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Tuesday, 19 June 2018

Government hikes fuel prices by c. 50%

Fuel price hikes came into effect over the long weekend: The government raised the price of fuel products by c. 50%, according to a detailed price list put out by the Oil Ministry. The subsidy cuts were necessary to save the FY2018-19 budget around EGP 90 bn in fuel subsidy costs, said Finance Minister Mohamed Maait following the hikes. Next year’s budget allocates EGP 89.1 bn for fuel subsidy spending, down from EGP 110.2 bn in FY2017-18. Maait noted that the savings from the subsidy cuts will allow the government to allocate funds towards social welfare spending and other subsidy benefits, which total EGP 334 bn, including EGP 100 bn for bread subsidy spending. It will also allow the government to health and education spending targets, Maait added in a statement.

Background: This would be the third time the government has hiked fuel prices since signing the USD 12 bn IMF Extended Fund Facility in 2016. The price hike came just days after the government raised electricity prices by an average of 26% last week, following a 46.5% increase in water prices and the threefold increase in Metro ticket prices. Fuel prices as of Saturday are as follows:

  • 95 octane petrol at the pumps will now cost EGP 7.75 per liter, up from EGP 6.60;
  • 92 octane petrol rose to EGP 6.75 per liter, from EGP 5.00;
  • 80 octane petrol increased to EGP 5.50 per liter from EGP 3.65;
  • Diesel fuel will also sell for EGP 5.50 per liter from EGP 3.65;
  • Kerosene as well rose to EGP 5.50 per liter from EGP 3.65;
  • Cooking gas cylinders now cost EGP 50 from EGP 30;
  • Gas cylinders for commercial ventures jumped to EGP 100 from EGP 60;
  • Compressed natural gas for automobiles rose to EGP 2.75 per cubic meter from EGP 2;
  • The price of fuel oil (mazot) to factories has not changed and remains at EGP 3,500 per tonne.

Expect inflation to rise only temporarily as the economy absorbs the shock from the recent hike, Maait told Enterprise yesterday. The headline inflation rate for June could rise to an average 13-14%, according to economic advisor Reham El Desoki, who tells Al Shorouk that monthly inflation will hover around 2-3%. The investment bank expects inflation to hit 12.4% in July as electricity prices also increase at the start of the month with the beginning of the new fiscal year.

The government also raised cab fares 10-20% on Saturday following the hikes. The Madbouly Cabinet left it up to the governorates to decide on the exact fare hike, according to a cabinet statement on Saturday. The statement said that authorities were coordinating to ensure compliance with the new prices, which will be posted at taxi stands. Microbuses have also been issued a strict set of standard fares by the Consumer Protection Authority, as Prime Minister Mostafa Madbouly warned there would be no tolerance for price gouging.

That means Uber and Careem as well: Ride-hailing apps Uber and Careem will also raise their fares. Careem Egypt Managing Director Ramy Kato reportedly told Al Mal that the company was considering raising prices by an average 35% “to meet operating costs.” Uber, meanwhile, announced that it had raised prices and put out an updated price sheet.

Traveling by bus may also get more expensive. The Holding Company for Maritime and Land Transport is studying whether to raise bus fares for travel across the country using the Upper Egypt or East and West Delta companies, according to Al Mal. This comes as government sources tell the newspaper that higher fuel prices will cost the National Railway Authority some EGP 1 bn in annual losses. They add that the Transport Ministry is working on developing the sector’s infrastructure to encourage more cargo transport via rail as a way of widening its revenue stream.

No impact on bread subsidies: The increase in fuel prices will not impact the price of subsidized bread, as the Supply Ministry will take on the burden and reimburse bakers for additional costs incurred, according to a statement carried by Ahram Gate. Minister Ali El Moselhy had also confirmed as much during an interview on Saturday (watch, runtime: 13:47).

The price of a range of food products will rise 3-7% over the coming period, said Mohamed Shoukry, the deputy head of the Federation of Egyptian Industries’ (FEI) food producers division, who explained that the increase will come on the back of higher transport costs. Other commodities, such as construction and building materials and electronic appliances are also expected to see price increases over the coming weeks and months.

Telecoms are angling to raise prices, but the gov’t isn’t having it: A source from a telecoms company tells Al Mal that the fuel price hike will force mobile network operators to consider raising the price of services by as much as 50%. Sources from the National Telecommunications Authority were quick to throw cold water on the notion, telling AMAY that there will be no price increases in phone services.

Pharma is also trying to ride the wave. Members of the FEI’s pharma division, who have been trying to push for higher med prices since their last hike was approved in January, will meet next week to discuss the impact of higher fuel and power prices on their production costs, according to member Hisham Hagar. The FEI is also planning to meet with newly-appointed Health Minister Hala Zayed to discuss the possibility of another increase in med prices.

FEI pushes for minor wage increase for private sector industrial workers: Meanwhile, the FEI appears to be lobbying for private sector industrial workers to receive a minor wage increase of EGP 100-200 per month to offset the rising prices of fuel and electricity, FEI head Mohamed Elsewedy said yesterday. The federation is also in talks with the government to allow the increase to be tax-exempt, according to Elsewedy. The push comes a few weeks after Parliament signed off on an exceptional raise for civil servants.

Trouble in parliament: Members of the small House opposition bloc, the 25-30 Alliance, sent an urgent note to President Abdel Fattah El Sisi, asking that he reverse what they described as “errant economic decisions,” Reuters reports.

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