Minister of Petroleum Tarek Al-Mula announced new petroleum price hikes, adding that removing subsides on petroleum is an important procedure taken by the country to decrease the negative impact that the subsidy system had created over the years.
In a statement by the Ministry of Petroleum, the minister said that subsides on petroleum have been for too long affecting the services presented to the people.
He explained that the total subsides on petroleum and natural gas during the last five years have amounted to LE517 billion, which have not been invested to benefit the underprivileged who is in dire need of the subsides.
Al-Mula pointed out that the whole reason for the subsides in the first place was applied from a social aspect to protect those in need. However, the implementation resulted in an opposite result as the rich are benefiting from such price decrease while the poorer people have not benefited from the move, according to studies.
The ministry released a statement with the new prices showing that home gas will cost LE50 per cylinder, while commercial gas will cost LE100 per cylinder. As for car gas, the 95 concentration will cost LE7.75 per liter, while the 92 concentration will cost 6.75 and the 80 concentration will cost LE5.5 per liter. Finally, Kerosine will cost LE5.5 per liter and solar will cost LE5.5 per liter.
Ministry of Petroleum released its latest study showing the negative impact of the subsides. The study reported that petroleum and natural gas subsides are expected to rise to LE125 billion by the end of 2017/18 fiscal year. However in 2018/19 fiscal year the government aims to provide only LE89 subsadies if the price of crude oil is $67 and the dollar remains at LE17.25. For every $1 increase in the price of crude oil, the government will have to increase subsides by LE3.5 billion. The ministry then concluded that it could not afford such increase.
The study continued to list some of the negative impacts of the current subsidy system. Firstly, the current system puts pressure on of the government budget and hinders any hope for improvement in standards of living. Secondly, the current system allows for over consumption of petroleum especially with the emergence of the black market. The study continued to say that selling petroleum products for less than their original costs creates an imbalance in the consumption system with no added value, therefore negatively affecting the economy.
The subsidy system has also negatively affected the revenues of the petroleum sector, as well as its flow of cash, decreasing its performance and ability to create new projects in petroleum manufacturing to help fuel different sectors.
Finally, the lack of cash flow has negatively affected investments in the field of petroleum discovery and manufacturing, listed the study. It also put Egypt in a position of lack of cash flow and debt to foreigners to cover its need of petroleum. The report added that because of these problems the government decided to make changes and direct its petroleum subsides towards sectors such as education and health. However, despite price hikes the government is still subsidizing petroleum, the report added as the prices do not cover all costs of production.
In 2014, the ministry decided to follow a program to overcome the imbalance in the petroleum sector. The program will last for 5 years. Since then, petroleum price hike have become more frequent. This is the fourth price hike since 2014 as it was preceded by the July 2014 increase, November 2016 increase and the the July 2017 increase.
The problem that despite all these increases the government still needed to subsidize petroleum, which is why this increase ins necessary according to the study. Currently Egypt makes 75-80 percent only from the original cost of petroleum.
As for where the revenues from the price increases will go, the study concluded that the money will be used to increase pensions and salaries. Takafol and Karama budget will also be increased to LE17.5 for the 2018/19 year. Finally, food subsidies will witness a LE4-billion-increase to reach LE 86.2 in the 2018/19 fiscal year.