15 May 2013
Ahmed Heikal, chairman and managing director of Citadel Capital, warned this week that should the government do nothing about reforming its expenditure, the budget deficit for 2013/14 could reach LE300 billion. Heikal said that with the budget deficit already at LE175 billion, 10 per cent of GDP for the first nine months of the current fiscal year, it could hit LE240 billion by the end of June. The deficit was LE113 billion from July-March 2011/2012.
Heikal stressed that the government needs to act immediately to deal with pressing issues including fuel subsidies which are currently contributing $22 billion to the current account deficit. "While we could have moved slowly 10 years back, today we do not have that luxury," Heikal said.
Speaking at a panel called "Energy challenges in challenging times" organised by the American Chamber of Commerce this week, Heikal explained that in 2002 when Egypt started importing energy the cost was offset by hard currency earnings from exports, FDIs and tourism. "This is not the case today." He added that in a few years "when this current account deficit reaches $40 billion, there will be nothing we can do to ease the pressure on the currency."
He said fuel subsidies had caused many distortions foremost among which is that many industries that should have been doing well in Egypt are not thriving. He gave the example of River Nile transport saying that in 1960, 60 million tonnes were transported on the River Nile. Today that figure is down to one tonne. This is because fuel for trucks is much cheaper.
The processing of solid waste as an alternative source of fuel could have also thrived were it not for the availability of cheap subsidised fuel.
Heikal stressed the need to eliminate distortions. "Yes it will destroy certain industries but will create employment in others. The government cannot worry about every single industry."
"We cannot have the unavailability of energy. Everything in this country will be determined by creating employment. Lack of energy will translate into unemployment."
In the meantime, he said power blackouts this summer, which are being anticipated, could easily have been avoided if the private sector had been allowed to import natural gas.
Tamer Abu Bakr, chairman of the Energy Committee at the Federation of Egyptian Industries, reiterated a similar view, also calling for reforms to the fuel subsidy system. But Abu Bakr said that transparency and clarity of energy pricing policies are essential to that reform.
He said that prices should be raised within the framework of an integrated system for all products to prevent customers from shifting their consumption to cheaper products, and that prices be raised gradually over four stages. Furthermore, Abu Bakr said that there should be one price for all users to prevent corruption.
Abu Bakr recommended moving towards replacing oil-derived fuel with natural gas because it is cheaper. He said power stations should operate with natural gas and there should be a national plan to convert 50 per cent of vehicles to operate with natural gas as well. He said government should phase out gas supplies to energy intensive industries.
Egypt's production of oil and gas is 82 million tonnes per year of which 57 per cent is Egypt's share (47 million tonnes) while the rest belongs to the foreign partner. Meanwhile, Egypt's consumption stands at 77 million tonnes.
Ahmed Heikal, chairman and managing director of Citadel Capital, warned this week that should the government do nothing about reforming its expenditure, the budget deficit for 2013/14 could reach LE300 billion. Heikal said that with the budget deficit already at LE175 billion, 10 per cent of GDP for the first nine months of the current fiscal year, it could hit LE240 billion by the end of June. The deficit was LE113 billion from July-March 2011/2012.
Heikal stressed that the government needs to act immediately to deal with pressing issues including fuel subsidies which are currently contributing $22 billion to the current account deficit. "While we could have moved slowly 10 years back, today we do not have that luxury," Heikal said.
Speaking at a panel called "Energy challenges in challenging times" organised by the American Chamber of Commerce this week, Heikal explained that in 2002 when Egypt started importing energy the cost was offset by hard currency earnings from exports, FDIs and tourism. "This is not the case today." He added that in a few years "when this current account deficit reaches $40 billion, there will be nothing we can do to ease the pressure on the currency."
He said fuel subsidies had caused many distortions foremost among which is that many industries that should have been doing well in Egypt are not thriving. He gave the example of River Nile transport saying that in 1960, 60 million tonnes were transported on the River Nile. Today that figure is down to one tonne. This is because fuel for trucks is much cheaper.
The processing of solid waste as an alternative source of fuel could have also thrived were it not for the availability of cheap subsidised fuel.
Heikal stressed the need to eliminate distortions. "Yes it will destroy certain industries but will create employment in others. The government cannot worry about every single industry."
"We cannot have the unavailability of energy. Everything in this country will be determined by creating employment. Lack of energy will translate into unemployment."
In the meantime, he said power blackouts this summer, which are being anticipated, could easily have been avoided if the private sector had been allowed to import natural gas.
Tamer Abu Bakr, chairman of the Energy Committee at the Federation of Egyptian Industries, reiterated a similar view, also calling for reforms to the fuel subsidy system. But Abu Bakr said that transparency and clarity of energy pricing policies are essential to that reform.
He said that prices should be raised within the framework of an integrated system for all products to prevent customers from shifting their consumption to cheaper products, and that prices be raised gradually over four stages. Furthermore, Abu Bakr said that there should be one price for all users to prevent corruption.
Abu Bakr recommended moving towards replacing oil-derived fuel with natural gas because it is cheaper. He said power stations should operate with natural gas and there should be a national plan to convert 50 per cent of vehicles to operate with natural gas as well. He said government should phase out gas supplies to energy intensive industries.
Egypt's production of oil and gas is 82 million tonnes per year of which 57 per cent is Egypt's share (47 million tonnes) while the rest belongs to the foreign partner. Meanwhile, Egypt's consumption stands at 77 million tonnes.
© Al Ahram Weekly 2013
