No smart cards for subsidized fuel before 2014

The much-hyped smart card system for subsidized fuel purchases won’t be implemented until 2014, Petroleum Minister Sherif Ismail announced in a press conference on Tuesday.

First proposed under former President Mohamed Morsi’s government, the new system was supposed to be implemented starting in July. However, the interim government that took the reins after Morsi’s July 3 ouster has been vague about when and how the system would actually start up, insisting that first they need an accurate database identifying all of Egypt’s drivers.

The smart card system is the cornerstone of sweeping petroleum subsidy reforms. The government is trying to find ways to ensure subsidized fuel only goes to those who need it, and limit the sale of fuel on the black market.

The Ministry of Finance recently stated that fuel subsidies cost the country LE120 billion, but Finance Minister Ahmed Galal said in a press conference earlier this week that they actually cost between LE128 and 130 billion annually. This sum represents more than 22 percent of the state budget.

According to Galal, 80 percent of those subsidies don’t reach those who actually need them.

The interim Cabinet intends to implement reforms on subsidies and the tax system before elections in the spring of 2014. Subsidy reform is politically sensitive and was at the center of the talks between the government and the International Monetary Fund last year — the IMF insisted on strict reforms before the funding body would release a multi-billion dollar loan to Egypt.

The preliminary 2013/14 budget plans to bring subsidies under LE100 billion. This delay in the smart card system will probably make that objective harder to reach.

To help fill in that budgetary gap, the government is pursuing talks with Gulf countries to continue their supply of oil.

Saudi Arabia, Kuwait and the United Arab Emirates have provided massive help to the Egyptian government since Morsi’s removal. Part of their joint pledge of US$12 billion in aid has been in the form of in-kind oil supply.

These Gulf states promised the government to supply the country with petroleum products until December. Due to ever-delayed payments and a degrading notation on the financial markets, Egypt has recently found it increasingly difficult to meet its vital oil import needs.

Gulf aid and a secured oil supply would also allow the government to repay part of its debts to foreign oil contractors operating on the Egyptian soil. Delays in payment have had a dramatic impact on the investment and production levels since the revolution.

Ismail explained that somewhere between 25 and 30 percent of the country’s US$6.2 billion in debt would be repaid soon. The government has been trying to strike a deal with foreign producers to boost production and investment levels.

Prime Minister Hazem al-Beblawi announced in September he expected investments in Egypt to reach US$15 billion within two years.