Seeking more funds to narrow the widening gap in the country's budget deficit, Egypt has increased natural gas prices by 15 per cent for energy non-intensive industries as of this month. A ministerial committee, comprising representatives from the oil, industry, investment, electricity and finance ministries, set natural gas at $2 per one million British thermal units (BTUs) for energy non-intensive industries. The committee left the price unchanged at $3 per one million BTUs for energy-intensive sectors. The move aims at slashing oil and natural gas subsidies, analysts say. Energy subsidies account for more than 60 per cent of the total subsidies in the State budget, according to the Ministry of Finance. "The new tariff takes the competitiveness of local industry into account in light of energy prices in neighbouring countries. It (the committee) has complied with the Government's approach, adopted in 2007, to gradually eliminate energy subsidies for industrial uses," the Ministry of Trade and Industry has said in a statement. In 2007, the Egyptian Government endorsed a scheme to gradually increase the price of natural gas for energy non-intensive sectors to $2.65 from $1.25 per one million BTUs. The move is another brick in the wall. "It's a step towards lifting energy subsidies for industrial purposes. It is part of the Government's plan to curb the State budget deficit by minimising subsidy allocations," Sherif Shawqi, a researcher at Alexandria University, told the Egyptian Mail in an interview. The country's State budget deficit stood at LE86.8 billion ($15.3 billion), or 7.2 per cent of the gross domestic product (GDP), at the end of May, according to the Ministry of Finance. Egypt's fiscal year begins on July 1. The Government has allocated LE185 billion in the State budget of the fiscal year (FY) 2010/2011 for healthcare, education, social security and subsidies. Public outlays are expected to total LE490 billion in FY 2010/11, incurring a deficit of around 7.9 per cent of GDP, according to official data. Local producers warn that Egyptian industries may lose much of their relative advantages after the elimination of energy subsidies. But experts downplay any possible side effects, citing other advantages like cheap labour and the large market. "The relative advantages of strategic industries like steel, cement and fertilisers wouldn't be affected. These industries are energy-intensive by nature, and the price increase targets energy non-intensive sectors only," Shawqi said. "Chemicals, paper, plastics and wrought glass are treated as energy non-intensive industries, as fuel accounts for roughly three per cent of total costs. There are around 1,300 plants in these sectors. energy non-intensive sectors account for 97 per cent of total plants in Egypt," Amr Assal, the Chairman of the Industrial Development Authority (IDA), said this week. "Energy use in the steel, cement, aluminium, copper and fertiliser industries account for nearly 60 per cent of total cost, making them highly energy-intensive," Assal said. "Energy-intensive industries rely heavily on energy resources, which contribute 30 per cent or more of the final product's cost. Energy for these sectors affect the operational, direct costs and pricing policy," Shawqi explained. Producers and economists have warned that the new price increase will add more inflationary pressure on the most populous Arab country's economy. Inflation fell to 10.5 per cent in May, according to the State-run Central Agency for Public Mobilisation and Statistics (CAPMAS). Inflation hit a record high in August 2008, exceeding 25.6 per cent. "Inflation rates are poised to rise due to various reasons, i.e. the July wage raise and summer vacations. The fasting month of Ramadan is approaching. So inflation rates may pick up on the back of these seasonal factors, and average 12-13 per cent of GDP," he forecast, referring to the Muslim holy month, which is expected to start on August 11. The move should be looked at from an overall perspective, he said, pointing out to a recent tax on tobacco. "Taxing tobacco is justified from a socio-economic viewpoint. Those who want to smoke should pay. It's a Government trend to pump more cash into the public treasury," he said. Egypt launched a tax on tobacco products as of this month, raising cigarette prices by as much as 40 per cent. Officials at the Ministry of Health expect the new tax to pump roughly $345 million into the State coffers annually. Meanwhile, producers call for slashing fuel costs for energy-intensive sectors to boost national industry. "Fertiliser plants largely depend on natural gas. We call for more energy subsidies for nitrogen fertilisers, of which around eight million tonnes are consumed annually in Egypt," Fathi Mahmoud, the commercial manager of Alexandria-based Abo Ghaneima Group, told this newspaper. According to him, local plants produce more than nine million tonnes of nitrogen fertilisers annually. "The fertiliser industry is labour-intensive as well. Boosting this sector will create more jobs in the process of manufacturing, marketing and distribution," Mahmoud added.
