Slowly chipping away at Egypt’s deep energy woes, the government of President Abdel Fattah al-Sisi ratified a US$500 million loan agreement with the World Bank that would allow funds to support a national natural gas project for 1.5 million households, according to local media reports.
The loan comes as a part of a broader push to diversify Egypt’s energy options, which has included encouraging domestic production efforts, new trade and financing deals with international partners and attempts to rein in spending on costly fuel subsidy systems.
In past years, it was those subsidy systems that gave international, non-government lenders like the World Bank pause when it came to offering new financial support to Egypt. Without subsidy reform, many groups said, concrete progress was unlikely.
According to Sherif El Diwany, Executive Director of the Egyptian Center for Economic Studies in Cairo, government subsidies currently made up about one-third of the government’s current budget and 75% of that amount is set aside for energy sector subsidies. Despite calls for reform both domestically and internationally, reducing that support system has been especially difficult.
Over the last three years, the country has launched a broad effort to reign in subsidy system – something that was helped along by the collapse in global oil prices. According to Reuters, Egypt spent 30% less on energy subsidies in the first half of 2014-15 than it did in the same period of the previous fiscal year, citing an oil ministry source on January 19th.
According to the report, the government spent about US$6.35 billion on energy subsidies in the first six months of the fiscal year that began in July – a lower result that was a direct result of the collapse of global energy prices. According to a more recent report, Egypt’s continued reform allowed them to spend just US$5.9 billion for the first half of the fiscal year, down from US$8.4 billion a year earlier.
This was possible without the kind of blowback that similar subsidy reform campaigns have elicited in the past.
Intended to help connect new households to the country’s natural gas grid, the loan is part of more than $5.4 billion in total World Bank loans for Egypt.
Egypt’s broader energy goals in recent years have included domestic energy production, drawing down billions in debt to foreign producers and renewable development, all requiring new infrastructure. In September of 2014, the country announced plans to dedicate US$14.5 billion in petrochemical and refinery investment as a part of an expansive campaign to increase the country’s ability to meet increasing demand.