Egypt to decide soon on energy subsidy phase-out

CAIRO Thu Oct 27, 2011 12:36pm EDT

CAIRO (Reuters) - Egypt is finalizing plans for the removal of energy subsidies for its industrial sector, a phase-out agreed on since 2007, the country's trade and industry minister said on Thursday.

Trade Minister Mahmoud Eisa told the Reuters Middle East Investment Summit he expected a final decision on how the phase-out will take place before the end of the year.

"The situation in Egypt of subsidizing such industries is very strange and it is a very heavy burden because no country can do it like this," he said.

Eisa said the government would start the phase-out with energy-intensive industries, such as steel and cement, adding that many of these firms were exporting their products which meant that "they are exporting ... subsidized energy."

But he said any decision would take into mind the needs of firms and how the increased costs would effect consumers.

The economy of the Arab world's most populous nation has been battered by months of political unrest after President Hosni Mubarak was toppled in February.

Eisa, appointed in July in a fourth cabinet shuffle since the start of the year, said Egypt was discussing ways to expand trade with the United States and other European countries, its two main trading partners.

Two-way goods trade between the United States and Egypt increased more than 30 percent in 2010 to $9.1 billion, while U.S. investment in Egypt rose to $11.7 billion.

Trade has remained mostly steady this year, totaling $6 billion through the first eight months.

Egypt could also look to expand the reach of the Qualified Industrial Zones (QIZ) agreement between Egypt, Israel, and the United States to include southern Egyptian provinces.

The QIZ deal, implemented in 2005, allows Egypt to export from the zones to the United States free of tariffs and quotas as long as a certain percentage of Israeli goods is used.

"To limit all our trade with the U.S. only to QIZ, would not represent our strategic relationship. We want to extend other channels for trade promotion with the United States," Eisa said.

The minister said Egypt was seeking to boost trade ties with Europe, as well as looking to markets like Turkey and Libya.

"The first priority is to keep the markets you have in your hands and not lose any of those," Eisa said. "The big market we have is the European Union. We are concentrating more there."

(Writing by Dina Zayed. Editing by Jane Merriman)