The government is expected to increase electricity tariffs in July 2023, according to a plan to gradually lift subsidies. The government adopted this plan in 2014 to totally have unsubsidized tariffs by 2025. Egypt delayed the planned increase until 2022 and it has not been raised to the moment. With rumors that electricity tariffs could increase in July 2023, economists and citizens are awaiting any expected climbing prices.

Electricity Generation

The share of natural gas was about 98.2% of the total fuel used in generating electricity, according to the 2020/2021 annual report of the Egyptian Electricity Holding Company (EEHC). Accordingly, Egypt is working on decreasing the dependence on fossil fuels in the energy mix and boosting the use of renewable energy. The country is seeking to bring power production from renewable energy to 42% of the country’s total energy mix by 2030, with this capacity share to increase to 60% by 2040.

In 2022, Egypt's renewable energy contribution was mainly from hydropower, representing 47% of renewables, followed by 27% of wind energy, and solar power making 26% of the renewable production, according to the New and Renewable Energy Authority’s (NREA) 2022 annual report.

Subsidized Energy

Egypt has been subsidizing electricity and selling it at a low price. As most electricity is generated from fossil fuels, the Ministry of Electricity owes a huge amount of money to the oil and gas sector.

In May, Ashraf Abdullah Ahmed, Assistant Minister for Financial Affairs and representative of the Egyptian General Petroleum Corporation (EGPC), said that the indebtedness of the electricity ministry amounted to $143 billion and that the oil and gas sector buys the foreign partner’s share of the and sells it to the ministry for half price. This makes its collection difficult, he added, noting that the solution is to increase the price of electricity for consumers.

In accordance to the presidential directives, Minister of Finance Mohamed Maait confirmed in May 2021 the four-way financial entanglements between the budgetary government agencies, EEHC, the Holding Company for Drinking Water and Wastewater (HCWW), and the EGPC, in agreement to pay the dues of the electricity, drinking water and wastewater companies with the state's administrative apparatus.

The electricity ministry has been adopting a plan since 2014 to gradually lift subsidies from electricity bills. However, in June 2022, the country delayed the planned increase in electricity tariffs.

Prime Minister Mostafa Madbouly announced in a press conference in November 2022 that the state bears EGP 43 billion on behalf of citizens, representing the cost of not increasing electricity prices and the difference in the dollar price, indicating that there is a breakthrough in the exit of raw materials and production requirements.  Moreover, Egypt intends to stabilize electricity prices for citizens without any amendment until the end of fiscal year (FY) 2022/2023 at a cost of EGP 3.8 billion, as mentioned in the publication of drafting the FY 2023/2024 state budget.

Accordingly, increasing electricity prices will have an impact on the Egyptian economy and its people. Shady Shehada, International Trade and Economics Expert, tells Arab Finance: “The effect of canceling subsidies will raise inflation rates in Egypt, and then its successive effects on the economy, especially on the transport, agriculture, and industry sectors, which will affect the poor and middle classes in Egypt, as Egypt is witnessing a rise in general price levels of and a negative decline in the Egyptian economy as a whole. It affects the value of the national currency.”

Expectations Arise

Electricity tariffs are expected to rise in less than a month. This comes as the electricity fee was calculated in 2021 at an EGP 18 per $1 exchange rate. Therefore, the prices are rumored to witness an increase this year. Shehada tells Arab Finance: “The Egyptian government is likely to raise prices by 10%-22% in July 2023, after it was postponed three times.”

Meanwhile, Eman, a 31-year-old housewife, tells Arab Finance: "I expect an increase in electricity prices. I am ready for the increase, especially after mentioning it and postponing it more than once. But I hope it does not exceed the declared percentage."

Amid growing expectations, Shehada is worried about the ability of the lower classes to cope with the new prices. Shehada notes: “The Egyptian government should slowly raise electricity prices so as not to increase the burdens on citizens, as raising prices will have an impact on sectors within the Egyptian economy, and thus increase the burdens on citizens and increase poverty rates more and more.”

As expectations rise, several products’ prices are anticipated to go up. This comes as the country's annual inflation rate rose to 33.9% during March 2023, according to the Central Agency for Public Mobilization and Statistics (CAPMAS). People are on the watch for the new tariffs and their effect on the economy and prices. Whether citizens are ready for the new electricity price increase or not is to be seen in a month.

By Sarah Samir

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