CAIRO: Businessmen and researchers called Tuesday for the gradual phasing-out of the government s LE 50 billion annual energy subsidy bill and urged more investment in alternative sources of energy.
They called on focusing on wind and nuclear power to avoid a potential crisis once Egypt s natural gas reserves are expected to run out in 2025.
Nearly 100 participants representing the government, business and the research community took part in the discussion, as part of the annual Egyptian Center for Economic Studies conference.
The government s 2006-7 budget shows more than LE 100 billion allocated for subsidies, of which LE 53 billion will go toward subsidization of energy. As in other developing markets, economic analysts said subsidization has not worked in Egypt because it has not achieved its intended purposes.
The subsidization policy, as it exists, is not sound, says Abdallah Shehata, Cairo University professor and ECES researcher. It does not achieve the purposes of subsidization. It does not increase the competitiveness of locally produced products and it does not give the consumer affordable products.
Of the total energy subsidy bill, about 25 percent will go toward liquefied natural gas (LNG). Genco Group President Tamer Abou Bakr says subsidization has resulted in inefficient use of the country s energy resources and should have been gradually lifted beginning 10 years ago. A cubic meter of LNG now costs the local consumer LE 0.45 at the pump, compared with its actual value of more than LE 3, he adds.
You cannot lift subsidization over night, that s not what we re saying, Abou Bakr told The Daily Star Egypt. And it has to be compensated by raising the salaries of public employees, for example. People are complaining about decreased subsidization but you have to do it for the good of the people.
But not all effects of lifting energy subsidies will be negative, says Shehata. While there s no getting around another spike in the inflation rate, in case such a policy is implemented, it should also lead to decreased consumption and a reduction in the country s annual budget deficit, he adds.
As for the government s current policy of exporting a third of LNG production, setting aside another third for local consumption and another third for future generations, Abou Bakr says Egypt must not sign new export agreements with foreign partners because its proven reserves of 67.2 trillion cubic meters are rapidly dwindling.
We re not a small country, adds Abou Bakr. We have 70-80 million people and an economy growing at 6 percent, we need to work hard to conserve what we have.
Tarek Selim, American University in Cairo professor, proposes a gradual energy subsidization phase-out by 2017. But, he says, the government must implement several measures in return, including enforcing the minimum wage law, LE 342 per month, and practicing targeted market intervention to counter a possible 5-7 percent spike in the inflation rate. He also recommends increasing alternative energy use, now accounting for less than 1 percent of total use, to 5 percent by 2010 to reach 25 percent by 2025.
Minister of Petroleum (MOP) Sameh Fahmi said earlier this week he is not worried about Egypt s supply of LNG because of the more than 200 drilling agreements signed so far since 2004 and the high rates of return in recent digs. LNG exporting totaled about LE 3 billion in 2005, of which two-thirds went back either directly or indirectly into the government s annual budget, according to MOP.
He added that allowing sector companies to export large quantities is the only option available to the government to allow these companies to achieve profitability. The other option, he said, would be to request funds directly from the Ministry of Finance in order to meet MOP s commitments as a partner with foreign oil companies operating in Egypt.