AMMAN - Jordan has been left like a headless chicken trying to find a solution to its severe shortage of natural gas after the Islamist-led government in Cairo opted to reduce the amounts pumped to Jordan.
The government uses Egyptian gas to provide electricity for domestic and industrial use. Egyptian gas accounts for 90 percent of energy sources needed to generate electricity in Jordan, according to officials from the National Electric Power Company.
Ever since Egyptian gas was cut due to sabotage and Cairo’s lack of commitment to the deal, the government was forced to use more costly fuels, raising the annual cost of fuel subsidies to a staggering $2.5 billion.
The National Electric Power Company says it was selling electricity to citizens at a price 60 per cent less than generation costs.
Meanwhile, the industrial sector is paying the price. The government earlier this year raised the price of electricity for industry, which pushed up production costs.
In the dusty industrial area in Sahab, east Amman, businessmen struggle to absorb rising fuel prices.
Abdul Rahman Talhouni, 55, owns a small chemical processing factory in the industrial compound. His is one of many businesses facing an uncertain future.
"We already suffer from cutthroat competition with products from China, the Gulf and other countries that dump products in Jordan at much lower prices. Now production costs are greater," Talhouni told The Media Line as he flipped through his audit books.
The middle class in Jordan, which contributes to the country’s stability, could be the hardest hit if electricity prices rise.
"Over the past five years the middle class has suffered greatly from rising prices and now it is losing its economic power and joining the lower class,” analyst and human rights activist May Qawtaneh told The Media Line. “The government should support this group and not allow it to descend into poverty."
Eager to cut fuel subsidies, the government said this week it was considering an austerity policy to trim the nation’s fuel consumption. Measures may include blackouts, driving restrictions and raising electricity prices.
Talhouni fears a new spike in fuel prices will drive him out of business, but his concern is greater about the social impact of such a decision.
"The nation is already suffering from rising poverty and a lack of economic opportunities. [To raise prices] would be a recipe for disaster. Unemployment will increase and the cost of living will also jump," he added.
Government spokesman Sameeh Mayta told The Media Line that the government is considering a number of measures to ease the burden on the state budget. He criticized Egypt's approach to its gas agreement with the kingdom, saying Egypt should honor the deal, which has been amended in the post-revolution era.
“We have the right to question Egypt’s behavior … with regards to non-abidance of the gas supplies agreement that has been amended in the post-revolution phase,” Minister of State for Media Affairs and Communications Samih Maaytah said.
Official figures show that the kingdom has to pay nearly seven million dollars million daily due to Egypt’s refusal to honor the deal.
Egypt should, according to the deal, pump 250 million cubic feet of natural gas daily, but less than 40 million is being received by Jordan.
Egyptian diplomats in Amman said Cairo was committed to the deal, stressing that an increase in power demand at home was behind the decreased gas supplies.
"There is a technical issue that will be resolved soon. We have no issue with Jordan," said a diplomat who did not wish to be named.
Two alternative sources of gas are being considered, including buying from Iraq and Qatar.
Finance Minister Suleiman Hafez said Jordan will be ready to start importing liquefied gas via the Red Sea Aqaba port by 2014, when the proper infrastructure is in place. By then, the government’s eyes will be on Qatari gas as it provides a more reliable source, said Hafez.
Jordan has also agreed to allow Iraq to extend a pipeline through its territory to export fuel via the port city of Aqaba, in return for a gas deal and preferential treatment in fuel sales. Jordan would also increase its share of Iraqi oil from 10,000 barrels a day to 15,000.
But the deal with Iraq and Qatar needs more than a year and a half to reach fruition, according government officials.
Until then, Jordan will be looking to borrow to fund subsidies, putting at risk the value of the dinar and the country's entire economic well-being, say economists.
For the time being, the government will be pushing citizens to tighten their belts through the use of less energy; including limiting number of vehicles on the roads by adopting an “alternate driving days” system under which cars’ movement would be restricted based on license plates ending in even or odd numbers. Also, cities would undergo blackouts at pre-set hours.
The government is expected to take some painful decisions in the coming days, but economists doubt how efficient the decision would be in the face of the rising fuel bill, decreased sources of income and political turmoil inspired by poverty and corruption.
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