Egypt rations electricity consumption to conserve foreign currency reserves

Egypt will present a program next week to reduce electricity consumption in a bid to increase natural gas exports and increase foreign exchange reserves, Egyptian Prime Minister Mostafa Madbouly said.

“The more we reduce electricity consumption, the more hard currency we save,” Madbouly said on Tuesday.

The new measures will include cutting off electricity in government buildings at the end of official working hours, stopping outdoor lighting in public squares and limiting lighting in large sports complexes.

Guidelines will be issued for malls to set central air conditioning to temperatures of 25°C or higher.

The government will give priority to electricity production plants that consume less natural gas and produce electricity in larger volumes, including the three plants set up in cooperation with the German company Siemens.

Mr Madbouly said the measures were necessary given the Russia-Ukraine crisis, as well as the “unprecedented rise in fuel, materials and commodity prices”.

Since Russia invaded Ukraine in February, Egypt has suffered from soaring inflation and dwindling foreign exchange reserves.

Annual urban consumption inflation in Egypt accelerated to 13.6 percent year-on-year in July from 13.2 percent in June, data from the national statistics agency Capmas showed on Wednesday.

Foreign exchange reserves fell from $37 billion in March to $33.14 billion at the end of July, according to figures from the Central Bank of Egypt.

The most populous country in the Arab world is trying to find a balance between reducing the “burden on the Egyptian citizen” and the growing import bill caused by the doubling, or sometimes “more than doubling”, of the prices of raw materials, said Mr Madbouly.

Last month, Egypt said it would increase the number of beneficiaries of government programs designed to protect the poor from the economic effects of the Russian-Ukrainian war to more than 20 million.

Although natural gas prices are rising dramatically around the world, Mr Madbouly said the government would postpone a decision on raising electricity prices until early next year.

The Egyptian state effectively subsidizes electricity for citizens consuming the first segments at half the value of its cost to the state.

More than 60% of Egyptian natural gas production is destined for power plants. Therefore, electrical energy savings will help maximize natural gas exports.

Every million thermal units supplied locally at a price of $3 can be exported at $30, Madbouly said.

Since October, the government has switched to operating some power plants on mazut, a heavy fuel oil, instead of natural gas. This helped create an export surplus, averaging $100 million to $150 million a month, he said.

Egypt had for several years been a net importer of natural gas to meet domestic consumption demand. It became a net exporter again in 2019, largely thanks to the discovery of the Zohr offshore natural gas field in 2015, considered the largest field in the eastern Mediterranean region.

The gas crisis in Europe, caused by supply disruptions triggered by the Russian-Ukrainian war, has boosted Egyptian exports of liquefied natural gas (LNG).

In June, Egypt, Israel and the European Union signed a preliminary agreement to increase LNG sales to Europe.

Updated: August 10, 2022, 4:41 p.m.

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