Diesel shortage pushes Egyptians to the brink

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Fathy Ali is beyond anger as he queues for hours in a line of 64 trucks and buses to fill his tank with scarce subsidized diesel fuel, known in Egypt as “Solar.”

“This has become part of my life. I come and wait for hours or days, depending on my luck,” the chain-smoking bus driver said at a besieged gas station on Cairo’s Suez High Road, wrapped in a scarf and thick coat for the long ordeal. “At the start it used to upset me a lot but now I’ve kind of given up.”

Diesel supplies are drying up as a cash-strapped government struggles to cap a mounting bill for subsidies it has promised the IMF it will reform to secure an elusive $4.8 billion loan desperately needed to keep a sagging economy afloat.

The situation appears near breakdown with growing shortages, unsustainable subsidies and foreign exchange reserves running out, raising the risk that fuel bottlenecks lead to food shortages and pose a risk to political stability.

Foreign reserves are down below $15 billion, less than three months’ imports, despite deposits from Qatar and Turkey. The Egyptian pound has lost 8 percent of its value this year and a black market has emerged for hard currency.

The nation’s strategic reserve of diesel fuel is down to three days’ supply, the official MENA news agency quoted a government official as saying last week. Bakeries that use diesel to make staple subsidized bread have been told to keep 10 days’ fuel supply but not all have the capacity.

The Muslim Brotherhood-led government of President Mohamed Mursi this week postponed for up to three months a rationing system for subsidized fuel due to start in April in what looks like an attempt to avoid upsetting voters before parliamentary elections due that month.

But reforms cannot be delayed for long, economists say.

“Fuel shortages are a symptom of the strains on Egypt’s unsustainable subsidy system,” said Simon Kitchen, an economist at EFG-Hermes in Cairo.

Two government measures have aggravated the problem.

In December, the subsidy on 95-octane petrol used by the wealthiest Egyptians was scrapped. That drove some motorists down-market to buy lower-grade fuel, raising the demand for subsidized 92-octane gasoline.

Then in a drive to curb theft, smuggling and other abuses, the government restricted distribution of heavily subsidized low-grade gas oil used by trucks, tractors and buses to filling stations owned and operated by the military.

That caused longer lines at the pumps and increasing economic disruption. At several filling stations, queues led to fights breaking out this week, Egyptian media reported.
The situation is so serious that Mursi held an emergency meeting with ministers about it on Tuesday night and instructed the energy minister to ensure sufficient supply, according to presidential spokesman Yasser Ali.

Minister for Petroleum and Mineral Resources Osama Kamal said subsidizing Solar, sold at a give-away price of 1.25 Egyptian pounds ($0.19) a liter, costs the government $35 million a day.

Altogether, energy subsidies will cost 120 billion Egyptian pounds in the fiscal year to end-June, up from 115 billion pounds the previous year, he said. They account for almost all of the forecast 135 billion pound budget deficit.

Until Tuesday evening, when the diesel shortage became the number one topic of television and radio talk-shows, the government seemed to be in denial.

“There is no shortage,” Kamal said. “There is a crisis in the distribution of Solar, not in the availability of it.”

Asked whether a shortage of hard currency was constraining fuel imports, he said: “financial resources are still available for imports but they must be reserved for the most important priorities.”

To drivers and tour operators, the result is the same.

Khaled el-Manawi, a senior board member of the Egyptian travel agents’ association, said the government was harming his industry, already hard hit by political turmoil, by withdrawing subsidized fuel from tourist boats.

Businessman George Bishoy, who owns a fashion accessories store in the affluent affluent Cairo suburb of Heliopolis, said his business had suffered a lot from delays in the delivery of imported goods.

The daily al-Ahram quoted drivers complaining about the emergence of a black market in which a liter of diesel is sold at double the normal price.

The spokesman of the independent drivers’ union, Tarek el-Bahary, told Reuters: “the Solar problem is devastating. Drivers are suffering daily and the elected president has failed to solve this crisis.”

“The number of trucks has not increased, the number of trips has not increased but the government is unable to provide the Solar and unable to come up with creative solutions to solve the problem,” he said.

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