Egypt in energy crisis as elections approach
May. 02, 2014
CAIRO (AP) — Rolling blackouts have already been hitting neighborhoods of Cairo daily throughout the winter, when electricity usage is lower. Now summer's heat is coming, and Egypt's crippling energy crisis is threatening to mount, creating an immediate political liability for the new president to be elected this month.
The government is scrambling to reduce the impact.
Once an exporter of natural gas, Egypt has increased imports of substitute fuels, including more expensive, dirtier-burning mazut, to make up for shortages of natural gas and keep power stations running. Last week, the Cabinet took the unpopular step of raising prices for home use of natural gas, used in cooking, in some cases quadrupling the price, to chip away at the giant subsidies the government pays for energy and to cut down on consumption.
Also, the government last month approved the import of coal for the first time to help power the struggling concrete industry, raising protests from the environment minister.
For months, Cairo neighborhoods have seen blackouts every day lasting an hour or two, leaving streets dark and forcing businesses to shut down. Battery-powered emergency lamps have become a popular item for sale by street peddlers.
Mohamed Ahmed, owner of a laundry in Cairo's middle class district of Dokki, said work shutdowns forced by daily outages for the past year have hurt his bottom line.
"Sometimes, in the case of machines, when the electricity goes off, we can't open the door, and the dry-cleaning chemicals ruin the clothes," he said.
Blackouts eased the past week with the increased import of mazut, but like others, Ahmed is not optimistic about this summer.
"We'll try and finish our work early in the day before the electricity goes out," he said.
The crisis is the culmination of factors building for years, which dramatically worsened in the turmoil since the 2011 uprising that ousted autocrat Hosni Mubarak.
Egypt's major gas fields, most over 10 years old, are maxing out. New ones won't start producing for years. Oil and gas companies, which extract natural gas through partnerships with the Petroleum Ministry, have balked at new investments amid three years of instability. They have been further discouraged by the government's insolvency: The ministry currently owes at least $4.5 billion to international oil and gas companies.
Egypt's natural gas production has been declining for years. Production in January was down 10 percent from January 2013, according to the most recent government figures. Electricity consumption increases roughly 7 percent annually, thanks to Egypt's energy-heavy industries, steady population growth and increasing technology use.
At the same time, the government is struggling to pay for energy subsidies that last year ate up a fifth of the budget.
Reforming subsidies remains the most difficult issue for the near future. Millions in the impoverished nation rely on the low energy prices, so changing the system is potentially explosive.
Former army chief Abdel-Fattah el-Sissi, who is seen as virtually assured of winning presidential elections in late May, has signaled he intends to enact reforms, and he is riding on a wave of media fervor after his July ouster of Islamist President Mohammed Morsi. But the question is whether his image as the nation's hero will translate into political capital needed to reduce subsidies.
"This needs bold and unpopular decisions," said Magdi Nasrallah, chair of the department of petroleum and energy engineering at the American University in Cairo.
More immediately, el-Sissi and the government will face the task of keeping blackouts to a minimum. Last summer, recurrent hours-long blackouts contributed to widespread protests against then-President Morsi.
Under Morsi, the government got a boost from Gulf petro-giant Qatar, a close ally of Morsi's Muslim Brotherhood. Qatar gave liquefied natural gas to Egypt, which then passed it directly to companies promised gas for export, freeing up Egypt's domestically produced gas for the local market. After Morsi's ouster, Qatar halted the shipments.
New Gulf benefactors have stepped in. Saudi Arabia, Kuwait and the United Arab Emirates have poured in more than $12 billion to help the economy, as well as petroleum products.
For the moment, the only stop-gap measure is to import expensive mazut and diesel as a back-up fuel for power stations, which normally run on natural gas.
The government is trying to secure a floating re-gasification plant to allow the import of liquefied natural gas, with talk of obtaining it sometime in August. But industry insiders say it's highly unlikely.
Real solutions will take longer. One of Egypt's most promising gas fields, the North Alexandria Block, had been expected to come online already, increasing production by 18 percent, but now won't operate for another four or five years, according to Petroleum Minister Sherif Ismail.
But at least officials now acknowledge the severity of the situation instead of trying to cover it up as they have in the past, said Khaled Abu Bakr from Taqa Arabia, a private sector energy distribution company.
"People should know the reality," he said. "You can't cure a patient if he doesn't know what's wrong with him."