Egypt Plans Coupons To Cut Energy Subsidies

The government faced a tough challenge to implement a coupon plan designed to cut massive energy subsidies which eat up around a quarter of government spending, Egypt’s oil minister was quoted as saying.

Annual subsidies of 114 billion Egyptian pounds ($18.7 billion) disproportionately benefit the wealthier in society, Petroleum Minister Osama Kamal told Al-Watan newspaper.

Egypt’s budget for the year ended June 30 was 476.3 billion pounds, according to this year’s draft budget.

Kamal said introducing the programme would need “strong political will”, unlike previous governments which baulked at taking unpopular austerity measures.

A vote on the coupon system is expected after a constitution is approved by a constituent assembly is approved, a process that could take many months.

Prime Minister Hisham Kandil said earlier this month the government wanted to tackle fuel and other subsidies via a coupon or smart card system in October to ensure the poor, rather than everyone, gets subsidised butane cooking gas.

Subsidies would also be cut on 95-octane gasoline and other fuel handouts would be reviewd, Kandil said.

The government is struggling to reduce a budget deficit running at 11 percent of gross domestic product and has to sell economic restructuring to Egypt’s 83 million people, many in dire poverty and desperate to see the benefits of the popular revolt that ousted Hosni Mubarak in February 2011.

DATABASE

The oil minister told Al-Watan that the government had a produced a database of about 65 million people, or 12 million families, who would get coupons for two cylinders of cooking gas a month at the current subsidised rate.

Gas bought without coupons would be priced much closer to world prices.

“We also have a database of families who have natural gas piped into their houses. These (also) will not get coupons. This will save the state about 80 million butane cylinders, because the state will offer 280 million cylinders compared to the current 360 million,” Al-Watan quoted him as saying.

Most Egyptians now pay only around five pounds per cylinder. Kamal said the price outside the coupon system would initially be 30 pounds compared with a world price of 68 pounds.

Kamal said the subsidy on 95 octane gasoline, which the state sells at 2.75 pounds per litre, should be removed and it should be sold at its free-market cost of 4.85 pounds.

Other officials have ruled out a reduction in the price of the 80 octane gasoline widely bought by the poor, which Kamal said was sold at 0.90 pounds per litre but whose true cost is 3.35 pounds.

Kamal said subsidised diesel would also be sold at the current 1.10 pounds per litre using coupons, with transport and taxi drivers and certain other diesel users such as farmers eligible to receive them.

All other diesel would be sold for 4.75 pounds a litre. This would trim an initial 12 billion pounds off the government’s 48 billion pounds-a-year subsidy bill for diesel.

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