine great Maradona to miss Cannes film premiere after shoulder injury    Scientists in new push to control cancer before curing it    Egypt unveils 2019 African Nations Cup mascot 'TUT'    Attijariwafa Bank-Egypt aims to attract 70 new credit customers with funds exceeding EGP 3bn end 2019    The Netherlands wins the Eurovision Song Contest    Egypt bids to host AfCFTA's executive office, says legal adviser of AU    Iran is not pursuing war: Revolutionary Guards chief    PM follows up efforts to improve government unified complaints system    LIVE: RS Berkane (Morocco) v Zamalek (Egypt) (African Confederation Cup)    Egypt to announce new electricity prices within days    Banking draft law to be sent to parliament for approval before end-May: source    UN condemns violence against Sudanese protesters    MENA's first Vertebrate Palaeontology centre inaugurated in Mansoura University    Egypt ranks 4th among top nationalities visiting Saudi Arabia for Umrah    Policy on Cuba is an embarrassment for United States    Al-Sisi pardons 560 prisoners convicted in cases from 2013 to 2017    Egyptian museums' revenues increase by 70.5% in 2018: CAPMAS    Egypt's Sisi orders studies to maximize assets, investment returns for religious endowments ministry    Google Doodle celebrates Omar Khayyam, medieval mathematician, astronomer and poet    Hotter weather forecast for Egypt on Monday    Herman Wouk, author of 'The Caine Mutiny' and 'The Winds of War,' dies at 103    President Sisi salutes the martyrs of the armed forces on the 10th of Ramadan victory anniversary    Armed Forces kills 47 terrorists, destroys 29 hideouts in Sinai: spokesperson    Jürgen Klopp wins German Football Ambassador award 2019    Polish minister pops 'what if' question over US gas plans    Presidential decree pardons 560 prisoners    Despite losing EPL title, Salah joins list of back-to-back top scorers    Only one third of world's longest rivers remain free-flowing    Low-category ticket prices for Egypt's matches at AFCON 2019 reduced    Newsreel    No new rent law    Conflict vs dialogue    The alternative economy in Ramadan    Ramadan, Egyptian style    ‘Let there be light'    Algeria steps up arrest campaign    Three-way tie    14 minutes added on    Risks from inflation    Travelling out of the box    Lebanese singer Tania Saleh at the Opera House's Ramadan nights    A present-day Aladdin    Walking a Sufi path    







Thank you for reporting!
This image will be automatically disabled when it gets reported by several people.





Subsidies dilemma
Published in Al-Ahram Weekly on 16 - 02 - 2012

While most experts agree on the need to cut energy subsidies, questions remain on how and when such cuts will take place. Nesma Nowar seeks answers
While petroleum subsidies are primarily set to target Egypt's low-income groups, the actual beneficiaries have generally been the rich. Studies show that 20 per cent of subsidies benefit 80 per cent of the country's poor, while the remaining 80 per cent benefit 20 per cent of those who are better off.
More than two thirds of total government subsidies are directed to fuel products, while food subsidies account for less than one quarter. In the 2011-2012 budget, energy subsidies cost the government an astounding LE95 billion. Many experts expect this figure to reach LE114 billion. Such a large subsidy bill leads to a wider budget deficit, while squandering many government resources.
Energy subsidies include natural gas, fuel oil, diesel, 80-octane gasoline, higher quality 90 and 92-octane gasoline, and the finest quality 95-octane, lead-free gasoline.
Artificially low petroleum product prices have been found to help generate unhealthy consumption and smuggling. Egypt's governorates currently suffer from recurring gasoline, diesel and butane gas cylinder shortages. And government officials have been consistently blaming such shortages on the black market and smuggling.
And while many studies conducted over the past 20 years have called for restructuring the subsidies programme, the Egyptian government has been consistently hesitant and reluctant to take serious steps towards making any change.
A professor at Cairo University, who asked not to be identified, attributed the government's hesitancy to what she called the "political economy factor".
The professor said most studies written on the subject have tended to propose technical and economic solutions to the problem, while neglecting the political aspect. She explained that after decades of offering subsidies to citizens, "they [the citizens] now consider it their right." To make matters worse, she noted, many Egyptians are not aware of the inefficiency of subsidies. It is therefore hard to convince them of the need to restructure them.
The solution, according to the same source, is public awareness. "People should know that petroleum subsidies are not benefiting the poor," she told Al-Ahram Weekly. She also said that the government should stress that any change to the subsidies system would favour the poor. "There is a problem of trust between people and the government," she added.
The source added that there are always obstacles and resistance to reform and that all change comes at a price. This is particularly true in this instance, as cutting fuel subsidies would have a huge impact on all sectors.
Consequently, in order to take such a decision, she said, it is very important for the government to choose the right time to implement its reforms. "People should be aware and prepared," she said.
According to the source, cutting fuel subsidies now is almost impossible. She said that no temporary government would be able to take this step unless it wants "to trigger another revolution".
She suggests that the government could start by lifting subsidies on high quality 95- octane gasoline. This would not save much money, but it could serve as a signal for policy direction.
Magda Kandil, executive director of the Egyptian Centre for Economic Studies, shares a similar view. She believes that a successful strategy for energy subsidy cuts needs to involve preparing the population for reform. This could happen through clearly identifying the size of the fiscal cost of subsidies, while highlighting the share of benefits going to higher-income groups, and identify better ways of protecting the poor.
Kandil added that the shock therapy approach would be a bad one. She is in favour of a sequenced and gradual approach. Such an approach would include the immediate adjustment of subsidies that benefit the rich -- for instance, subsidies on 95-octane gasoline -- and a more gradual adjustment for other products. This would allow industries to adjust.
Kandil added that it not logical to lift subsidies equally on all petroleum products as rates of consumption for each product vary. "Natural gas and fuel oil constitute 70 per cent of petroleum products consumption, so it is not fair to lift subsidies equally," she said.
"This would only add to the burden of the needy," Kandil added, at a seminar recently held in Cairo. "That would contradict the notion of social justice."
The best scenario, Kandil said, would be to adjust petroleum product prices, and redirect 50 per cent of energy subsidy savings to the poor. "This would not cost the government any additional expenditure as we would cut from a segment and give another segment."
Meanwhile for Tamer Abu Bakr, head of the energy committee at the Federation of Egyptian Industries, the only solution for the fuel subsidies dilemma is to substitute all petroleum products with cheaper natural gas products.
Abu Bakr appealed for a national plan to use natural gas in all sectors, including transportation, households, and industry. He pointed out that even if there is a need to import additional natural gas, it would still be cheaper than the alternatives currently in use.


Clic here to read the story from its source.