Although reforming energy subsidies is a top economic priority, the government's newly proposed plan to cut petroleum subsidies is eliciting strong opposition, Nesma Nowar reports In a bid to reform Egypt's untenable energy subsidies, the Egyptian General Petroleum Corporation (EGPC) has introduced a plan to reduce petroleum subsidies by LE35 billion in the coming financial year. Subsidies for petroleum products amounted to LE110 billion in Egypt's budget for the 2011/12 fiscal year. The plan, introduced last week, suggests a coupon system for distributing fuel. Every year, car owners would receive, upon licence renewal, coupons worth a total of LE2,500, equivalent to 200 litres per month. Drivers who consume more would then buy it at higher prices. Coupons are to applied on cheaper 80-octane gasoline as well as the more expensive 90- and 92-octane lead free gasoline. However, 95-octane, the highest quality of gasoline, should see a price hike that reflects its production cost. The coupon scheme would be also applied on diesel fuel but at different prices and quantities, EGPC stated. The plan also suggests that the prices of fuel oil increase to LE1,250 per tonne, as it is used for industrial purposes. The plan would go into effect alongside a similar butane gas cylinders coupon system and a 30 per cent increase in the price of natural gas used by energy-intensive industries, in effect starting this year. Hossam Arafat, head of the General Division of Petroleum Products at the Federation of Chambers of Commerce, stated that the plan is no more than an idea with no clear vision or mechanism for implementation. Arafat pointed out that there are 4.5 million cars in Egypt. He argued that if each family of five members owns a car, the new proposed coupon system would benefit 20 million individuals. "What about the rest, those who don't have cars? How are they going to get their share of the subsidies?" he asked. While the plan aims at reforming the subsidies programme to better target disadvantaged groups, Arafat said that there are many disadvantaged citizens who would not benefit from the plan. He added that cutting diesel subsidies is a red line, as it enables citizens who don't have a car to gain a share in fuel subsidies. Diesel is used as the basic fuel for heavy transport vehicles and microbuses used by a large portion of Egyptians. While Arafat is against lifting subsides on diesel, he is in favour of slashing subsides on 95-octane and selling diesel to luxurious yachts and ships at international prices. A major shortfall of the programme, according to Arafat, is that it would inevitably spawn a black market. "The availability of petroleum products with two different prices on the market would create an uncontrolled black market," Arafat told Al-Ahram Weekly. Arafat said he supports any plan that aims at rationalising energy subsidies. However, it should be accompanied by a mechanism for implementation. "We don't need ideas but mechanisms to solve problems," Arafat said. One expert from the petroleum industry described the plan as "nonsense". He said it would introduce a long-term solution for maintaining subsidies on fuel at a time such subsidies should be completely eliminated. The source argued that there is no need to keep subsidies on fuel used by private cars. He explained that anyone who can afford to buy a car at no less than LE30,000 should be able to bear the cost of unsubsidised fuel. "If you cannot afford the cost of fuel, then don't use the car." The source, who preferred to remain anonymous, said that fuel subsidies should only be directed to 80-octane gasoline used by taxis and diesel fuel used in microbuses and other means of public transportation. In this case, he suggested, the government could determine certain stations that would exclusively provide taxis and microbuses with subsidised fuel. Similar to Arafat, the source said that distributing fuel with coupons would help in creating a black market. "Many coupons would be forged and people might tend to sell their coupons at 0000higher prices," the source told the Weekly. "It is going to be a big hassle." Mohamed Fadel, a shop owner, said that distributing diesel fuel with coupons would negatively affect citizens. The cost of diesel used by heavy transport vehicles would increase and, as a result, the prices of basic commodities would also increase. The same point was echoed by taxi driver Ahmed Fathi who said that an increase in the cost of fuel would be borne by ordinary citizens as he would have to raise his taxi fares. Beside the shortfalls in the plan, the timing is unsuitable. Arafat believes that the subsidy cuts will come at a time where there is no confidence shared between the government and the public. This is in addition to the fact that the current government will soon change and Egypt's upcoming policymakers might have different views regarding subsidy reforms. Egypt spends close to 10 per cent of its GDP on subsidies. More than two-thirds of subsidy expenditures go to fuel. A litre of 80-octane gasoline is currently priced at LE0.9 ($0.15). The 90-octane sells for LE1.75 ($0.29), 92-octane for LE1.85 ($0.3) and 95-octane for LE2.75 ($0.45).
