INTERVIEW-Egypt's soaring energy subsidy bill to exceed previous estimate

CAIRO, April 15 Mon Apr 15, 2013 9:59pm BST

CAIRO, April 15 (Reuters) - Fuel subsidies will cost Egypt more than 120 billion Egyptian pounds ($17.4 billion) this financial year, above previous estimates, as a falling local currency adds strain to the budget, Oil Minister Osama Kamal told Reuters on Monday.

Egypt is under pressure to curb its soaring fuel subsidy bill, which accounts for a fifth of state spending, to secure a $4.8 billion loan from the International Monetary Fund. But Kamal cast doubt on his previous estimate that the cost would hit 120 billion pounds in the 2012/13 fiscal year to June 30.

"I imagine for this year we will exceed this figure," he said in an interview.

A growing population and a steady decline in the pound have pushed up the subsidy bill for imported energy which was originally budgeted at 95 billion pounds in 2011/12, itself a 40 percent jump from the previous fiscal year.

The government has said it will start rationing state-subsidised motor fuel on July 1, the first day of the new financial year. But Kamal raised the possibility that this could be pushed back, saying he had come up with three scenarios that would be presented to parliament and which may delay rationing until later in the financial year.

"In the scenario of not implementing the subsidy (reform) at all, the subsidy figure is expected to reach 140 billion pounds in the new year," he said.

Egypt, which used to be a significant gas exporter, is struggling to cover the cost of energy imports after a popular uprising in 2011 which drove away investors and drained its foreign reserves to a critical level of $13.4 billion in March - insufficient to cover three months of total imports.

The country needs around 500 million cubic feet of gas a day to cover its electricity needs and an additional 500-700 million cubic feet for its industrial needs, said Kamal.

Egyptian officials have been seeking energy import deals on preferential terms from friendly countries. Kamal, who visited Moscow recently, said negotiations were underway with Russia over gas imports.

Last week Qatar said it would extend gas supplies to Egypt during the summer, when energy consumption reaches a peak, and Kamal said the two countries were close to an agreement on the detailed terms.

Some of these supplies from Qatar could be provided through a government tender for importing liquefied natural gas, starting in October, which is expected to be awarded "within days", he added.

Egypt is estimated to owe at least $5 billion to foreign energy firms. Kamal declined to give a figure but said that it had already repaid $1 billion and would pay another $1 billion in a "few weeks".

The government currently supplies around 42.5 million litres of diesel a day but long lines at filling stations suggest that demand is still not being met.

Farmers say they are concerned about a shortage of diesel supply to power irrigation pumps and tractors for the harvest season which may hinder this year's wheat crop.

"There is an agreement between us and the Agriculture Ministry to provide 120 million litres for farmers during the three months of the harvest ... There is no (problem), all the farmers have stocks of diesel in (large amounts)," Kamal said. ($1 = 6.8862 Egyptian pounds) (Additional reporting by Nadia El-Gowly and Ehab Farouk; editing by David Stamp)

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