Why Egypt is slowing down the reduction in fuel prices?

Abdul Rahman Mohammed - Al Jazeera Net

At a time when Arab countries rushed to reduce the prices of their various fuels by rates exceeding 20%, after the decline in crude oil prices to their lowest levels in nearly 20 years, Egypt has not yet taken a decision in this regard, in light of speculation that the current price or a limited reduction will be approved Not influential.

Observers relied on their predictions on what the Egyptian government announced in determining the price of a barrel of crude oil in the draft of the state budget for the new fiscal year scheduled to start on the first of next July, at about 3 times its global price.

This comes despite Egypt’s application of the automatic pricing mechanism that it started last year, to link the local price to its global counterpart, after it fully liberalized gasoline prices last July.

While media outlets quoted private sources as saying that the Committee for Automatic Fuel Pricing plans to reduce oil prices by between 5.5% and 8% from current prices, the government denied this, stressing that the committee has not yet taken a decision in this regard.

The fuel pricing committee formed at the beginning of last year from the ministries of finance and oil, by a decision of the Prime Minister, to review the prices of gasoline derivatives on a quarterly basis, and to move them up or down, so that it relies in its decision on measuring the level of global prices of crude and derivatives, exchange rates, transport, operating and production costs .

The Egyptian government imposed an increase in the prices of petroleum products in July 2019 by 30%, for the fifth time since Sisi came to power in 2014, and the fourth since Egypt obtained the $ 12 billion International Monetary Fund loan, which is due to be paid between 2021 and 2029.

Oil prices retreated, as US crude fell briefly to below $ 20 a barrel, while Brent crude reached its lowest level in 18 years due to the price war between Saudi Arabia and Russia, in addition to growing fears of a continued global closure due to the Corona virus for months and more decline In demand for fuel.

Reduction need

In this context, the economist Mustafa Abdel Salam believes that the Egyptian government was expected to reduce the prices of gasoline and diesel at the beginning of this month, after announcing the liberalization of the price of fuel and its supply and demand.

He attributed in his speech to Al-Jazeera Net that for reasons, the most prominent of which is the decline in oil prices in global markets by up to 60%, as well as declining prices of petroleum derivatives due to the interruption of traffic in the streets and the closure of thousands of gas stations in Europe and the United States due to the Corona outbreak.

He pointed to the reductions in fuel prices that many Arab countries have undertaken, including Qatar, the Emirates, Jordan and Oman, by rates of 23%, and with the continued decline of oil prices, Abdel Salam expects that these countries will make an additional reduction in the prices of gasoline and diesel.

Abdel Salam said that the decision to determine the price of crude oil in the new budget, about 3 times its current price, is "incomprehensible", especially with the expectations of international investment banks that oil prices will continue to decline during the current year due to the continuation of the Corona crisis, the decline in demand, and the existence of a huge surplus in international markets , The Chinese economy growth rate slowed.

The economist considered the government's implementation of the policy of raising the price of fuel in the event of increasing oil prices and refraining from reducing if oil prices decline, making it a government that operates with the logic of "the broker and dealer", and not with the logic of "supporting the citizen and organizer of the economic movement."

In turn, according to economist at the American Oakland Academy, Mostafa Shaheen, that the Egyptian government should reduce fuel prices by no less than half of the current prices, after global prices have fallen to nearly two thirds of what they were.

Illogical justification

In his speech to Al-Jazeera Net, he saw that the government's justifications for determining the price of oil by about 3 times its global price in the new budget are illogical, because it is possible to buy the needs of the next year at the price after reducing it, and if it is necessary to rely on the cash reserve, because of that Achieve a public interest.

He pointed out that the positive effects of this required reduction will not stop at the benefits accrued to the citizen, but rather that the state and the government will benefit from it, because the expected price reduction for various commodities will increase the purchasing power of citizens, which will have a positive impact on the economy in the country.

While economist and economist Amr Khalifa believes that the government’s approval of the fiscal year’s budget for oil prices is $ 61 a barrel, it means that the state sees that the current prices of oil will not continue at these lower limits, and that they will resume rising.

Hence, Khalifa says that the evaluation of the prices of petroleum products in Egypt, which is expected within days, will not change much, as the decline will not exceed 10% of the current price.

In his speech to Al-Jazeera Net, he went on to say that the Egyptian government may invest the decline in oil prices in ending total support for petroleum products, which in the current budget amounts to 7 billion pounds (the dollar equals 16 pounds), and then it is not expected that the decline in fuel prices in Egypt will be the same. In other countries.

Khalifa also does not expect the citizen to actually benefit from the expected slight reduction, as he began to pay the bill for the increase in fuel prices more than six months ago, as the markets witnessed a significant increase in the prices of most of the goods and services.