CAIRO (Reuters) - Egypt is holding off on reform of its costly state energy subsidy regime until it completes more studies and holds a “social dialogue” on the issue, the country’s oil minister told Reuters.
Osama Kamal denied reports the cash-strapped government owed as much as $6 billion to foreign oil and gas producers and said Egypt’s energy sector was still attracting interest from new potential players including Chinese firms.
Reducing state expenditure by targeting subsidies more toward the needy is seen as vital for Egypt to secure a $4.8 billion loan from the International Monetary Fund to plug an unmanageable budget deficit.
In an interview, Kamal said Egypt would have a major economic problem until the subsidies bill, which represents about a quarter of state spending, is cut.
“Every day we delay restructuring subsidies bleeds state resources,” said Kamal, though he declined to give a timeframe for the reform, saying the government needed to “complete all studies and conduct a social dialogue.”
Cutting the budget deficit is a crucial component of Egypt’s negotiations with the IMF, which began well over a year ago as the country’s economy slid towards a crisis following the overthrow of Hosni Mubarak.
A new president with a popular mandate took office in June, ending more than a year of interim army rule, and his government redoubled efforts to seal an IMF accord, assuaging investors’ worst fears of a fiscal and balance of payments crisis.
Economists say any delay to tackling Egypt’s wide budget and trade deficits could jeopardize IMF support and trigger renewed pressure on the pound currency.
Prime Minister Hisham Kandil told Reuters on September 9 he saw an IMF deal within two months and that Egypt would introduce rationing for subsidized butane cooking gas by mid-October.
But an IMF delegation failed to arrive by the end of last month as planned and Kandil said on Wednesday its next visit to Cairo would be in the last week of October.
Meanwhile the government’s plans for the fuel subsidy reform are shifting week by week.
The country is planning for parliamentary elections in coming months and the subsidy measures could increase living costs for a large swathe of the population that is neither poor nor wealthy. The new government came to office promising better times for Egyptians following Mubarak’s three decades in power.
Kamal said an initial idea to issue printed coupons to citizens in need of cheaper fuel had been discarded because they could be forged, sold or lost.
Instead, he said, smart cards used for rationing food staples would be broadened to handle subsidized fuel products.
“We will depend on the smart cards in distributing butane gas cylinders and petroleum products such as diesel and 80-octane, 90-octane and 92-octane gasoline,” he said.
Kamal said he expected the government to announce long-delayed results of an oil and gas exploration licensing round within “a few days” after receiving 25 bids from companies including Chinese and other Asian firms.
State-owned Egyptian General Petroleum Corporation (EGPC) offered 15 blocks located in the Gulf of Suez, the Western Desert, the Eastern Desert and Sinai sedimentary basins. Three were offshore blocks in the Gulf of Suez and 12 onshore.
Bids closed on March 29. Explaining the long delay before results, Kamal blamed: “The logistics... It’s a tough process.”
The government needs to accelerate oil and gas output to keep pace with soaring domestic demand and power new industries that would provide jobs for an overwhelmingly young population.
For now, it faces a more immediate problem - finding the funds to pay for day-to-day energy consumption.
Several industry sources have said the government owes between $3 billion and $6 billion to foreign energy producers. Cancelled import tenders and sporadic shortages at petrol stations also indicate supply problems.
But Kamal flatly denied any arrears to the foreign operators, saying: “There aren’t any arrears whatsoever.”
Asked whether Egypt had been negotiating staggered payments to oil firms, he said: “That’s another issue, but it does not slow down current development plans... It’s a trading position between EGPC and the operating partners so they owe us some money, we owe them some money.”
Kamal declined to say which firms could receive more gradual payments, saying any such discussions were confidential. ($1 = 6.0993 Egyptian pounds)
Reporting by Ehab Farouk, Tom Pfeiffer and Nadia el-Gowely; writing by Tom Pfeiffer; editing by James Jukwey