Economic Literature Review

Energy Security in Egypt

Publication Number: ECES-ELR1

June, 2015

Author : Iman Al-Ayouty and Nadine Abdel Raouf

Type : Economic Literature Review

This review paper takes stock of important recent literature on Egypt’s energy economy. It tackles two distinct topics: the first, is liberalizing energy prices in Egypt while analyzing the different pricing approaches, the pace and timing of liberalization, as well as the expected distributional impacts on households in different expenditure quintiles, and hence measures to mitigate these impacts. The second topic is the different scenarios for Egypt’s energy mix. The paper also reviews the most recent energy-related policies, as well as the proposed or undertaken legislative reforms, and how they may help reduce energy insecurity. It further takes stock of the energy projects, which either preceded the March 2015 Egypt Economic Development Conference (EEDC), or were proposed during the conference, as well as those announced afterwards. Finally, it draws some policy implications that could pave the way towards greater energy security in Egypt. Most importantly, Egypt would be well-advised to adopt a cost-based pricing regime in which prices are determined based on the actual cost of delivering energy, as a sound pricing mechanism will curb inefficiencies and also encourage the shift to renewable sources of energy. Second, as subsidies are phased out, cash transfers are recommended to the poorest two quintiles of rural and urban population, meanwhile ensuring that between 30-50 percent of the savings realized from the subsidy phasing-out are earmarked to the cash transfers, particularly in the health, education and social protection domains. Third, with reference to the energy mix, there are recent indications that the “61 fossil-9 renewable-7 nuclear-8 efficiency” mix may help reduce energy insecurity, with the possibility of filling part of the 15 percent deficit through solar and others. However, biomass still needs to be incentivized.