Egypt combats energy challenges with electricity hike

Continuing an effort to draw down dependence on energy subsidies and low-cost electricity, Egypt moved to raise electricity prices this week for mid to high household usage by an average of 19 percent for the next fiscal year. The move is part of Cairo’s long push to draw down costly government support for cheap energy resources, which has caused significant stress to the country’s coffers in recent years.

Facing pressure from in and outside of the country, Egypt’s government has made a concerted effort to reduce energy subsidies and lower cost options that have resulted in unsustainable financial obligations for the country’s energy and government sectors. According to a Reuters report, this latest step is part of five-year campaign to reduce subsidies for Egyptian energy consumers.

Coupled with myriad other financial challenges facing the country, energy subsidies have proven especially difficult to manage or reduce, creating an enormous challenge for the government’s attempts to draw down its daunting debt. Last year, Cairo sharply cut energy subsidies, spurring a 78 percent increase in costs.

According to Sherif El Diwany, Executive Director of the Egyptian Center for Economic Studies in Cairo, government subsidies made up about one-third of the government’s budget in 2014 and 75% of that amount is set aside for energy sector subsidies. Despite calls for reform both domestically and internationally, reducing that support system has been especially difficult.

According to the report, mid-level usage was the most affected by the latest price rises, while “household consumption in the next three highest bands rose by 19, 18, and 13.5 percent respectively.” In addition to assisting Cairo in their efforts to draw down debt, the subsidy progress also helps Egypt improve their standing in the eyes of international lenders and ratings agencies. Across the world, subsidy programs have been strongly criticized for their cost and unsustainability. According to a Cairo Post report, subsidy reforms were a contributing factor to the recent upgrade of the country’s credit rating by Fitch Ratings.

http://www.forbes.com/sites/christophercoats/2015/07/31/egypt-combats-energy-challenges-with-electricity-hike/?ss=energy