Subsidy Cuts in Egypt
Policy measure

According to the Economist Intelligence Unit (2007), “the prices of electricity in Egypt range among the lowest in the world. They are fixed by the Egyptian government in a non-transparent manner and apply in equal manner to all regions. Electricity is highly subsidized.”


Subsidy cuts are part of a [national Egyptian] programme aimed at stimulating the development of energy efficient and labour-intensive small- and medium-sized enterprises. Heavy industries account for 75 percent of the total natural gas subsidy for industry and 66 percent of the electricity subsidy, and use 55 percent of all energy allocated to industry. Some 40 industries – including cement, iron and steel, aluminum, fertilizer and petrochemical industry sectors - will experience significant increases in their energy costs, phased in over three years. (EIU, 2007)

Implementation

“The higher prices will apply to plants with energy consumption above 66m cu meters/year of natural gas and /or 50m kwh of electricity. The gas price will rise from US$1.25 per million BTU to US$2.65/mBTU. Electricity prices will rise from 11.1 piasters/kwh to 17.8 piasters/kwh (1.9 US cents to 3.1 US cents) for very high voltage supplies, 13.4 piasters to 21.6 piasters for high voltage and from 18.3 piasters to 29.5 piasters for medium voltage supplies. Spending on subsidies is the largest single item in the Egyptian budget (at a projected E£64bn – US$11bn – in the current fiscal year), with energy subsidies making up around a third of the total.” (EIU, 2007)

Challenges
No identified challenges.
Outcomes

The subsidy programme is expected to generate savings of around EGP 30 billion over 5 years, moving towards a limiting of the subsidy bill, which has increased since oil and gas prices began to rise in 2005 (EIU, 2007).

References

EIU (Economist Intelligence Unit), 2007. Egypt economy: Subsidies assault. London.