Working Papers

The Impact of Reducing Energy Subsidies on Energy Intensive Industries in Egypt

Publication Number: ECESWP124-E

May, 2007

Author : Abdallah Shehata Khattab

Type : Working Papers

Abstract This paper investigates the impact of reducing energy subsidies in Egypt on energy intensive industries applying a partial equilibrium approach. It first selects a sample of sectors and industries that depend heavily on energy products, and then measures the impact on profitability per ton of production in these industries, holding other factors constant. The paper finds that energy-intensive industries in the Egyptian economy benefit the most from subsidized energy products either directly or indirectly. Finally, it concludes that increasing prices of petroleum products (including natural gas) and electricity can be absorbed by such companies without having to raise prices proportionally. In other words, energy-intensive industries have flexible options to adjust to subsidy reduction in the sense that they can choose either not to raise prices, due to higher profitability ratios, or increase them in ways that do not exceed the actual increase in cost.