Gov’t eyes January electricity price hike as inflation outlook improves

The Madbouly government is preparing to introduce new electricity price hikes starting January, as the Electricity Ministry reviews updated pricing scenarios, a senior government official told EnterpriseAM.

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The proposed price hikes are expected to range between 15-25%, depending on consumption brackets, in an effort to close the gap between production costs and its end price, our source told us.

Since August last year, electricity price hikes have been put on hold, with the government prioritizing lower inflation and subsequent rate cuts over cutting down its energy subsidy bill.

But with the outlook on inflation more positive, the government is returning to its plan to bring down its energy bill, our source told us. After October’s fuel price hike, it’s now electricity’s turn — and not coincidentally coming shortly after the wrapping of the ongoing IMF mission’s visit to the country, which policymakers hope will lead to the final sign-off on our combined fifth and sixth reviews.

As things stand: Electricity prices are currently being evaluated in light of exchange rates and global energy prices before being submitted to the cabinet for approval, according to the source.

The Oil Ministry is working on securing the needed supplies of natural gas and mazut for the sector, contributing to the steady operation of the national grid. Still, rising oil prices and greater reliance on mazut have added financial pressure on the state, with at least EGP 0.20 in additional production costs per kilowatt, our source said. The electricity sector currently consumes around 3.3 bn cubic feet of natural gas per day.

REFRESHER- The government allocated EGP 75 bn for electricity subsidies this fiscal year, marking a substantial increase from the EGP 2.5 bn allocated the year before.

The plan to phase out electricity subsidies and move to a free electricity market remains in place, but the timeline for a full phase-out of electricity subsidies remains unclear, according to our source. Higher-consumption segments already pay cost-reflective prices, while lower tiers continue to receive government support. The eventual liberalization of the electricity market will allow the state to continue supporting low-income consumers while scrapping subsidies for high-consumption brackets.

Looking ahead: Egypt’s accelerated expansion of low-cost renewable energy is expected to ease the scale of future electricity price increases and allow the sector to reach cost recovery without more increases next fiscal year.