Egypt considers 35% fuel hike

FUEL HIKES: The Egyptian parliament is considering a proposal to increase fuel and cigarette prices to cover the costs of public sector pay rises. (AFP)

Egypt's ruling party proposed steep increases on Monday in fuel and cigarette prices and vehicle licence fees to cover the costs of public sector pay hikes that President Hosni Mubarak proposed last week.

A booklet distributed by a parliamentary committee dominated by the ruling party said the price of 90 octane fuel would rise 35% to 1.75 Egyptian pounds ($0.33) a litre.

The Egyptian parliament is in session to debate the proposals and the speaker, Fathi Sorour, said it should reach an urgent decision.

In a speech to mark May Day that came amid a wave of public discontent over price rises, Mubarak offered public employees a 30% increase in basic salaries provided necessary revenue could be found and the increase did not add to the budget deficit.

The higher fuel prices would save the government billions of pounds it now spends on fuel subsidies, expected to cost 57 billion pounds in the financial year ending on June 30.

The government has wanted to raise petrol prices for years, saying the subsidy benefits mainly rich people with large cars.

Ahmed Ezz, the man in charge of organisation at the ruling National Democratic Party (NDP), told parliament: "Here we come forward with a package of measures meant to increase revenues to be able to increase wages for public-sector employees."

He said the government now spends 111 pounds a month on subsidising an average car owner, who uses 100 litres a month.

The rises in vehicle licence fees were steepest at the luxury end of the scale. For cars with engines with a capacity greater than 2030 cc, owners would pay an annual fee equivalent to 2% of the car's value, up from 500 pounds at present.

The price of high octane fuel would also rise at a rate higher than for other fuels. While diesel and kerosene would rise 47%, to 1.10 pounds a litre, the price of 96 octane petrol would go up 57% to 2.75 pounds a litre.

The price of foreign-brand cigarettes would rise by up to 20%, against about 10% for local brands.

The booklet proposed rises of up to 57% in the price that energy-intensive industries pay the state for natural gas, an extraction fee of 27 pounds a tonne for clay extracted from quarries and the abolition of tax breaks on some industries.

Finance Minister Youssef Boutros-Ghali told Reuters last month that the salary increase would not have an inflationary effect if the government could find extra revenue to cover it.

But Angus Blair, head of research at Beltone Financial, said in Monday that the price rises would drive up inflation.

"Obviously, whenever you put basic products prices up, you are going to have an immediate impact on inflation ... and it may well just urge other businesses to increase prices because once inflation rises it is quite difficult to bring it down again," he told newswire Reuters.

Mubarak made the promise on public-sector salaries in response to higher food prices, a phenomenon driven largely by the international market rather than by local factors.

Urban inflation in Egypt hit 14.4% in the month to March, the highest rate for three years. Inflation is higher for the poor because they spend a higher proportion of their income on grains and other foodstuffs. (Reuters)

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