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Libya plans smart cards to cut fuel subsidies

  • File - Libyan army soldiers stand guard in a petrol station in the capital Tripoli on December 14, 2013. (AFP PHOTO/MAHMUD TURKIA)

TRIPOLI: Libya plans to limit the costly subsidies its citizens enjoy when buying fuel – much of which is smuggled into Tunisia for resale at higher prices – by introducing a “smart card” system like one newly implemented in neighboring Egypt.

The North African country’s economy is burdened by subsidies for items from gasoline to bread and airline tickets, which along with public salaries, eat up more than half of the budget.

The weak interim government has been reluctant to cut the subsidies, introduced by former leader Moammar Gadhafi to discourage opposition, as it is still struggling to impose authority in a country awash with weapons.

However, with a nine-month shutdown of major oil fields and ports due to political unrest and local disputes drying up crude oil export revenues, the government is proposing a fuel card system to parliament, Cabinet spokesman Ahmad Lamin said Thursday.

When the system is in place citizens will be able to buy a limited amount of subsidized fuel, and will have to pay a normal, market price for any extra quantities.

The impetus for the decision came from a surprise rise in fuel use. Gasoline and diesel consumption rose by 15 percent between 2012 and 2013, more than the usual 3-7 percent rise.

“The extra rise is due to an increase of smuggling, mainly to Tunisia ... The rise in the number of cars does not justify this 15 percent increase,” Lamin said.

Fuel smuggling is common across North Africa and its extent has increased in the chaotic aftermath of the Arab Spring.

Egypt and Algeria have also been losing more subsidized fuel to smugglers. Egypt has been aggressively cutting off smuggling routes, particularly through tunnels to the Palestinian enclave of Gaza.

In Libya, what had been a small-scale trade, involving a few cars loaded with gasoline has grown into a smuggling industry run by “gangs” trucking large quantities across its porous borders, Lamin said.

Libya normally meets most of its domestic needs with its 380,000 barrels per day refining capacity. But in the last nine months, the closure of its largest plant and on-off opening of its second biggest, at Zawiya, as a result of unrest, has forced the country to step up fuel imports, particularly from Italy.

Tripoli expects to save 800 million Libyan dinars ($650 million) annually in subsidy costs by cutting out smuggling, growing to around 1.3 billion dinars, after putting caps on subsidized consumption.

“It’s a very big burden on the budget and this is only one of the subsidized commodities. Food like flour, [cooking] oil are very very cheap here compared to other countries, so people are professional smugglers,” Lamin said.

Gulf oil producers run vast subsidy schemes to ease social tensions. Libya’s neighbor Tunisia, which does not have large oil reserves, attracts a lot of smuggled oil.

Lamin said the government planned an initial phase for the cards within two to three months.

This may be ambitious as political infighting and continued chaos is paralyzing legislation and decision-making in Libya.

In the first stage, citizens will be issued cards with their personal data, which will be swiped at gas stations to gather consumption data. Since smuggling starts even before gasoline reaches the pump, tankers supplying gas stations will also be tracked.

“And also the stations are registered ... so you know it’s a real one, not an imaginary one,” Lamin said.

“This is a way to pull the carpet from under their feet and make smuggling ineffective.”

Once sufficient data is collected, the cards will become mandatory and finally the volume of gasoline will be restricted.

“For example, 40-50 liters per week or maybe 200 per month will be subsidized and anything you need extra, you’ll have to pay the normal price, the higher price,” he said, adding that Tripoli wants to ensure only citizens benefit from the scheme and the 200,000 foreigners living in Libya will have to pay a higher price.

 
A version of this article appeared in the print edition of The Daily Star on April 19, 2014, on page 4.
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Summary

Libya plans to limit the costly subsidies its citizens enjoy when buying fuel – much of which is smuggled into Tunisia for resale at higher prices – by introducing a "smart card" system like one newly implemented in neighboring Egypt.

Gasoline and diesel consumption rose by 15 percent between 2012 and 2013, more than the usual 3-7 percent rise.

In Libya, what had been a small-scale trade, involving a few cars loaded with gasoline has grown into a smuggling industry run by "gangs" trucking large quantities across its porous borders, Lamin said.

Tripoli expects to save 800 million Libyan dinars ($650 million) annually in subsidy costs by cutting out smuggling, growing to around 1.3 billion dinars, after putting caps on subsidized consumption.

Libya's neighbor Tunisia, which does not have large oil reserves, attracts a lot of smuggled oil.


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