Energy-short Egypt Faces Long, Hot Summer

CAIRO —  A gift of gas to Egypt from tiny Qatar shows just how tough this summer is shaping up to be for the government in Cairo, facing a funding crunch and power cuts as it struggles to contain explosive public discontent.

Daily blackouts have darkened homes and businesses across the country over the past few weeks, aggravated in recent days by an early summer heat wave that has Egyptians cranking up their air conditioners.

Qatar on Monday offered five cargoes of liquefied natural gas (LNG), worth perhaps $300 million, “as a gift to the Egyptian people during the summer months.”

It is a small gesture from a Gulf ally which has already lent Egypt some $7 billion in the past year but highlights how tough times are for the 84 million Egyptians.

Falling living standards since the 2011 revolt that ended six decades of military rule have led to disillusionment focused on Islamist President Mohamed Morsi and his Muslim Brotherhood. Opponents have called for mass protests on June 30, the first anniversary of Morsi's election.

The country's budget deficit has widened, the Egyptian pound has weakened, and investors have taken fright, sending the Cairo share index on Monday to its lowest close in more than 10 months.

A vicious circle of unrest and slumping tourism revenues have drained government cash reserves, leaving ministers scrambling for favors abroad, notably to maintain supplies of heavily subsidized fuel and bread that account for a quarter of all government spending.

“We will suffer this summer,” said Mohamed Shoeib, who until recently ran EGAS, the state natural gas company, and is now a managing director at private equity firm Citadel Capital.

“This will be the hardest and most difficult and darkest summer Egypt has ever seen,” he added.

Adding to worries about energy, the month-long Muslim fast of Ramadan will begin around July 9, a time when tempers can fray as temperatures hit 40 degrees Celsius and above.

Facing a fiscal crunch

Since the overthrow of Hosni Mubarak, the authorities have run through more than half of Egypt's foreign reserves, or some $20 billion.

They have also borrowed billions from abroad and delayed payments to oil companies and other suppliers.

Yet partly due to fuel subsidies, energy consumption remains high as the state grapples to pay for imports of fuel to generate electricity.

In April, Qatar and Libya extended loans worth $5 billion, and Libya said it would provide another $1.2 billion in credit to buy crude oil for Egypt at world prices.

But this will only plug a portion of the country's energy gap, and still leaves Egypt needing to find fuel on the international market, get it from ports to power plants, keep those plants running at near full capacity and deliver the electricity to consumers across a leaky power grid.

This is proving difficult, with rolling blackouts throughout the country, some for up to 10 hours at a time, which prompted protests in late May, and a heat wave in early June that pushed temperatures in Cairo to 45 degrees Celsius, only compounding the problem.

In some places, people blocked roads and railways to demand power - needed in many apartments to pump water.

In the ancient Pharaonic capital of Luxor, local governor Ezzat Saad told Reuters that power cuts blacked out major tourist sites last month, including the 3,400-year-old temple. He said he had appealed to Cairo to prevent such incidents.

Infrastructure issues

Last summer, during the hottest days, electricity consumption peaked at 27,000 megawatts (MW) and seems likely to do so again this year, pressing the power sector to its limits.

“In the summer, [during] Ramadan... on some days [demand] could rise to 29,000,” Aktham Abou-Elella, undersecretary of state at the Electricity Ministry, told Reuters.

“We can't operate at more than 86 percent of capacity - 27,000 is our ceiling. Anything above that, we for sure need to conserve energy.”

The government is hoping a public awareness campaign can help cut demand this summer.

“It could result in a reduction in consumption of 2,000 MW at least, especially setting air-conditioners at 25 degrees rather than 18 degrees and turning off unnecessary lights,” Abou-Elella said.

Mosques and government buildings will be urged to save electricity, he said, adding that the ministry had agreed with energy-intensive industries to smooth out peak loads.

Abou-Elella estimated that blackouts might last no more than an hour a day but hoped the government plans to manage demand would work.

“If all these attempts succeed, we should have an acceptable summer,” he said.