The government is considering four scenarios for the future provision of electricity subsidies, on the back of liberating the Egyptian pound and the surge in fuel prices.
Government sources said that the first scenario involves the complete amalgamation of subsidies starting from the fiscal year (FY) of 2018/2019, especially as citizens will not tolerate any further price hikes and may refrain from paying electricity bills.
The second scenario is the removal of subsidies in FY 2017/2018 across all segments, while maintaining some support to limited-income citizens. The sources said that the Ministry of Electricity owes the Ministry of Petroleum EGP 90bn in dues, meaning that the latter is in favour of collecting dues rather than increasing them.
The third scenario examined by the government includes keeping subsidies unchanged until 2019, but waiving subsidies provided to higher-income consumers from the coming fiscal year. This enforces the government’s rationalisation plan through an exchange subsidy scheme, by which high-income citizens essentially subsidise limited-income citizens.
The sources said that the fourth scenario refrains from changing electricity prices; however, this plan would increase the Ministry of Electricity’s losses and its debts to the Ministry of Petroleum.
The sources attributed to the government’s consideration to its willingness to cut the budget deficit over the next two years.
The government is negotiating with the International Monetary Fund for a three-year, $12bn loan, on basis of $4bn per tranche.
Allocations earmarked for electricity subsidies were lowered to EGP 29bn in this year’s budget, while keeping subsidies as before would have put allocations at EGP 48.5bn.