Egypt's fuel crisis adds to its economic woes


CAIRO (AP) — At 5:00 am, Egyptian truck driver Allam Mahmoud hurried to a Cairo gas station and joined an already long, snaking line. He says he hopes that by the end of the day, he can get his tank filled with diesel.

For several months, Egyptians have been hit by shortages of diesel, the main fuel that truckers, bus drivers, farmers, bakers and a range of industries rely on to keep their engines running. The diesel crisis is now not only adding to the country's economic problems, it's feeding the turmoil on the streets.

"Haven't seen a crisis like this before," the 46-year-old Mahmoud said, still waiting at noon Monday for a chance to fill up. "People are asleep in their homes and we are here waiting to refuel."

Now for many the long waits at gas stations are becoming unbearable.

On Sunday, hundreds of drivers of trucks and of minibuses used as public transport blocked most of Cairo's vital roads and bridges, as well as highways across the country in an angry protest over the shortages, forcing some students and government employees to even resort to donkey carts to commute. Frequently tempers flared. In Cairo, striking drivers smashed windows of private cars when commuters complained about the road blockages. In Giza, across the Nile, fist-fights broke out and knives were drawn between protesting drivers and other drivers who refused to join their strike. In the southern city of Assiut, striking and non-striking drivers pelted each other with stones.

The drivers' backlash adds to a wave of unrest across the country, with protesters against the Islamist president frequently clashing with police and some police units themselves launching their own strikes and protests in many areas.

Diesel and most other fuels in Egypt are heavily subsidized, provided in allotments to gas stations to keep the price at the pump low. The government insists there is no shortage of fuel, but blames the long lines at stations on corruption, saying that amid the country's lawlessness, a "mafia" is collaborating with station owners to take their allotments of diesel — called "solar" in Egypt — sell them on the black market. Gas stations are supposed to sell 20-liter jerry cans of diesel for 20 Egyptian pounds (57 cents a gallon), but on the black market it sells for more than double that price.

Oil Minister Osama Kamal said almost all the shortages at gas stations are because of "the absence of oversight agencies and the exploitation by some of the current situation ... to trade solar on the black market," according to the state daily Al-Ahram.

Some of the fuel is also being smuggled. In January and February, the military destroyed 15 tanks of fuel it seized from smugglers by the border with the Gaza Strip, part of a campaign to destroy smuggling tunnels from the Sinai peninsula into the Palestinian territory, ruled by the Hamas militant group, according to a military official, speaking on condition of anonymity because he was not authorized to speak to the press. He said fuel smuggling to Gaza has increased dramatically amid Egypt's lawlessness since the 2011 uprising that toppled autocrat Hosni Mubarak.

On Monday, Kamal told Turkey's Anadolu news agency that the government would increase the diesel it supplies to the market each day by 10 percent to 40 million liters (10 million gallons) to try to fill the demand. The fuel would be sold through gas stations owned by the military, from which he insisted it was impossible to divert the supplies to the black market.

The diesel crisis comes as the government is struggling under growing budget deficits and shrinking foreign reserves while it tries to meet its commitments to provide millions of Egyptians with subsidized bread, food and fuel. Potentially explosive public discontent has made President Mohammed Morsi wary of introducing austerity measures to cut back subsidies, a step economists say is unavoidable for reducing deficits and giving assurances to international donors to help the country's battered economy with loans and investment.

Energy subsidies make up the largest chunk of the around $20 billion a year Egypt spends on subsidies, about a third of its budget. Cutting fuel subsidies are believed to be at the top of a government reform plan presented to the International Monetary Fund to secure a much-needed $4.8 billion loan. Talks with the IMF stalled last year when Morsi quickly rescinded tax increases for fear of the public backlash.

To reduce energy subsidies, the government has announced it will start a "smart card" system in May by which vehicles with engines of 1600cc or less — smaller than most SUVs — would be eligible to a certain amount of subsidized fuel, while those with bigger engines will have to buy fuel at market price. The government has already lifted fuel subsidies for industrial companies.

But the London-based consultancy Capital Economics said Monday that Egypt is unlikely to get the loan anytime soon because of IMF reservations over the government's desire to phase in subsidy reforms gradually — apparently to delay the pain of austerity until after parliamentary elections. Parliamentary elections originally set to begin in April have been postponed indefinitely after a court ruled against the law governing the vote.

Since Mubarak's ouster in February 2011, Egypt's unrest has gouged tourism and foreign investment, the most essential sources of foreign currency. In the latest sign of the economic woes, Egypt's annual urban inflation reached 8.2 percent last month, its highest rate since May last year, according to the official Central Agency for Public Mobilization and Statistics. Foreign reserves fell to $13.5 billion in February, down about two thirds from two years ago. The currency has fallen in value more than 7 percent against the dollar since late last year.

The government is trying to search for alternative ways to secure revenues. On Monday, the country's interim parliament agreed in principle on a draft law that allows the state to issue Islamic bonds which the government hopes it can raise some $10 billion dollars from bonds, which according to Islamic Shariah don't pay interest.

The country's already stressed agricultural and construction sectors are fearing the impact of diesel shortages.

Alaa Diab, the head of the agriculture committee in Egypt's Businessmen Association, noted that all the motors used in irrigation and harvesting use diesel. Without the fuel, "there will be no wheat, and there will no milling and bread will be affected ... The entire agriculture production is threatened with coming to a halt," he said, according to the state-run Al-Ahram daily.

The Egyptian Union for Construction and Building said in a report that about 64 percent of the 41,500 construction companies registered with the union have gone bankrupt or suspended work. The report, published in Al-Ahram, blamed price hikes in energy and material.

Other sectors at a time other sectors are suffering. The national carrier, EgyptAir, has seen nearly 6 billion pounds ($900 million) in losses, forcing it to reduce the number of flights, Civil Aviation Minister told parliament Monday.


AP reporter Amir Makar contributed to this report