Egypt commits to fuel subsidies to cut down budget deficit

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A worker pumps fuel at a petrol station in Cairo on 16 January, 2012. Photo – Asmaa Waguih/Reuters

Egyptian Petroleum Minister Osama Kamal told a newspaper on Sunday the government will announce plans to cut energy subsidies by setting a universal limit on how much cheap fuel and cooking gas every household can buy.

President Mursi’s Islamist-led administration insists it will push through reform of the subsidies, which consume as much as a quarter of the state budget. Cairo is struggling to lower a mounting budget deficit and shift funds to health and education.

Many economists believe the IMF will not release a $4.8 billion loan until Cairo takes serious steps to cut a deficit that ballooned after a popular uprising tipped the economy into crisis last year.

In an interview with newspaper Shurouk, Kamal outlined the plan which  would mean that both rich and poor receive the same allocation of the subsidised fuel and would then pay a higher price for additional amounts consumed.

The government “is committed to subsidising petrol for only one car per family”, the paper quoted Kamal as saying.

Each car with a maximum 1.6 litre engine would be allocated around 1,800 litres of subsidised fuel a year, enough to travel 60 km (40 miles) per day, he said, a “suitable estimate for average daily consumption of private cars in Egypt”.

He was referring to 80-, 90- and 92-grade gasoline, while prices of higher-grade 95 gasoline would be raised to what the government pays for it.

The state minister added that unspecified amounts of subsidised diesel, known as solar in Egypt, would be issued for trucks, three-wheeler passenger vehicles, mini-buses and buses for transporting children to schools whose fees are regulated by the state.

Each Egyptian family would receive 1.5 to 2 cylinders of fully subsidised butane cooking gas per month and further consumption would be partially subsidised, Kamal explained.

“The government can’t move prices in one go so as to avoid raising average inflation significantly,” he said. “All citizens will be treated equally, so whoever has a luxury villa will be treated equally to the rest in receiving butane gas cylinders.”

He did not give a deadline for the start of subsidy rationing or specify what would constitute a family for the purposes of the plan. Another minister said last week that coupons for subsidised butane would be issued towards year-end.

A growing population and high global prices pushed Egypt’s petroleum product subsidy bill to 28 billion Egyptian pounds ($4.59 billion) in the July-September quarter, up from 18 billion in the same period a year earlier, according to Kamal.

He said the scale of subsidy cuts planned for in the government’s 2012/13 fiscal year budget would not be realised “because it was put on the basis that the restructuring would begin from early July and this has not happened”.

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