INTERNATIONAL oil companies yesterday welcomed the Egyptian government’s decision to slash subsidies on fuel and natural gas, which took effect over the weekend.
The cut was met with anger by a number of minibus and taxi drivers in the country, after it sent fuel prices up more than 70 per cent, but the government is keen to reduce the subsidy costs that make up one fifth of its annual budget.
A number of global oil companies, including FTSE 100-listed firms BP and BG Group, are collectively owed around $6bn (£3.5bn) by the government, which has struggled to pay back its energy bills after political unrest hammered the country’s economy. High subsidies have added to the problem, encouraging energy inefficiency and thus inflating domestic demand.
A spokesperson from Royal Dutch Shell said the company supported the reduced subsidy, although he would not disclose how much money it was owed from Egypt.
“The current subsidy burden affects [state-owned oil company] Egyptian General Petroleum Corporation’s financials and profitability significantly, impacting on its ability to pay its receivables to international oil companies (IOCs),” he told City A.M.
“Energy subsidies also burden the government, which in turn forces the government to impose a ceiling on gas prices, dampening the investment incentive for IOCs and affecting the long term supply of gas.”
Another oil industry source agreed that the move was “a step in the right direction for the Egyptian economy” and was “something that needs to happen for the government to start repaying its bills”.
Prime minister Ibrahim Mehleb told a press conference on Saturday that money saved from the subsidy cuts would go into the education and health sectors.
Mehleb’s cabinet was appointed last month by newly elected president Abdel Fattah al-Sisi, who also increased the price of electricity as part of its austerity measures.
BP and BG Group declined to comment.