Automatic Petroleum Pricing Mechani

On 5 July 2019, the Prime Minister issued decree No. 1558 of 2019[1] tasking the technical committee for the review of petroleum pricing with revising the price of petroleum products on a quarterly basis so that they are pegged to international prices. This comes as a follow up to an earlier decree issued by the Prime Minister last year which established the technical committee and tasked it with reviewing petroleum prices against international prices while setting a price band of 10% on the magnitude of retail price changes. However, up until the issuance of this decree, the automatic pricing mechanism was only applied to 95-octane fuel.

Background

As part of its economic reform program, the Egyptian government started in 2016 to gradually eliminate fuel subsidies in order to cut down on budget deficits and enhance the macroeconomic environment.^[2] Over the course of the following three years, the government indeed phased out the lifting fuel subsides increasing the price of petroleum products several times, the last of which took place earlier this week. In December 2018, Prime Minister Decree No. 2764 of 2018[3] established a technical committee that was put in charge of automatic pricing for petroleum products (the “Committee”) based on international prices. The Committee comprises representatives of the Ministry of Petroleum and Mineral Resources, the Ministry of Finance, and the Egyptian General Petroleum Corporation. The 2018 Decree however only applied to 95-octane fuel. It:

• Tasked the Committee with reviewing the new fuel pricing formula every three months to ensure that the domestic retail price of 95-octane fuel reflects the international price of Brent Crude and the exchange rate.

• Assigned the Committee with the task of overseeing the implementation of the automatic pricing mechanism and proposing to the Minister of Petroleum and Mineral Resources, and the Minister of Finance recommendations and suggestions related to the effective implementation of said mechanism, including solutions to any shortcomings.

• Specified that the automatic pricing mechanism is to be implemented on 95-octane fuel, inclusive of value-added tax (“VAT”), as of the end of December 2018, but only reflected in the price of 95-octane fuel to consumers after the first quarter of 2019, with the change being within a 10% range of retail price.

At the time, the 2018 Decree refrained from addressing fuel pricing of other octane ratings. However, the general expectation was that a similar mechanism would be announced for the other grades of fuel. The issuance of decree No. 1558 of 2019 on 5 July, was accompanied by a number of other Prime Ministerial decrees (No. 1552 – 1557 of 2019)[4] increasing the price of different petroleum products by between 16% to 30%, depending on the product. For instance, 92-octane fuel rose by 18.5%, 95-octane by 16%, while diesel and 80-octane prices increased by 22.7%.

The Recent Decree

Decree No. 1558 of 2019 issued this July mirrors the 2018 decree but with respect to petroleum products in general instead of just 95 octane. It assigns to the Committee the tasks of following up on fuel pricing formula on a quarterly basis so that they are pegged to international prices, taken into consideration ‘other costs’ which have not been identified. This is with the exception of butane gas, and petroleum products used in the electricity sector and in bakeries. The Committee is to also supervise the implementation of the pricing mechanism, issue recommendations to the ministers of Petroleum, and Finance to ensure good enforcement and manage issues that arise from actual implementation. The automatic pricing mechanism is to be implemented for all petroleum products (with the above exceptions) inclusive of value-added tax as of the end of June 2019, with the change – whether increase or decrease – to be within a 10% range of the current retail price.   [1] Prime Ministerial Decree No. 1558/2019 tasking the technical committee for the review of petroleum pricing with revising the price of petroleum products on a quarterly basis so that they are pegged to international prices, Official Gazette, Issue No. 27 (bis), 5 July 2019. [2] International Monetary Fund, “Key Questions on Egypt”, 4 February 2019, available through this link. [3] Prime Ministerial Decree No. 2764/2018 establishing a technical committee for following-up on the automatic pricing mechanism of petroleum products and reviewing the new pricing formula on a quarterly basis, Official Gazette, Issue No. 52 (bis.) (a), 30 December 2018. [4] Prime Ministerial Decree No. 1552/2019 determining the selling prices of some petroleum products, Prime Ministerial Decree No. 1553/2019 determining the selling price of liquefied natural gas, Prime Ministerial Decree No. 1554/2019 determining the selling price of one ton of fuel oil (mazut), Prime Ministerial Decree No. 1555/2019 determining the selling price of one cubic meter of compressed natural gas used for vehicles, Prime Ministerial Decree No. 1556/2019 determining the selling price of natural gas for household and commercial uses, Prime Ministerial Decree No. 1557/2019 determining the selling price of natural gas supplied to brick kilns, Official Gazette, Issue No. 27 (cont.), 4 July 2019