Egypt Launches A Plan To Rationalize Electricity

In mid-August 2022, the Egyptian government, headed by Mostafa Madbouly, announced the start of implementing a plan to rationalize the use of electricity. According to the Egyptian media, the plan to rationalize electricity during the coming period includes several axes, the most important of which are; Rationalizing electricity consumption in all state buildings and facilities, shutting down all internal and external lights after the end of official working hours, as well as reducing street lighting, public squares, and main axes.

The rationalization plan affects private places, such as reducing the strong lighting on the fronts of shops, rationalizing lighting with illuminated advertisements, and all places of worship, in addition to the commitment of public stores to close on legal dates.

It is expected that government agencies, commercial complexes, and others will be obligated to reduce air-conditioning systems so that the temperature does not fall below 25 degrees Celsius, in addition to reducing electricity consumption and completely closing the lighting of halls and sports stadiums after the end of the events.

What is behind the rationalization plan?

A large sector of the Egyptian people sees this step as positive, as it contributes to rationalizing government spending and rationalizing the use of resources. But the question is, why did the government take this step at this time?

According to the rules of market economics that Egyptian President Abdel Fattah El-Sisi announced to operate according to its mechanisms since he came to power, electricity must be made available to those who want it as long as they pay for it, and without subsidy. According to government data published through the financial statement of the general budget, electricity subsidies in Egypt have become zero since the year 2019/2020, and therefore the citizen bears all the costs of his electricity consumption.

The government has also announced more than once that it has succeeded in providing electricity to the local market, and that it has a surplus for export, after it restructured the infrastructure for the production of electricity, despite the renewal of existing generation stations, and the establishment of many new stations.

On the other hand, data from the Central Agency for Public Mobilization and Statistics indicate that Egypt's production of oil and natural gas has been in surplus since September 2018. In September 2018, Egypt's production of oil and gas amounted to 6.9 million tons, while production was about 6.6 million tons. This situation continued until March 2022, with a surplus of production exceeding consumption.

However, the information bulletin of the Central Agency for Public Mobilization and Statistics, in its June 2022 issue, showed that the situation was different in April 2022, as consumption returned and exceeded production rates, reaching 6575 thousand tons, while production was up to 6572 thousand tons, meaning that consumption exceeds Production with about 3 thousand tons.

The need for more data

While the data show that the gap between production and consumption of oil and gas is not large (about 3 thousand tons only), we find that the economic activity of the non-oil private sector has been stagnating for years, so why did consumption rise above production rates?

Plus, if things eventually led to a quantitative deficit in the oil and natural gas situation in Egypt, why did the results of the balance of payments work for the period from July 2021 to March 2022 resulting in a surplus in the oil commodity balance?

Oil exports during this period amounted to $13 billion, while oil imports were about $8.9 billion, meaning that the balance resulted in a surplus of nearly $4.1 billion.

There is no doubt that the rise in oil prices on the international market has a role in achieving this surplus. But the impact of high oil prices falls on both sides of the equation in terms of exports and imports. In order to make a correct reading of the performance of the oil balance, it is necessary to obtain more data and to know specifically the foreign partner's share of oil exports.

How are things straightened out between a stagnation that the non-oil private sector has been suffering from for years, and an increase in consumption above the production rate recently?

Production burdens

It is known that what Egypt did in the field of improving the production situation of power stations after 2013, as well as establishing many new stations, was done through external debts, especially through contracts with the German company Siemens.

After nearly 10 years of implementing the plan to increase the production rates of power plants, the debt obligations arising from them have become due. It seems that the government of Prime Minister Mostafa Madbouly found in disposing of the surplus production of these stations a way out to pay the debts owed to them. 

Therefore, it seems that the Egyptian government’s goal in implementing the rationalization plan does not lie in saving production expenses or directing the product of electricity to the needs of factories or service institutions, but to reach a state of providing oil and gas used in power stations, and exporting them abroad, to benefit from the high oil prices in the international market.

Madbouly's government struggles with foreign exchange. The country’s balance of payments during the period from July 2021 to March 2022 resulted in a deficit of about $7.3 billion, in addition to the decline in the value of the local currency from the beginning of 2022 until it reached more than 19 pounds to the dollar.

The question that remains is that has the foreign exchange crisis prompted the implementation of a plan to rationalize electricity consumption? Or was it a desire to provide energy to the industrial sector and other sectors of the national economy? Or does the step come within the framework of a general strategy to rationalize the real management of community resources?