A recently released ESMAP analysis is guiding policy decisions on energy subsidies in Egypt. The study shows a compelling case to reform the current energy subsidy system in Egypt. Financial subsidies in the oil and gas sectors alone consume nearly six percent of GDP. If electricity is added to the mix, the resulting subsidies would be as high as 14 percent of GDP, significantly impacting Egypt’s budget, the analysis reveals. It says subsidized energy prices encourage excessive energy consumption, making Egypt’s energy and carbon intensity three times higher than the Organization for Economic Co-operation and Development (OECD) average.
World Bank’s Project Leader, Mr. Vladislav Vucetic said "This study has closed a major analytical gap in understanding the economics of energy pricing in Egypt. It has become a source of reference in the ongoing policy reform discussions among the key government agencies in Egypt.” “The study provides decision makers with analytical tools to update analytical results and weigh various options of adjusting energy prices and understanding their economic as well as social impact,” he said.
The report underpins underlying economic price levels for all energy products - electricity, natural gas and oil products, determined on a cost-reflective basis. The energy subsidies are phased out towards the unsubsidized prices during a transitional period. The study designed an automatic price adjustment mechanism to take into account fluctuation in key cost drivers, and make necessary adjustments to the energy prices. The report also assessed the economic and social impacts on vulnerable groups, to mitigate potential negative effects of reform. A set of mitigation measures were developed to counteract real income loss to poor households resulting from removed subsidies.
Findings of the study were presented by the World Bank team to the Government of Egypt in 2009, to guide its policy on energy pricing.
