Will electricity subsidies be a thing of the past by the summer of ‘29?

No more electricity subsidies by FY 2028-2029? The Madbouly government plans to gradually bring electricity subsidies down to zero by the fiscal year 2028-2029, a senior government official told EnterpriseAM yesterday.

It’s all about curbing public expenditures: While the big-ticket item in this year’s budget is debt service, successive cabinets have worked to curb the impact of energy subsidies that many in the private sector have called “ruinous” in the past. It’s not difficult to draw a direct line between energy subsidies and the six-year half-life of the EGP.

The aim here: Free up funds previously earmarked for petroleum and electricity subsidies and channel the money back into “targeted social programs,” the official said.

It’s about a “transformation of the whole [energy] sector,” a senior government official involved in the electricity industry tells us. The big change involves getting the cost of subsidies off the state’s tab and onto the shoulders of those who use the most electricity. It’s what the government is calling a “cross-subsidy mechanism” that will see heavy users of electricity effectively subsidizing low-intensity users.

BACKGROUND- The government’s long-term vision, launched last year, includes incremental price increases over a five-year period, one of our sources said.

Could this help lure more investment into the electricity sector? Officials are optimistic that the phase-out of subsidies, alongside improved economic conditions, and a stronger exchange rate, will eventually attract new capital to the industry.

Energy subsidies are going to cost EGP 150 bn this year: The government plans to spend EGP 75 bn on electricity subsidies this fiscal year and another EGP 75 bn on petroleum subsidies. That’s a big shift in emphasis compared to last year, when it allocated EGP 154.5 bn to petroleum subsidies and only EGP 2.5 bn for electricity, according to Finance Ministry data (pdf).

Looking ahead: The IMF expects spending on electricity subsidies to drop to EGP 45 bn in FY 2026-2027, before gradually increasing to EGP 50 bn in the subsequent fiscal year, to EGP 56 bn in FY 2028-2029, and finally to EGP 63 bn in FY 2029-2030.

The electricity sector reached a no-subsidy point in FY 2020-2021, with the state budget support for subsidies entirely eliminated after years of gradual cuts, according to our source and data (pdf) from the Finance Ministry. That didn’t last long after global tension caused exchange rate instability and spiked petroleum and natural gas prices, our source said. This created new financial burdens, pushing the state to intervene to absorb this price shock.

Last fiscal year’s electricity price hikes brought in EGP 15-20 bn in revenues, the electricity sector source noted. However, he said that high inflation has prevented the government from raising electricity prices in July as scheduled, with the state looking to curb rising prices and alleviate financial and social burdens on citizens.

The government already is looking into postponing electricity price hikes until January 2026, a government source told us last week. This is one of three potential scenarios for electricity price increases — the other two are implementing the increases this month or postponing them until September. The Electricity Ministry raised electricity prices by 14-40% between August and September 2024.

THE OUTLOOK

Energy subsidies are projected to jump to EGP 180 bn in FY 2027-2028, and further climb to EGP 190 bn in FY 2028-2029, before dropping to EGP 166 bn in FY 2029-2030, the IMF recently said.

Beyond electricity, fuel price hikes are unlikely before late September/early October: No fuel increases are expected before the fuel pricing committee meets in late September or early October, another government source told us. A potential increase will hinge on the exchange rate, global oil prices, and demand. However, the source does not expect a significant increase, as not much remains to be recovered in terms of cost, especially if the exchange rate drops and global prices hold steady.

REMEMBER- The government hiked fuel prices at the pumps in April for the first time in 2025, raising fuel prices by 11.8-14.8%.

Prime Minister Moustafa Madbouly reiterated in March Egypt’s intention to have energy prices be at break-even by the end of the year. Despite ongoing efforts to reform its subsidy system, the government still spends EGP 366 mn per day and EGP 11 bn a month on fuel subsidies, according to the Oil Ministry.