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Egypt Will Slash Fuel Subsidies by 27 Pct

Source: Ahram Online 6/6/2012, Location: Egypt

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Egypt's government will slash fuel subsidies by 27 per cent in the 2012/13 financial year and introduce a new coupon system to rationalise distribution, according to uncirculated details of the new budget acquired by Ahram Online.

The amount spent on fuel subsidies will fall to LE70 billion in 2012/13 from LE95 billion in the current fiscal year, and make up 48 per cent of Egypt's total subsidies bill of LE145.8 billion.

Octane petrol, diesel and butane gas will all be distributed via a system of coupons and smart-cards in an attempt to keep a tighter rein on distribution and limit profiteering. Inflationary pressures normally prompt annual rises in octane and diesel prices, but the Egyptian government has in the past used subsidies to cushion consumers from the impact.

However, the document suggests that the government will fully remove all fuel subsidies for energy-intensive industries by the end of the 2012/13 financial year.

The removal of subidises for fuel oil -- generally used by industry -- is the main driver behind the drop in overall fuel subsidies. Over LE10 billion was earmarked for fuel oil subsidies in the 2011/12 budget. Fuel oil is a low quality fuel used for industrial purposes.

The document also indicates that the government will shift all fuel oil-reliant industries into using natural gas, reducing demand for the former. The allocation for diesel fuel makes up 51 per cent of the total energy subsidies bill of LE35.7 billion. Butane gas is the next biggest recipient, making up 23 per cent of the total.

Egypt's finance minister submitted the government's draft 2012/13 budget to Parliament on Monday.

The presentation of the budget is around two months overdue -- Egyptian law stipulates that parliament must have a draft 90 days before the start of the relevant financial year -- leading to concerns it may not be passed before it is due to take effect on 1 July.

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