Egyptians buy fuel at more than its real cost… Why?

Global oil prices fell at significant rates during the year 2020 due to the emerging Coronavirus crisis that has swept the world. Despite this, the Egyptian government has kept fuel prices as they are during the past 9 months without making any significant change.

The Automatic Pricing Committee for Petroleum Products, which meets quarterly, undertakes the process of setting the selling prices of some petroleum products for the next three months.

The committee decided for the third time in a row this year to fix gasoline prices, and the selling price of all three types of gasoline products was kept at 6.25 pounds per liter of 80 gasoline, 7.50 pounds per liter of gasoline 92, 8.50 pounds per liter of 95 gasoline, and the selling price of diesel 6.75 pounds per liter.

Gasoline prices in Egypt are determined according to the development that occurs to the two main determinants, which are the international price of a barrel of Brent crude, and the change in the price of the dollar against the pound, in addition to the burdens and other fixed costs. There are two types of crude used as standards for determining oil prices globally. The first is West Texas Intermediate oil. It is used as a standard for determining the price of oil in North America, and the second is Brent, which is the most traded globally and is used as a pricing standard in Europe, Asia, and Africa. Oil prices witnessed a significant decline globally during the current year due to the emerging Coronavirus: The price of West Texas crude reached below zero in April, while Brent prices decreased at the same time to record 20 dollars after it reached in previous years the ceiling of 100 dollars.

The reason for this decline is due to the closure caused around the world by the Coronavirus, which led to a crisis of surplus production, as a result of some countries continuing to pump a large amount of oil into the market, in light of the decline in demand for the cessation of navigation, cars, and industry in the world. Contract holders are no longer able to sell ​​them, and they are not even able to take loads of oil that they previously bought because the storage places are full. Currently, oil futures prices recorded their first weekly losses in eight weeks by the end of the futures market trading sessions last Friday.

The global benchmark Brent crude futures contract decreased by 1.9% compared to the end of the previous week, and US West Texas Intermediate crude futures recorded a decrease of 1.6%. Oil prices were negatively affected during the past week from investor concerns about weak fuel demand due to the emergence of new strains of the emerging Coronavirus in many countries, thus partial closure decisions and imposing several stricter restrictions on travel. This decline came despite the fact that oil prices received support during the past week from the positive news about vaccines, as vaccination operations began in many countries, which positively affects the acceleration of the global economic recovery and thus the demand for fuel. Despite the decline in world oil prices, the Egyptian government decided to stabilize prices inside the country.

According to Egyptian law, the proceeds of the increase in gasoline and petroleum products’ prices will be used to build and maintain public roads. In his explanation of this matter, Numan Khaled, an analyst at CI Capital Asset Management, explained that in normal circumstances, as a result of the decline in international oil prices and the dollar against the pound, he would have expected a reduction in the prices of petroleum products by 10% at least. He admitted that the government resorted to fixing prices, justifying that decision as due to the Finance Ministry’s focus on trying to compensate for the increase in expenses due to the repercussions of the emerging Coronavirus crisis.

The same was confirmed by Medhat Youssef, the former vice president of the Petroleum Authority, who indicated that the government fixed fuel prices despite their global decline, comes in light of the high financial burden on the state as a result of recent events and the impact of the repercussions of the new Corona crisis on the budget and increasing burdens.

These justifications sparked anger in the Egyptian street, who considered that the Egyptian regime makes the people pay the price for its economic failure. Angry activists indicated that the world’s countries supported their affected people during the Coronavirus crisis, while the Egyptian regime made its people pay more. Politicians indicated that General Abdel Fattah al-Sisi issued Republican Decree No. 699 of 2020, amending some provisions of Presidential Decree No. 390 of 1988 regarding the outcome of the increase in gasoline prices allocated to the construction and maintenance of public roads.

The amendment decision stipulated that the proceeds of the increase in gasoline prices stipulated in Presidential Decree No. 158 of 1980 referred to shall be distributed between the General Authority for Roads and Bridges by 67% and the General Secretariat of the Ministry of Local Development by 33%. That decision means that the Egyptian regime has legalized receiving the outcome from the high gasoline prices Egyptians pay (more than the fuel cost). Opponents say it makes no sense for Egyptians to pay taxes to have clean and safe roads and then pay again in gasoline price increases for the same reason.