The evaluation and possible solutions of Egypt’s current energy crisis
Egypt, one of the cradles of civilization, is distinguished by its tourist industry due to its mysterious cultural attributes and long history.Its abundant touristic resources and attractions made Egypt an admiration of travelers all over the world.Consequently, the tourist industry has become an essential role of Egypt’s economic foundation.
Moreover, Egypt is also regarded as the largest non-OPEC (organization of Petroleum Exporting Countries) country in the continent of Africa (Payne, 2012).
According to Payne (2012), Egypt’s daily yield of crude oil is approximately 700,000 barrels, and since the year of 2008, Egypt has discovered 7 crude oil and natural gas deposits. Among them, the largest detection produces around 58000 barrels of crude oil and 2. 8 million cubic feet of natural gas every day. (Graeber, 2013).
Norton Rose Fulbright, an international business organization, has also indicated that Egypt possesses a total capacity of 4.4 billion barrels of crude oil and 78 trillion cubic feet of natural gas in its deposits. Ironically, even with such unique financial advantages and bountiful domestic natural resources, Egypt is now undergoing the most severe energy crisis in its history. This tremendous energy scarcity has already resulted in a soaring of food prices, and regular blackouts of household electricity, if this deficiency continues it could further threaten the livelihood of Egyptian citizens or even lead to serious social security issues.
Kirkpatick (2013) pointed out in his report that because diesel machineries are the most common apparatus Egyptian use to irrigating and harvesting their crops, the insufficiency of fossil fuel has disabled numerous famers from yielding crops in the harvest season. It is not only the farmers who are despairing, the employees who need to commute a long distance for work also feel miserable due to the fact that the scarcity of gasoline has doubled the fuel price and caused a long queue in every gas station.
Furthermore, the electricity blackouts have made the electricity in vital public facilities such as schools and hospitals unstable, thus tremendously impaired the quality of medical and educational affairs. More seriously, an evaluation of International Crisis Group has revealed that the fragile political stability accompanied with the growing public panic (concern) toward the inflating of fuel price could ultimately result in the withering of Egypt’s hard-earned democracy (Kirkpatrick, 2013).
Before the government can take any action to appropriately resolve this severe energy scarcity, it is extremely crucial for them to be acquainted with the principal causes of this problem. Although several speculations have been made toward the root of this devastating energy crisis through different perspectives, it is generally believed by experts that Egypt’s energy insufficiency is the ultimate result of its incompetent refining technologies, inappropriate subsidizing policies, leaky energy allocating systems, and teetering social security.
First of all, the initial element that put Egypt in this vulnerable circumstance is its inadequate refining technology. According to Kirkpatrick (2013) and Payne (2012), Egypt has very restricted capability in refining crude oil into petroleum products such as diesel fuel. Therefore, despite the fact that Egypt holds a considerable amount of domestic energy, they have to rely heavily on the import of petroleum products, and export their crude oil at a much cheaper price. The other primary preexisting factor that contributes to the energy crisis is Egypt’s burdensome subsidizing policy of energy.
According to Ragui, an official of Egypt’s Economic Research Forum, nearly 30% of Egypt’s governmental expense can be attributed to the energy subsidy. Moreover, Ragui also pointed out that subsidized fuel cost less than one fifth of its original price (Kirkpatrick, 2013). Although this program is very beneficial to civilians especially in the condition when 40% of Egyptians are below the poverty line, the economists in Egypt have already doubted the practicability of this policy even before the crisis, according to Kirkpatrick’s report (2012), many experts considered this policy untenable.
Even though, Egyptian government expended a great effort on subsidizing energies, the leaky distributing system has played a major role that not only negated the benefit of subsidizing policy, but also indirectly resulted in the present energy scarcity. As pinpointed by Hakim’s report (2013), only 20% of subsidized fuels were allocated to those who deserve it, and the other 80% of them did not go to where they were supposed to. Since the Egypt government has difficulty on tracking their fuels, many tanker trucks sell subsidized fossil fuels to black markets for better profit.
In addition, because this leaky distributing system made illegal access of fuel more effortless, once the rumor of impending fuel shortage spread out, the inappropriate hoarding of fuel from panicked citizens has increased tremendously, and that, according to Kirkpatrick’s report, is the other significant factor that worsened this energy crisis. The trigger that linked every preexisting factor together and ultimately resulted in Egypt’s energy crisis is the instability of Egypt’s social security.
Before the “2011 Egyptian revolution”, with its thriving touristic industry and expanding foreign investments, Egypt was prosperous. As the growing of the energy demand for their rapidly developing economy and fast expanding population, they put more budgets on importing fuels and subsidizing energy. However, according to Kirkpatrick (2013), after the ouster of Hosni Mubarak, who has been the president of Egypt for more than 30 years, violent protests and mayhem from his advocates have collapsed Egypt’s tourism and unnerved its foreign investors.
Without those two essential sources, the economy of Egypt soon contracted and withered to almost one third of its annual income in 2010. Nevertheless, with such a severe economic contraction, Egypt’s energy expenses remained the same. Consequently, the new government was incapable of affording the heavy subsidization, and energy import, therefore, triggered the national wide energy crisis. According to the different perspective, there are various opinions concerning the possible solutions of this energy crisis, however, only few of them are considered as realistic and practical regarding the urgent circumstance of Egypt.
Among them, the most practicable solution of Egypt’s energy crisis is to reform the government policy, to improve the distribution system, to accept the loan from the I. M. F. (International Monetary Fund), and to advance the next democratic election date. Although it has been mentioned by several organizations that improving Egypt’s refining technology may be a long-term solution that could terminate Egypt’s demand of importing petroleum products, it is not a preferable solution base on the current circumstances.
According to Payne (2012), if Egypt can refine its domestic crude oil, it would produce adequate petroleum products to sustain Egypt’s own energy consumption in a much lower cost. However, the advancing of refinery requires years of development and the investment of foreign technology: the two elements that Egypt is lack of.
The turbulent social security of Egypt has unnerved most of its foreign investors (Graeber, 2013), and the deterioration of economy and political stability has urged government to take immediate action. The other controversial solution is the development of renewable energy. It is highly recommended and encouraged by many energy experts that Egypt should allocate funds to invest in renewable energy technology instead of subsidizing the fossil fuel. Due to its geographical distinction, Egypt possesses massive potential for sustainable energy such as solar energy, wind energy, or geothermal energy. (Norton Rose Fulbright, 2013).
The advocates of renewable energy claimed that due to the flawed allocation system, the subsidization policy is an extremely inefficient way to spend funds. They further affirmed that through a specific solar energy project, which can generate about 3-giga watts within 18 months, Egypt’s energy insufficiency will be resolved easily. (Hakim, 2013) However, many economists considered this method unrealistic due to its time consumption and expensive initial expense.
They pointed out that it would take at least 3 to 5 years of transition time to invest on the new energy including building new supply chains, setting up generators, and establishing new infrastructures. (Watson, 2012). Moreover, due to Egypt’s abundant crude oil deposits, it is not advisable to invest more currency on developing the other alternative energies, especially in this vital period when the government is already in deep deficit. It is crucial for Egyptian administration to reform their heavy energy subsidization policy in order to alleviate the unbearable burden on their economy.
As indicated by Kirkpatrick (2013), by implementing a reduction on energy subsidy, it will not only give the government sufficient funding to import energy, but it will also restore Egypt’s credibility for more international loans and finish this energy crisis even faster. However, reform in policy can be very problematic, especially when subsidy is involved. The teetering political stability of Egypt could be too vulnerable to afford any big change in society.
According to the reports of Kirkpatrick (2012,2013), the administration of this reform could be extremely challenging due to the fact that 40% of Egyptians are under the poverty line and most of them possess resentments against the government already because of the existing energy scarcity and the soaring price of food. Kirkpatrick further indicated the difficulty of this reform by stating: “any potential increase in fuel prices or the price of other basic necessities could spur renewed unrest. ”
Moreover, even if the government can successfully implement the reform on its subsidization policy, it is possible for the positive effects to be nullified if the leaky energy distribution system, which is currently preventing Egyptian citizens from purchasing fuel at its original price, stays the same. In order to monitor the allocation of subsidized energy more effectively and make it more accessible to the people who deserve it, the Egyptian government has developed a smart card system that can effectively track the gas trucks and ensure that they reach their destination with whole shipments (Kirkpatrick, 2013).
Although this new technology is not nation wide it has received a great success in the villages that adopted it. Moreover, according to Kirkpatrick’s report (2013), Egyptian civilians possess a great hope in this new system. The other factor that could contribute to the solution of Egypt’s energy insufficiency is a $4. 8 billion loan offered by the I. M. F. (International Monetary Fund). This international loan could enable Egypt to import sufficient fuel to temporarily settle the energy crisis in this urgent period.
However, although it can effectively secure Egypt from the damage of this energy crisis for awhile, it is not a long-term solution. Moreover, this loan is offered with a condition of the commitment to increase taxes and cut subsidies. Therefore, accepting this loan could stimulate more civil unrest and worsen an already shaky social security. Under the fear of public reaction, despite the advice of the UN, the Egyptian administration refused this offer repeatedly (Kirkpatrick, 2013).
Finally, in order to ultimately resolve this problem, find a way to stabilize the political unrest is inevitable. According to the report of Watson (2012), the whole energy crisis occurred initially after the ouster of the former present Hosni Mubarak in 2011 and climaxed after the first democratic president Mohamed Morsi in July 2013. Evidently, the Egypt’s energy crisis is closely related to its political stability. Watson also reported that the core factor of Egypt’s social unrest can be attributed to citizens’ resentment against the military regime.
Therefore, in order to change this phenomenon appropriately, it is highly recommended to advance the election date from 2014 to as soon as possible. That way Egypt will not only revitalize its tourism but also gain back most of the foreign investment, thus solve the energy crisis once for all. In conclusion, Egypt’s energy scarcity is mainly leaded by its flawed subsidizing policies, deficient energy distribution system, and shaky social security.
Therefore, in order to resolve this energy crisis appropriately, it is crucial for Egyptian administration to focus and reform these problems one by one. According to the research, the most practicable way to result these problems is to first promote the smart card system, which will help government to allocate subsidized energy more effectively to people who need them. After increase the accessibility of subsidized energy, the government can subsequently implement a reduction on energy subsidy. Due to the teetering social security, it is highly advisable to execute this reduction subtly and appropriately.
This reform of Egypt’s subsidy policy will not only largely alleviate the burden of its economy, but will also make Egypt eligible to take the international loan offered by the I. M. F. ; therefore, provide Egypt more funds to import fossil fuel for the sake of its energy crisis. Subsequent to the reform of governmental policy, it is advisable for Egypt to advance the date of democratic election due to the purpose of stabilizing its social security. Once the social security is stabilized, Egypt will be able to revitalize its touristic industry and regain its foreign investment, which will resolve the energy crisis once for all.