The Shura Council has approved LE20 billion more in natural gas and petroleum subsidies, reports Gamal Essam El-Din The thorny topic of subsidies dominated the debates of the consultative house of Shura Council this week. The council approved that the current 2005/2006 budget be amended to allocate an amount of LE20 billion, aimed at subsidising petroleum products and natural gas. Addressing the council on Sunday, Finance Minister Youssef Boutros Ghali said that "three urgent reasons" have necessitated the additional budgetary allocation. First is the dramatic and quick rise in oil prices. "The price per barrel has risen by 28 per cent in one year, or from $43 per barrel in March 2005, to $55 per barrel in March 2006," Ghali said. From March up until the present the price has risen to exceed $70 per barrel. This rise has resulted in an automatic increase in the price of petroleum products, which the government buys from oil companies operating in Egypt. Ghali added that a third reason is the increase in the local consumption of petroleum products, as well as of natural gas. "The government's strident efforts to raise growth rates to more than seven per cent have resulted in a large increase in the consumption of these products," said Ghali. These factors combined have induced the government to ask for the council's approval of additional subsidies for petroleum products and natural gas. Ghali also indicated that the increase in petroleum subsidies will result in an additional deficit of LE5 billion to the state budget. The minister added that there are alternative courses that can be adopted to cover this deficit, such as obtaining loans from local and foreign banks. "This is an easy solution in the short term but in the long run it will be disastrous, since it also means a big rise in public debts," said Ghali. The other option is to scrutinise the current policy on subsidies. Ghali alleged that a study by the Ministry of Finance indicates that wealthy classes occupy the forefront of those enjoying subsidised petroleum products and natural gas. "While these wealthy families which are only two per cent of Egyptians receive the largest amounts of subsidies, the very poor (about 20 per cent of the population) receive symbolic subsidies," the minister said. He added that in Africa, governments "usually bear only 10 per cent of the price of petroleum products while the government in Egypt bears around 75 per cent." Rallying to the minister's support deputies of the ruling National Democratic Party agreed that there is a pressing need to rationalise spending on subsidised petroleum products. Sabri El-Shabrawi, an appointed MP, said that Egypt is living "a phobia of subsidies". He added that this leads to an "inefficient and extravagant" use of resources. He called for the elimination of the subsidies which are provided to rich families in the form of low-cost petroleum products and natural gas. Opposition member Mohamed Farid Zakaria however spoke against phasing out petroleum subsidies, warning that it would unleash "outbursts of fury against the government and ruling party". According to a report by the Shura Council's Financial and Economic Affairs Committee the subsidies allocated to petroleum products have risen from a mere LE290 million in 1970 to more than LE40 billion at present. The additional subsidy allocation must be approved as well by the People's Assembly, before it goes into effect.
