Smartcard plan to attack Egypt's fuel crisis

Fuel subsidies in Egypt account for 22 percent of the state's annual budget, taking funds away from other sectors like health and education. The government believes an ambitious five-year scheme, starting with a fuel smartcard roll-out, will reduce and rationalize fuel consumption, circumvent widespread corruption and phase out fuel subsidies.

Estimates for fuel subsidies for this year amount to the equivalent of US$20.1 billion.

"We pay for fuel subsidies about seven times more than what we spend on health and three times more than on education," said Haithem Trabeek, a senior strategic and business planning manager with E-Finance, a company owned by the Ministry of Finance and selected by the government to run a new smartcard system that is part of a plan to reform fuel subsidy payments. The cards are initially being used to monitor the distribution of subsidised fuel to help identify fraud and corruption - something that analysts say is a widespread problem in the subsidy scheme, which is meant to help the poorest in society.

Energy subsidies are currently applied to every Egyptian, regardless of their income. Because everyone gets cheap fuel, and the rich consume more of it, the poorest are effectively left out.

"I have a good salary and benefit from subsidies like someone who earns one dollar per day," said Trabeek. "In fact, I'm subsidized more."

Tarek H. Selim, professor of Business Economics and Strategy, says the generalized entitlement to open-ended energy subsidies makes the current system dysfunctional.

"Fuel subsidies should be tailored to the poor. However, it's wealthy car owners who benefit much more from subsidies," Selim told IRIN. According to Minister of Planning Ashraf El-Araby, 80 percent of the energy subsidies are spent on the rich.