Row over thorny fuel subsidies in Egypt

Factory owners are today stuck with an unbalanced equation, in which the workforce is calling for extra pay at a time when productivity has dropped given a stagnant market in the wake of the extraordinary events of the January 25 revolution.

However, ongoing discussion about a governmental plan to cut subsidies on fuel used for industrial purposes has caused panic in industrial circles, which are already disturbed by a confusing market.

In a bid to strengthen suggestions to rescue local industry from present mishaps, the Industries Federation has formed an ad-hoc committee, which will touch upon several issues including fuel subsidies.

Local plants have been privileged to receive a fuel subsidy as part of a State programme to enhance industry and promote exports.

However, experts say that revoking the fuel subsidy is bound to increase the price of final products, a matter, which would make local products lose their competitiveness with imported equivalents.

They further warn against a miscalculated step, which, as they expect, would lead to closing down a number of plants owing to substantial loss.

According to Moharam Hilal, the head of the Ramadan l0 Investors Society, the timing is not appropriate; he suggests a four-year gradual process to phase out fuel subsidies, such that the increases in product prices would be as minimal as possible.

“The beginning could be industries that heavily consume fuel, such as those producing cement, fertilisers and ceramics followed by other companies engaging a large work force,” added Hilal.

“Fuel is one of the thorny files that need thorough study before application,” he told Al-Gomhuria Arabic newspaper. Subsidies directed to food and fuel have always been a source of concern for Egyptian decision-makers, because of the burden they impose on the State budget.

Today, there is a societal understanding that subsidies need to be reduced and well targeted to reach those who actually deserve them. The mechanism and timing are, however, much in question, some observers have said.

Chairman of the Metal Holding Company Zaki Bassiouni had warned that increasing fuel prices in the current circumstances would spell out 'closure' for public sector companies. He predicted that any such price increase would bring public sector plants to a halt in three years' time.

He gave an example of the production of aluminium, the cost of which is very high compared to other countries.

Profits in this sector, as he pointed out, dropped from LE l.7 billion to LE 535 million last year and the figure is expected to fall further this year.