Position paper

The government has neither confirmed nor denied– the news about  gradually phasing out gas subsidies for factories. According to news reports, the government is working toward the gradual liberalization of gas prices and will not provide any subsidies for new factories.

The plan, as reported, is to allow industrial gas prices to fluctuate based on a formula that calculates the price using the average cost of locally produced and imported gas, plus one dollar per million British thermal units (MMBtu). Prices will be reviewed every three months, according to an official quoted by Asharq Business, who remained anonymous.

Last September, the government raised the selling price of gas to factories across various industries by a flat increase of one dollar per MMBtu. The current average prices cover the cost of production and importation, with most gas subsidies benefiting the electricity sector and public-sector factories. Gas prices also vary from one industry to another.

The Egyptian Initiative for Personal Rights (EIPR) calls for distinguishing subsidies provided to consumer households from those granted to corporations and industry producers. It considers any reduction in energy subsidies for producers a positive step—socially, environmentally, and economically.

Why energy subsidies for producers should be removed?

First: The current energy pricing system lacks transparency. The government plans to shoulder an enormous energy subsidy bill exceeding EGP 150 billion (75 billion for fuel and 75 billion for electricity). This amount—greater than the combined spending on judiciary and the police—flows into the wealthy coffers of the Ministry of Petroleum, with no clarity on how much reaches citizens.

For example, the government did not acknowledge electricity subsidy until pressured by the International Monetary Fund, revealing that the bill for FY 2025/2026 exceeds EGP 70 billion. Data on how this subsidy is distributed remains absent.

Second: Energy subsidies in their current form are unfair and inefficient.

According to the World Bank’s classification, energy subsidies in Egypt could be described as "providing significant benefits to special interest groups and few benefits to citizens," which can happen when "prices are high for everyone except a few consumers, such as selected industrial sector users."

In 2016, a World Bank working paper estimated that 80% of subsidies went to producers.

Subsidies deplete natural resources that Egypt now imports—such as natural gas—after previously exporting them.

Economically, energy subsidies support polluting, capital-intensive industries that create few jobs, according to IMF research. In Egypt, these industries are largely export-oriented, meaning the government effectively subsidizes European or other foreign consumers of fertilizers, chemicals, textiles, ceramics, and steel. 

Energy pricing also is priced at multiple rates across industries, creating bias toward certain sectors.

Moreover, raising the price of one energy source without adjusting alternatives often leads to a shift toward cheaper, more harmful options—for example, increasing gas prices for cement factories (to $12) prompted these factories to switch to coal, priced below its true cost due to the absence of environmental impact assessments.

Socially, approximately 60% of citizens suffer from rising energy prices due to poorly designed subsidy reforms, which focus on liberalizing household energy prices without considering income disparities, while failing to impose similar burdens on large companies and factories.

EIPR calls for a comprehensive approach to phasing out energy subsidies for producers, based on a gradual exit plan without exceptions, considering the following:

1. Transparency is indispensable for evaluating social policies. Energy subsidies for producers should not be classified as social policy.

2. Energy subsidies for companies and factories are harmful. They should be replaced with targeted support for industries that meet objectives such as compliance with decent work standards, tax obligations, increasing local components, and environmental transition.

3. Imposing a unified price for each type of energy used by companies and factories, taking into account the relative prices of different types of energy, so that they reflect scarcity and pollution levels.

4. Separating household energy subsidies from the budgets of the Petroleum and Electricity Ministries and transferring them to the Ministry of Social Solidarity to ensure they reach consumer households. For example, after removing LPG subsidies for the tourism sector and restaurants, LPG cylinders could be added to the ration card system, and electricity subsidies for lower and middle tiers could be converted into cash transfers.

For more from EIPR, see:

The IMF and the end of energy subsidies in Egypt.. A tale of class warfare and a green wash of reputation

“They don’t need our subsidy”: The Egyptian Initiative calls on the government to reject the request of the Industry and Energy Committee in Parliament to reduce natural gas prices for Energy-intensive Industries