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Friday, 4 November 2016

Breaking news: Egypt to cut fuel subsidies, raise price of petrol at the pumps

** BREAKING NEWS: Egypt cuts fuel subsidies, raises price of petrol at the pumps. With subsidy reform a condition of the IMF executive board’s pending approval of a USD 12 bn extended fund facility and oil prices rising substantially over the Ismail government’s budgeted price for 2016-17, Egypt cut fuel subsidies and raised prices at filling stations just after midnight today. The move was first reported late last night by both Al Shorouk and Aswat Masriya.

As of this morning, fuel prices are as follows:

  • 95 octane petrol will now sell for EGP 6.50 per liter, and the price per liter will be allowed to float
  • 92 octane petrol has risen 35% to EGP 3.50 per liter (from EGP 2.60)
  • 80 octane petrol has risen 47% to EGP 2.35 per liter (from EGP 1.60)
  • Diesel has risen 31% to EGP 2.35 per liter (from EGP 1.80)
  • Kerosene will also sell for EGP 2.35 per liter
  • Compressed natural gas for automobiles has risen 31% to EGP 1.60 per cubic meter (from EGP 1.10)
  • Mazot (fuel oil) will now cost between EGP 1,500 and EGP 2,500 per ton

Natural gas prices for home consumers will also rise. All price rises took effect at 12:01am this morning. You can see the Oil Ministry’s official statement here (jpg) as received via email.

The phase-out of fuel subsidies is the right thing to do… The wealthy benefit most from the subsidies. Simply put: Whether you’re driving a gas-guzzling Jeep Grand Cherokee with a 5.7 liter hemi or a gas-sipping compact, you’re consuming more fuel than you would if you were to take public transport.

…It is also likely to prove inflationary and will hit low and low-middle income earners in a manner in which we argue the float may not. We have further thoughts on this at the end of today’s report, but we remind readers that (1) there’s a good argument to make for EGP 15.00 per USD 1.00 being “priced in” right now and (2) there’s an equally good argument to be made that low income earners will be largely shielded from the float provided the government manages the price and availability of subsidized commodities. That said, the last round of fuel price hikes in July 2014 saw transport and food prices (among others) shoot up significantly for lower income earners and the poor.

Keep your eye on the news this morning: Al Masry Al Youm says Prime Minister Sherif Ismail and ministers of the economic group will hold a press conference today at 9:30am to outline the government’s course of action post the float and price hikes. The risk of socioeconomic backlash will be high on their mind, as Central Bank of Egypt governor Tarek Amer suggested at a press conference yesterday afternoon. More on that below.

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