The cost of the petroleum product subsidies will increase to EGP 64bn in the current fiscal year (FY) of 2016/2017 in the wake of the Egyptian pound flotation and global oil price hikes, Minister of Petroleum Tarek El-Molla said.
The government estimated the value of petroleum products for the current fiscal year’s budget at roughly EGP 35bn.
In a phone call to CBC TV show Hona Al-Asema on Saturday, El-Molla said that petroleum product subsidies accounted for EGP 35bn, based on an exchange rate of EGP 9 to the US dollar, as Brent crude oil costs $40.
Following the flotation and high price of Brent oil, the total fuel subsidies will increase to EGP 64bn.
The Central Bank of Egypt (CBE) decided on Thursday to float the pound, thus liberating its price to be determined according to supply and demand, after the difference between the official exchange price and the price in the informal market surpassed 100%.
The government decided to increase gasoline, diesel, butane, and oil prices by 7.1-87.5% starting from Friday.
The new price for octane 80 will be EGP 2.35 compared to EGP 1.6. Octane 92 will be EGP 3.50 instead of EGP 2.6, an increase of 34.6%. Diesel increased to EGP 2.35 from EGP 1.8, an increase of 30.6%.
The natural gas price also increased to EGP 1.6 per cubic metre of gas instead of EGP 1.1, an increase of 45.5%.
Egypt is seeking to obtain a loan from the International Monetary Fund (IMF) worth $12bn, by implementing an economic reform programme that includes the pound’s flotation, applying the Value-Added Tax (VAT) Law, reducing fuel subsidies, and offering shares of governmental companies and banks in the Egyptian Exchange.
The government announced in 2014 a plan to cut energy subsidies, which eats up 20% of the general budget. The plan included smartcards for fuel to prevent petroleum product smuggling and the gradual increase in prices so as to eliminate energy subsidies completely in a three- to five-year period.
The government took the first steps for this plan in FY 2014/2015 by raising the prices of gasoline, diesel fuel, natural gas, and electricity. This cut energy subsidy allocations in the budget down to EGP 73.9bn, compared to EGP 104bn in the previous fiscal year.
The government allocated EGP 61.7bn for energy subsidies in the budget for FY 2015/2016, and EGP 35bn for the budget of FY 2016/2017.