As the dust settles after Egypt’s latest wave of fuel shortages, the conspiracy theories about why there was a sudden recovery in fuel supply after Mohammed Morsi’s ouster are also fading away, until the next time there are chronic shortages.
But one thing the interim government won’t be able to forget is how to get over the country’s addiction to energy subsidies, a system which has bred an entire parallel black market.
As much as 20% of subsidised fuel is thought to have been siphoned off through corrupt activities.
In fact, anecdotal evidence suggests that sometimes smuggling fuel is perfectly legal, highlighting the failure of Egypt’s bureaucracy rather than the energy subsidies.
For example, truck drivers on the agricultural route between Alexandria and Cairo say farmers who need diesel to operate their machinery can easily get hold of a government permit to access larger amounts of subsidised fuel from petrol stations. The only proof the government needs is evidence they own farming machinery. This very unofficial process has encouraged many to sidestep the system, getting more than their fair share of energy products.
This is part of the reason why the “smart” card system, where fuel will be sold through ration cards, will not be enough to reform Egypt’s energy subsidies: simply because legal mechanisms can be so easily circumvented and on such a large scale.
Incoming Egyptian officials may be depending on the “smart” card scheme to work to ultimately phase out untargeted energy subsidies that favour the rich, and not the poor, but there are some key reasons why the project is unlikely to work. Here are just a handful:
1) The smart card will be an open door for corruption and leakages.
According to the government, the cards will be distributed at post offices, traffic points and branches of the Bank for Development and Agricultural Credit against the presentation of a traffic license (people with vehicles without licenses will get cards from September).
2) In a country where government administration is pure chaos and piles of money and papers are lost among 36 non-computerised ministries, how easy will it be to bribe someone to get more than one smart card or lose consumer information?
3) The ministry of petroleum have reassured Egyptians that they have started to track the movement of fuel from storages to petrol stations via the smart cards, in the first phase of the reform, in an attempt to clamp down on black market dealers and smuggling.
However, deeper investigation shows that the system has only tracked fuel from a single refinery (in Mostorod) to a handful of stations in Cairo and Giza since June. The ministry has admitted that it has not built a database yet which makes it highly unlikely the government is aware of the country’s complex fuel network and how it should work.
This is worrying and it is unclear whether the government is truly aware of the scale of the reform.
4) If officials don’t even have an overview of the distribution mechanism of fuel, how will they manage to distribute smart cards to all vehicle owners in Egypt within a month’s time as promised?
Assuming that every third person over the age of 18 owns a vehicle, this would mean the production and usage of 18 million smart cards, which means a lot of work and organisation ahead.
All in all, this is a logistical nightmare and the body of evidence that shows why Egypt’s proposed reforms won’t work is growing.
It’s time for Egypt to rethink its approach and reinvent energy subsidies.