By Farah Halime
The people at Cairo-based brokerage firm Pharos Holding have sent investors a thorough breakdown of the reasons behind Egypt’s diesel crisis.
Titled “Diesel Crisis: Unquoted Figures and Untold Stories. The Secret behind Diesel Shortages in Egypt”, the document sheds light on the country’s fuel crisis.
Pharos Research sourced diesel import data from the main government statistics agency, the Central Agency for Public Mobilisation and Statistics (CAPMAS) to understand the nature and magnitude of the current diesel crisis. They found that diesel import statistics are extremely alarming in terms of magnitude, reasons and implications.
Firstly: Diesel imports have been rising sharply and now make up about half of consumption, or around 9% of imports.
The media quotes Egypt diesel imports at around 25% of annual consumption. However, CAPMAS figures show that the true figure jumped to around 50% and accounted for around 9% of Egypt’s merchandise imports, up from only 2.5% in 2007.
Secondly: There is a growing rift between Egyptian General Petroleum Corporation (EGPC) and foreign partners.
The reasons behind the surge in diesel imports and the current diesel shortage crisis is down to growing debts to foreign oil partners from the state oil company, EGPC.
This rift has forced foreign partners to export their share of crude oil directly to third parties rather than sell it to the EGPC and risk further debt exposure. This has not only deprived Egyptian refineries from feedstock but triggered a surge in imports from foreign suppliers.
While the minister of petroleum said earlier this week outstanding liabilities to foreign partners have been settled (to the tune of $6.5bn), Pharos says liabilities have most likely been paid using the deposits of Qatar, Saudi Arabia and Turkey. Hence, Egypt has only managed to rollover rather than actually settle the debt.
That’s not the only problem.
While Egypt may have averted the full erosion of its foreign reserves by delaying payments to foreign partners, at the expense of reputation and delays in upstream investments, it will not be able to defer payments to foreign suppliers for imports.
What is alarming is that Egypt has run out of cash for diesel imports due to the inability of EGPC to secure payment guarantees from local banks, as Rebel Economy has reported before.
If this continues and foreign reserves inflows remain muted, diesel imports will decline and in turn the Egyptian government will face difficulties in offering subsidised diesel. It faces the prospect of food price inflation and social unrest that will pose huge challenges to political and economic stability.
This is exactly why Egypt has no choice over implementing energy subsidy reforms. The government must make normal Egyptians pay higher prices for fuel so that the administration can target the subsidies to those who really need them.