Increases in Electricity Prices

A decision by the Minister of Electricity on 8 August 2016 brought into effect significant changes to the price of electricity. The changes take effect starting 1 July 2016 and impose a significant increase in electricity tariffs, especially with respect to energy-intensive industries and mid to high household usage.

Background

The recent changes follow a July 2014 decision by the Prime Minister,[1] in which a gradual annual increase in electricity tariffs for the subsequent five years had been imposed, starting from 2014/2015. (See the September 2014 Issue of the Egypt Legal Update) The following year, the Prime Minister issued another decision that increased electricity tariffs at a higher rate than that originally envisioned in the 2014 decision.[2] The recent 2016 decision raises the tariff again at a rate higher than that originally envisioned for the 206/2017 year. The new decision must be seen against the backdrop of the new Executive Regulations of Electricity Law No. 87 of 2015, which were enacted on 23 May 2016,[3] and which established the basis on which the Egyptian Electric Utility and Consumer Protection Regulatory Agency should determine electricity costs and tariffs. (See the May 2016 Issue of the Egypt Legal Update) These Regulations were decreed ten months after the enactment of the Electricity Law in July 2015,[4] which decreased the state’s monopoly of the electricity sector, while keeping its regulatory and supervisory role. (See the August 2015 Issue of the Egypt Legal Update)

The new increase

Similar to the 2015 price increase, the recent decision by the Minister of Electricity (the “decision”) increases electricity tariffs at a rate that is significantly higher than that originally envisioned for this year in the 5-year increase plan decided in 2014. This is especially true for energy intensive industries, a category that exclusively contains the petrochemical, fertilizers, cement, copper and iron industries, in addition to the Arab Petroleum Pipelines Company (Sumed). For example, instead of paying the 36.6 piaster/KW (off-peak) and 54.8 piaster/KW (peak) they had to pay in 2015/2016, energy-intensive industries using extra high voltage will now have to pay 42.9 piaster/KW (off-peak) and 64.4 piaster/KW (peak) for 2016/2017, an increase of over 17%. This is in contrast to the tariff originally envisioned in the 2014 5-year plan, which had put the 2016/2017 tariff for energy-intensive industries in the same category at 36.3 piaster/KW (off-peak) and 54.4 piaster/KW (peak). For the category of “other subscribers”, the increase from the 2015/2016 to the 2016/2017 is much higher, reaching up to 53% in some cases. As can be seen from the table below, comparing the price and percentage increase between 2015/2016 and 2016/2017, household consumers will also feel a significant increase in what they pay for electricity. Most categories will be subjected to an increase of over 30 % in comparison to last year’s tariff. While the category using the least amount of electricity (signifying limited economic means) had not been subjected to increases in the 2015/2016 decision, this year this group will be subjected to a significant increase, as detailed below.

Consumption	2015/2016	2016/2017	% Change
Extra High Voltage (132-220 kV)
Energy Intensive industries (in Piaster/kWh)	54,8 (peak) 36,6(off-peak)	64,4 (peak) 42,9(off-peak)	17.51% (peak) 17.21%(off-peak)
Other Subscribers (in Piaster/kWh)	37,2(peak) 24,8(off-peak)	58,1(peak) 38,7(off-peak)	56.18% (peak) 56.04%(off-peak)
High Voltage (22-66 KV)
Energy Intensive industries (in Piaster/kWh)	56,9(peak) 37,0(off-peak)	67,8(peak) 45,2(off-peak)	19.15% (peak) 22.16% (off-peak)
Other Subscribers (in Piaster/kWh)	40,3(peak) 26,9(off-peak)	61,7(peak) 41,1(off-peak)	53.10% (peak) 52.78% (off-peak)
Medium Voltage (11-22 KV)
All subscribers (in Piaster/kWh)	60,2(peak) 40,2(off-peak)	72,0(peak) 48,0(off-peak)	19.60% (peak) 19.40% (off-peak)

 

Household Consumption (kWh/month)	2015/2016 (Piaster/kWh)	2016/2017 (Piaster/kWh)	% Change
0-50	7,5	11,0	46.66%
51-100	14,5	19,0	31.03%
0-200	16,0	21,5	34.37%
201-350	30,5	42,0	37.70%
351-650	40,5	55,0	35.80%
651-1000	71,0	95,0	33.80%
0 to more than 1000	84,0	95,0	13.09%

 

Commercial Consumption (kWh/month)	2015/2016 (Piaster/kWh)	2016/2017 (Piaster/kWh)	% Change
0-100	32,0	35,0	9.37%
601-1000	81,0	96,0	18.51%

  (Note: Due to the differences between consumption categories in 2015 and 2016 under the commercial consumption category, only the common categories were compared.)

Economic Context

The new decision to increase electricity prices is considered a continuation of the strategy announced by the government post June 2013 to gradually decrease budgetary allocations for energy subsidies, in order to achieve fiscal discipline and reform the persistent structural imbalances in the State Budget. Implementation of the said strategy has become inevitable in the meantime, in light of the peaked levels the budget deficit has reached lately; 13.7% of GDP in FY 2013/2014. While it has relatively decreased later, to 12.8% in FY 2014/2015 and 11.5% in FY 2015/2016, it still persists at high levels (when compared to its pre-2011 levels of an average of 9.8%). The government targets a budget deficit of 9.8% in the current financial year, to be further decreased to reach 8-8.5% by FY 2019/2020. It is worth noting that the current State Budget for FY 2016/2017[5] already indicates a reduction in the allocations for electricity subsidy (from EGP 31.13 billion in FY 2015/2016 to EGP 28.9 billion), as well as a reduction in the allocations for petroleum products' subsidies (from EGP 61.7 billion in FY 2015/2016 to EGP 35 billion). This is primarily attributed to the international decrease in the prices of raw oil, hence, could be considered a positive supporting factor and catalyst to the country's plan to decrease public expenditures on petroleum and electricity subsides. There is a strong rationale in decreasing energy subsidies, especially since they have failed to reach the targeted groups in need of such subsidies, and have had a negative effect on the country's public finances. Nonetheless, such measures could result in some significant adverse impacts. This could be clarified by reviewing the latest data announced by CAPMAS, showing that the overall poverty rate has increased to 37.8% in 2015 from 26.3% in 2013, and that the inflation rate has increased to 14% in July 2016 as compared to 8.4% in July 2015.[6] In reviewing the most important items to which spending of Egyptian households is allocated, one notices that food and drinks items come first (34.4% of total annual spending), followed by household needs (17.5% of total annual spending). Spending on electricity constitutes 14.5% of total household spending on household needs.[7] This reflects the extent by which Egyptian households are affected by any increase in electricity prices. Increasing electricity prices without mitigating the adverse economic and social effects this may have, increases the possible risks emanating from another wave of increased inflation and poverty rates. This requires a quick move by the government to extend a comprehensive social protection network that could help lessen the expected inflationary and poverty effects.   [1] Prime Minister’s Decree 1257/2014 in which a gradual annual increase in electricity tariffs for the subsequent five years had been imposed, Official Gazette, Issue 29 (cont.), 17 July 2014. [2] Prime Minister’s Decree 2259/2015 amending electricity prices; Official Gazette, Issue 33 (bis) (c), 19 August 2015. [3] Minister of Electricity and Renewable Energy's Decision No. 230/2016 enacting the Executive Regulations for Electricity Law, Egyptian Gazette, Issue 118 (bis)(c), 23 May 2016. [4] Presidential Decree No. 87/2015 issuing the Electricity Law, Egyptian Gazette, Issue No. 27 (biz), 8 July 2015. [5] Financial Statement of the State Budget FYB 2016/2017, available through this link. [6] Press Release by CBE on the inflation rate for July 2016, available through this link. [7] Press Release by CAPMAS on "Income, Spending, and Consumption for 2015", available through this link.