Electricity Ministry considers reducing fuel oil at power plants to cope with post-flotation financial burden

Liberation of exchange rate hiked burden to EGP 102bn per year

Minister of Electricity Mohamed Shaker is currently waiting for the cabinet to decide on one of the scenarios proposed to cope with the increasing financial burden on the Egyptian Electricity Holding Company (EEHC) following the flotation of the Egyptian pound.
Sources at the Ministry of Electricity said that the ministry is considering reducing the proportion of using fuel oil for production, especially as it costs more than gas. The price of fuel oil amounts to EGP 2,500 per tonne, while that of 1 Billion Thermal Units (BTUs) stands at $3bn.
The source told Daily News Egypt that fuel accounts for 60% of the cost of producing 1 KW/H, as the cost of production before the flotation included EGP 0.38 for fuel and EGP 0.34 for operation and maintenance. However, following the decision to float the pound, the cost hiked to EGP 1.1.
The source explained that as Siemens projects begin operation using gas, the burden on the electricity sector will be reduced, noting that the government promised to fulfill the financial needs of the electricity sector.
Amongst the proposed scenarios to cope with the burden following the flotation was increasing the tariff on all consumers. Yet, President Abdel Fattah Al-Sisi called on the government to not increase prices. Meanwhile, Shaker said that prices will, for sure, increase in the coming fiscal year, according to the electricity prices restructuring programme.
Moreover, the source said that the financial burden on the electricity sector after the flotation increased to EGP 102bn per year, equivalent to EGP 8.5bn per month, of which EGP 60bn is caused by the difference in fuel products. The price of fuel oil needed to power energy production units increased from EGP 2,300 per tonne to EGP 2,500, while the price of a cubic meter of gas hiked from EGP 0.9 to EGP 1.5.
The source added that those financial burdens include some EGP 40bn directed for the repayment of annual loans due to exchange rate differences. He explained that the EEHC has sought loans in accordance to the budget before flotation at EGP 8.88 per $1, at interest rates of about 13.5%, which increased after the flotation to EGP 16.5%.
In addition, the source pointed out that the three projects implemented by Siemens in Beni Suef, the New Administrative Capital, and Borollos have increased by EGP 25bn in costs after the decision of the Central Bank of Egypt (CBE) to float the pound.