A disturbing, but unsurprising leak from an unnamed official in Egypt’s finance ministry reveals that funds allocated by the government for diesel fuel subsidies have run out for the current year, with the Cabinet scrambling to find a solution, according to Egypt Independent:
An official source within the ministry has said that meetings are being held with Ministry of Petroleum officials to solve the crisis, adding that the government’s subsidies for diesel fuel are estimated at LE50 billion.
The two ministries are considering opening an additional source of credit for diesel subsidies through a law giving the finance minister the power to approve additional credits.
Rebel Economy has repeatedly called for a swift overhaul of the energy subsidy system. Read here for a round-up of why.
But in a nutshell, and according to industry sources, in 2002, EGPC’s total debt stood at half a billion Egyptian pounds. In 2012, that debt pile has jumped to 200 billion pounds.
The organisation has also maxed out financing to fund oil and gas exploration from banks including National Bank of Egypt and Morgan Stanley.
Sources say the magnitude of Egypt’s debt is such that at BP’s global board meeting, Egypt’s debt repayment plan is brought up as a topic of discussion.
The finance ministry has already been effectively paying the oil ministry to buy its domestic energy needs either from foreign partners exploring in Egypt, or by importing it from countries including Algeria and Saudi Arabia. That was part of the reason foreign reserves fell so much.
The problem is based in the fact Egypt buys hydrocarbons at a high price, and sells at subsidised prices making it a costly system that wastes more cash than the country can afford. The energy subsidy system, which already swallows up to 20% of government spending, is also fundamentally flawed, and shortages have lead to a parallel black market.
An Egyptian radio station over the weekend revealed the cost of butane cylinders used by many Egyptians at home has now gone up to about LE70 and LE80 on the black market. A cylinder used to cost anywhere between LE8 and LE50 at the most.
Something has to give, but with further delays on implementing key subsidy reforms, it is not clear what this will be.
Funnily enough, the only official quoted in Egypt Independent’s story was Sherif Haddara, the new head of Egypt’s state-run oil company, the Egyptian General Petroleum Corporation. He quietly replaced Hani Dahi as the chairman of EGPC earlier this year, as Rebel Economy first reported this in November 2012.
Mr Haddara faces the country’s biggest challenge in managing the finances of the most indebted ministry in Egypt.