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PA debates gasoline hikes, tobacco taxes and more to cover the 30 pct raise
Published in Daily News Egypt on 05 - 05 - 2008

CAIRO: In a heated parliamentary debate shock-full of surprises, the PA discussed on Monday proposals by the ruling party and the Ministry of Finance to generate the LE 12 billion required to cover the public-sector pay hikes recently declared by President Hosni Mubarak.
"The Parliament is now negotiating a package to be able to deliver the 30 percent increase of public sector wages.which [will cost the government] LE12 billion, Minister of Trade and Industry Rachid Mohamed Rachid, said on Monday during a World Economic Forum press conference.
He reiterated the same announcements a few hours later during a seminar jointly hosted by the Confederation of Egyptian European Business Associations and the British Egyptian Business Association.
"This amount has to come from real resources, said Rachid.
These real resources include hiking prices of high-octane fuel, natural gas prices for energy-intensive industries, and cigarettes, as well as fees of vehicle licensing.
"Prices of gasoline will go up. Prices of 80-octane fuel will remain unchanged [LE 0.90], but the rest will go up by 20-40 percent, Rachid said.
According to the new measures the price of gasoline 95 will increase from LE 1.75 to LE 2.75 per liter while gasoline 92 will increase from LE 1.40 per liter to LE 1.85 per liter and gasoline 90 will increase from LE 1.30 to LE 1.75 per liter.
Sources at Exxon Mobil told Daily News Egypt that their gas stations had started selling with the new prices at noon. But later in the day, gas stations were told to stop and go back to the old prices.
Gas stations around the capital were reportedly jammed as people, uncertain about the date of applying the new prices, raced to refuel with regular prices.
MPs proposed increasing the prices of diesel and kerosene by 47 percent, to LE1.10 a liter, while the price of 96-octane gasoline would go up 57 percent to LE 2.75 per liter. Taxis and small buses are the main users of diesel and low-octane gasoline in Egypt.
Prices of cigarettes are also expected to hike, with foreign-brand cigarettes rising up to 20 percent, and local brands by 10 percent.
To further finance the 30 percent bonus, the government is strongly considering raising registration fees on luxury vehicles, representing eight percent of vehicles currently in use in Egypt.
The proposed rises in vehicle license fees are so far the steepest at luxury end users. For cars with engines with a capacity of 2000 CC, owners would pay an annual fee equivalent to 2 percent of the car's value - up from LE 500 at present - that could reach a hefty LE 28,000 per year.
Cars with motor capacity of 1000 CC will have their license fees increase from LE 16 to LE 106. License fees for cars in the 1000 CC-1300 CC range will increase from LE 30 to LE 143; the 1500 CC-1600 CC range will increase from LE 35 to LE 175; and the 1600 CC- 2000 CC will increase from LE 120 to a minimum of LE 200 and maximum of LE 1000.
Minister of Finance Youssef Boutros-Ghali said last April that energy subsidies would rise to LE 60 billion ($11.13 billion) in the 2008/9 fiscal year, up from LE 57 billion.
"The government is [looking into ways] of generating income to poorer segments of society, and we have to do it in a way that is consistent with our reform policies, Rachid said.
"The decisions to raise energy prices, registration fees for large vehicles and cigarette prices are all in line with our expectations for the government's efforts to restructure subsidies and generate additional resources to lower the budget deficit, commented Beltone Financial.
"We believe the government could be more inclined to raise the prices of products that are consumed by the higher-income population to redirect subsidies to the lower-income population.
In a speech to mark International Labor Day that came amid social unrest over low salaries and high food prices, Mubarak promised public employees a 30 percent increase in basic salaries provided necessary revenue could be found and the increase does not add to the budget deficit.
"They [the government] proposed a 15 percent increase, but I raised it to 30 percent, Mubarak had said in a speech last Wednesday. "I ask the government and the parliament to agree quickly on the best make available real resources so that we can go ahead with implementation effective in May.
Following the pay rise, the ruling party proposed on Monday's Parliamentary session that prices of 90-octane fuel would be raised 35 percent to LE 1.75 per liter.
According to Reuters, Ahmed Ezz, the MP in charge of organization at the ruling National Democratic Party (NDP), told parliament that the government spends LE 111 a month on subsidizing an average car owner, who uses 100 liters of gasoline per month.
"Here we come forward with a package of measures meant to increase revenues to be able to increase wages for public sector employees, the news agency quoted him as saying to Parliament.
Rachid also revealed intentions to end the tax holidays on companies in the free zones that have made huge profits because of the global increase in oil prices.
About 20-25 companies operating in the fields of oil and gas, petrochemicals and fertilizers which have long term contracts will be subject to the regular 20 percent tax. "Free zones will remain, explained Rachid, we are only changing the tax status of those which use oil and gas as raw material. The remaining 2000 companies in the free zone will continue operating as usual.
The same tax structure will also apply to private schools and universities in Egypt.
He added that the government will adjust energy prices for energy-intensive industries, including steel, cement, and aluminum companies, which constitute around 70 percent of Egyptian industry.
Rachid said the government will once again revise energy prices for these industries, hiking prices from the initially proposed $2.65 per million British Thermal Units (BTUs) to $3 per million BTUs.
The Ministry announced last month it would hike the price of natural gas to $2.22 per million BTUs in July from $1.85 per million BTUs. Another increment - which was initially scheduled for late 2009 - was moved up to January 2009, raising natural gas prices to $2.65 per million BTUs.
The ruling party proposed Monday rises of up to 57 percent in the price that energy-intensive industries pay the state for natural gas, an extraction fee of LE 27 a ton for clay extracted from quarries and the abolition of tax breaks on some industries.
But while government officials said the salary increase would not have an inflationary effect if the government could find extra revenue to cover it, the proposed measures raised some inflationary concerns.
"We do expect the increase in energy prices, especially of gasoline, to have some impact on inflation in the short term, the magnitude of which will depend on whether the increase will be coupled with a rise in the price of diesel which is widely used in transportation and agriculture and would have more of an impact on inflation than an increase in the prices of higher octane gasoline, Beltone Financial said.
Angus Blair, head of research at Beltone Financial, told Reuters on Monday that the price rises would drive up inflation. "Obviously, whenever you put basic products prices up, you are going to have an immediate impact on inflation ... and it may well just urge other businesses to increase prices because once inflation rises it is difficult to bring it down.
Egypt's urban consumer inflation soared to its highest rate in over three years in March as food prices jumped. The urban consumer price index rose 14.4 percent in the year to March after a 12.1 percent increase in February.
Inflation in rural areas was higher at 17.6 percent in the year to March, compared with 12.8 percent in January. For the whole country the inflation rate was 15.8 percent in March, compared to 11.5 percent in January.
"It is true that a rise in gasoline prices could have some inflationary effects.but we [the government] will take measures to counter that, Rachid pointed out. "These measures aim to have minimum inflationary effects. We are keen on seeing inflation down from double digits to single digits by the end of this year. -Additional reporting by Mohamed Saed.

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