As economic difficulties intensify, several countries have pursued rationalization plans meant to alleviate the burdens on people’s shoulders. Egypt has decided to go the same path through a bunch of measures in energy and water. On 9 August Prime Minister Mustafa Madbouli announced the government’s plan to rationalize the national consumption of energy and water. He explained that the government aims to save on natural gas in order to redirect more of it for exportation to increase the country’s revenues of foreign currency, amid an unprecedented energy crisis as a result of the Russian-Ukrainian war. He also explained that this saving on natural gas reflects the importance of collecting more of the foreign currencies to reduce the losses caused by the globally deteriorating economic situation.
An Urgent Rationalization Plan:
The Minister of Housing and Utilities Assem El-Gazzar, disclosed that his ministry has been instructed to design a plan for rationalizing energy as well as water consumption. Later, this plan has been published, and then put into action starting 11 August. The plan has several components such as: applying the Daylight Saving time that requires shutting down shopping malls at 11 pm, lights-out on government buildings at night and shutting off lights inside them after working hours, except for service buildings, reducing street lighting, as well as setting central air conditioning systems at 25 degrees c in all buildings and shopping malls. The plan also included measures for lighting sport clubs through using LED energy saving light bulbs in all sport premises and playing fields.
Challenges of the Continuation of the Crisis:
Economic analyses indicate it is unclear how long the crisis will persist, which led the Egyptian Prime Minister to state that both government and citizens play a role in energy rationalization.
Egypt has improved its method of utilizing energy and electricity resources, following years of people’s suffering power outage for long hours daily. It is now much better after the huge improvement in this sector. The Ministry of Electricity spokesperson announced in June that the country has achieved electricity surplus of 25 percent.
While most electricity in Egypt is generated using natural gas, the state plans to increase electricity supply from renewable sources to 42 percent by 2035.
In fact, the need for consumption rationalization comes from the impact of the crisis on income and global prices, hence, the need for reducing petroleum consumption became more crucial amid global price increase due to the Russian-Ukrainian war.
This war has led Egypt to raise fuel products prices by one Egyptian Pound after the quarterly revision in July, which was the highest raise since October 2019.
There was supposed to be an increase in electricity price as well, however, the government postponed it until January 2023 instead of July 2022, in order to ease pressures on citizens amid increased overall living cost.
Proactive Energy Rationalization Policies:
The rationalization measures were not arbitrary, but rather, they have been designed in accordance with the government’s policies of sustainable development, and economic and environmentally friendly resources management. The Egyptian government ratified the National Energy Efficiency Action Plan (NEEAP) that has been developed according to the Arab Energy Efficiency Framework (AEEF). This plan takes into consideration the challenges that arise at the time of implementation. That has been a point of weakness in the previous similar plans which looked ideal theoretically, but faced lots of various difficulties upon execution.
Moreover, this national work plan conforms to the Integrated Sustainable Energy Strategy (ISES) until 2035 that has been approved by the Supreme Energy Council (SEC) in October 2016. In addition, the plan considered short term measures for the period 2015-2020, including the electricity law sections that aim to improve energy efficiency.
Natural Gas Used in Power Plants:
Based on those steps, the Egyptian government’s vision to rationalize gas consumption appears. The vision that aims to achieve financial revenues from gas exports. Over the past years, steps have been taken towards increasing explorations and making Egypt a hub for collecting, liquefying and transporting gas. Looking at the challenges other countries are facing as the Russian-Ukrainian war resumes, and Egypt’s consumption of 60 percent of its natural gas production for producing electricity, the consumption policies had to be revised in order to benefit from what can be saved.
Madbouli announced that the gas consumption reduction plan commenced in October 2021 when the Ministries of Electricity and Petroleum agreed to replace natural gas by diesel fuel in electric power plants, parallel to the corrective economic measures following Covid-19 pandemic. However, the situation worsened as gas prices boomed globally in 2022. In addition, the foreign currency reserves retreat has put more pressure on the country.
Egypt sells natural gas for domestic use for $3 for 1 MMBtu, while the export price is $30, which means that the current electricity price is unprecedentedly subsidized, as its selling price is one tenth of its global price and one fifth of its real cost price.
The actual cost for producing 1 KWh was EGP 1.09 prior to the increase in exchange rate, and the first 4 consumption segments were EGP 0.48 , 0.58 , 0.77 , 0.95.
After the exchange rate increase, the cost for producing 1 KWh went up to EGP 1.19, subject to increase.
Due to those additional costs borne by the government, the rationalization of gas consumption in power plants was essential, in order to allow more room for exportation, hence, increasing the foreign currency reserves as an alternative for increasing local price which puts more burden on citizens.
The electricity holding company announced that the natural gas consumption rationalization plan relies more on Diesel fuel in operating power stations, which aims to save 22 to 25 million cubic meters of gas. The plan also includes the replacement of high consumption generating units with more efficient ones. In addition, 75 percent of Siemens units are being operated even though they are fueled by gas, but they are quite efficient. Their efficiency exceeds 60 percent.
Other Plans to Rationalize Food and Water Consumption:
The Egyptian state rationalization plans are not limited to electricity and energy, but rather include other resources. When the Russian-Ukrainian war sparked in February 2022, the government called on people to decrease the consumption of strategic commodities in order to ease demand on foreign currency; however, it confirmed the availability of them until the end of the year.
In June 2022, Madbouli called on Egyptians to reduce consumption amid a global food crisis. He indicated that this reduction will make the country capable of securing all needs and keeping strategic commodities reserves at safe levels. In addition, Egypt (one of the most countries in the world that face water scarcity) has made a plan for rationalization of water consumption and enhancing water quality, through a strategy that spans until 2050 at a cost of EGP 900 billion.
It seems that with the continuation of the current global crisis, austerity measures by the government become crucial, as they help reduce risks on citizens’ living standards, even partially.
