World Economy

Egypt to Cut Electricity Subsidies

Egypt to Cut Electricity SubsidiesEgypt to Cut Electricity Subsidies

Egypt will increase electricity prices by up to 40% for households as part of its plan to repair its finances by eliminating power subsidies entirely over the next few years, the government said.

The latest price hikes range from 25 to 40% depending on consumption levels and will be applied retroactively from last month, the electricity ministry said in a statement, Albawaba reported.

Cairo, which is in the midst of talks with the International Monetary Fund to secure a $12 billion three-year loan program, is trying to cut its budget deficit through a number of reforms. They include tax increases and a plan to wean the population off a decades-old subsidy regime that has often benefited the highest-earning households.

Egypt began a five-year program of price increases in 2014 to gradually eliminate domestic electricity subsidies.

However, Electricity Minister Mohamed Shaker told a news conference on Monday that this year the government had raised prices more steeply than originally proposed, whilst reducing the burden on poorer households, because dwindling local production had forced the country to import more gas for power generation in recent years.

A devaluation in the Egyptian pound had also made those imports more expensive, he said.

The IMF has in the past urged Egypt to phase out its costly subsidies. Overconsumption of cheap electricity has in recent years exacerbated energy shortages and led to frequent power cuts in summer months.

To ease the electricity shortages, Egypt signed an $8.9 billion deal with Siemens in June 2015 for three combined-cycle power plants with a capacity of 4,800 megawatts each as well as 12 wind farms.