Electricity price hike delayed in bid to keep inflation low

No electricity price hikes this month? Don’t expect any increases in electricity prices this month, a senior government source told EnterpriseAM. The payoff of lowering inflation — and in turn allowing the central bank to continue cutting interest rates — outweighs the revenue from price hikes, the source said.

Electricity price hikes could be pushed until the end of the year, subject to cabinet approval, we were told.

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We had an idea this was coming, with a government source telling us in July that the government could postpone electricity price hikes until January, seeing as the energy sector has secured its natural gas needs at a price below global rates through recent short and medium-term agreements. The decline in the EGP/USD exchange rate also helped — providing the government the flexibility needed to absorb the cost of pushing back these anticipated hikes, we were told at the time.

REFRESHER- The Electricity Ministry has raised electricity prices by 14-40% between August and September 2024. The cost of electricity production has soared after the float of the EGP, becoming more of a burden on the state budget.

Still, spending on electricity subsidies was up last fiscal year, coming in at EGP 10 bn, up from the EGP 2.5 bn allocated in the state budget for the year, according to a government document seen by EnterpriseAM.

Gas price hikes for industry were also postponed: The government has also delayed raising gas prices for industry for the same reason — to keep inflation low, another government source said.

Pricing mechanisms are getting a facelift: The source added that pricing mechanisms, electricity distribution companies’ budgets, and pricing agreements are currently being revised following the separation of the Egyptian Electricity Transmission Company from the state holding company — a first step toward a liberalized electricity market.

REMEMBER- The Egyptian Electricity Transmission Company (EETC) finally became anindependent electricity transmission system operator after separating from parent organization Egyptian Electricity Holding Company (EEHC) in April. The move was part of a broader — and much delayed — plan to liberalize the electricity market by turning the state’s electricity companies into market regulators and opening the door for the private sector to both produce and buy electricity from each other.

The plan to phase out electricity subsidies and move to a free electricity market remains in place. The Finance Ministry is injecting EGP 75 bn into the sector this fiscal year — a sharp increase from the amount allocated last fiscal year — to support investment expansion, grid connections, and renewable energy projects, the source said.