Egypt Fuel Price Increases Part of Reform Package

Egypt has embarked on reforms sought by the International Monetary Fund (IMF) and the World Bank by raising the price of diesel oil and other types of transport fuels.

The energy price increases were the first visible measures taken in return for IMF standby credits and World Bank loans.

Effective today, fuel oil prices were trebled and prices of gas oil, diesel and kerosene went up by over 50 pct, an Egyptian General Petroleum Corp (EGPC) official said. He said fuel oil will sell for 28 Egyptian pounds a ton, instead of 7.5 pounds.

Kerosene and gas oil were raised by 66 pct to sell for five piasters a litre, while diesel rose 50 pct to 4.5 piasters.

The government is expected also to act soon, possibly as early as next weekend, to simplify the country’s complex exchange rate system, bankers said.

Moving towards a more realistic exchange rate for the pound was part of a package of reforms sought by the IMF and creditor governments. In return, Egypt stands to receive up to one billion dlrs in IMF standby credits phased over three years to help it repay its 38.6 billion dlr foreign debt and guarantee rescheduling by western governments, the main creditors.

Energy price increases were also a condition of progress on World Bank project loans of up to 800 mln dlrs in energy, communications and other sectors which have been under negotiation for several months, western diplomats said.

The U.S. And Western Europe have pledged political backing for President Hosni Mubarak’s government, committed to a multi-party political system and peace with Israel and strategically poised in control of the Suez Canal.

Fuel price rises, postponed at least once and likely to lead to higher retail prices of basic goods, were a test of the government’s resolve to pursue economic reform, diplomats said.

But the new prices are still below world market levels.

There was no announcement of increases in more politically sensitive products such as gasoline or natural gas, used for cooking, and the mass-circulation Al-Akhbar newspaper said they would stay the same.

Official comment was not available on speculation among bankers and diplomats that the Central Bank would soon tinker with the pound’s exchange rates to try to channel more dollars into the banking system away from the illegal but tolerated free market.

The Central Bank was expected to set up a committee in which 10 commercial banks, including the four state-owned banks, would decide the pound’s value every day.

The official “incentive rate,” currently set by the Central Bank daily, is around 1.36 pounds to the dollar, against 2.15 on the free market.

Bankers predicted that the banks’ committee might set rates around 1.80 or 1.90. But some doubted this would serve the aim of curbing the free market.