Egypt electricity on the blink again

This summer, Egypt's energy crisis manifested itself in one of the clearest signs of how inefficient subsidies have paralysed the nation's economy an how urgent solutions are needed.

Egypt is trying to shift away from oil and gas to other sources of energy. Above, the Zafarana wind farm near Cairo. Victoria Hazou for The National
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CAIRO // This summer, Egypt's energy crisis manifested itself in one of the clearest signs of how inefficient subsidies have paralysed the nation's economy.

A severe electricity blackout hitting many parts of Cairo shut down the Egyptian stock exchange and delayed trading for two hours. When the market finally opened, stocks fell in value by about US$164 million (Dh602.3m) in the early hours before regaining lost ground later. The exchange quickly moved to assure the market it would not happen again.

"It was frustrating for us but it's the first and last time it will happen,"says Jakalene Makar, a trader at CI Capital in Cairo.

Government officials have blamed the daily cuts on authorities shutting down power to ease the load on the grid. Networks have failed under increased demand for electricity due to the scorching heat that coincided with Ramadan.

Mahmoud Balbaa, the electricity minister sworn in as part of president Mohammed Morsi's new cabinet, said last week thieves had also been stealing high voltage cables, exacerbating the shortage.

Egypt runs one of the most inefficient subsidy systems in the world, where two thirds of the total subsidy bill of 150 billion Egyptian pounds (Dh90.69bn) goes on fuel. Much of that is used to keep natural gas below market prices. About 90 per cent of the country's electricity generating capacity is from natural gas. It is no surprise gas shortages affect the electricity supply in the hottest months of the year during peak demand.

"The government is not resolving this issue in an intelligent way," says Magdi Nasrallah, a consultant to energy companies in Egypt and the founding chairman of the department of petroleum and energy at the American University in Cairo. "The easy way out is to simply control utilisation and whenever there is a problem they simply shut down the plant. They have to be more creative."

Mr Nasrallah says an easier quick fix, one that does not impact long-term solutions, would be to reduce gas exports as much as possible and use it domestically, work on developing natural gas resources and new discoveries and push ahead with nuclear power plans.

"It will get worse as time goes by but it is inevitable that renewables will increase in the next few years," he says.

With the doubling of electricity use in the past 10 years and demand showing no signs of wavering, plans are under way to tap wind, solar and nuclear power sources to lift electricity generation by at least 4,000 megawatts.

The government is hashing out short-term solutions such as trialling a new power plant that could generate up to 2,000MW of electricity daily. An electricity swap with Saudi Arabia has also been announced. Under the agreement, each country will borrow from the other during hours of peak demand, exchanging up to 3,000MW daily. There is even talk of enforcing a curfew where shops would shut by 9pm and restaurants by 11pm, to conserve energy.

Despite these hurried solutions, industry players say the blackouts are a warning to Egypt's authorities to either find alternative energy sources or push through much-needed loans to fund its wasteful subsidy system.

"Sooner or later the resources will run out so it is a must that Egypt diversifies its energy resources," says Ali Islam Metwally, the former chairman of the Egyptian Atomic Energy Authority.