Facing Edgy Vote, Egypt Army Hikes Diesel Imports

Egypt's military rulers plan to spend close to $1 billion on diesel this summer, a spike in imports as they brace for a first free presidential election triggered by last year's uprising with a wary eye on renewed civil unrest.

Fuel shortages have already caused public anger this year and slowed the grain harvest. And with creditors pressing for Egypt's new leaders to risk a popular backlash by cutting back on longstanding fuel subsidies, the generals may also be anxious to ensure supplies for the army's own trucks and tanks.

Tender documents seen by Reuters show state-owned Egyptian General Petroleum Corp (EGPC) is seeking to buy more than one million tonnes of gasoil, or diesel, from July to September - almost as much as it sought in the preceding six months.

"It certainly seems to be an attempt to safeguard political stability. The army is probably looking at different contingency plans and questions over what will happen next," said Jane Kinninmont, a senior research fellow at London's Chatham House. "Shortages of basics like diesel and butane can trigger civil unrest - especially if people start to blame the new president for not doing enough to help them." One Egyptian official said he had no details on the tender. Other officials could not immediately be reached for comment.

The 36 cargoes being tendered for compare to just 24 cargoes bought via tender for the entire second half of last year. Since then, shortages have at times led to long lines for fuel which disrupted business and infuriated an Egyptian public whose anger at economic stagnation was a key driver of last year's revolt.

An injection of cash from ally Saudi Arabia has eased a funding crunch for Cairo that may help pay for energy imports, which also includes a tender for 360,000 tonnes of gasoline.

"It's a hell of a lot of cargoes," said a gasoil trader, attributing the size of the tender to a mix of politics and seasonal summer demand for electricity for air conditioning. A second gasoil trader also said the tender could be a sign the military was stockpiling fuel ahead of the election: "They need it so they can either keep tanks running," he suggested.

Most of Egypt's thousands of U.S.-built and older Soviet-made armoured vehicles, used by its half-million strong armed forces to contain civil unrest, run on diesel fuel.

The current grain harvest, essential to maintaining staple bread supplies for Egypt's 82 million people, was also hit by shortages of diesel for tractors and machinery, though official and trade sources said higher government prices being paid to farmers meant state grain purchases were now back to normal.

ARMY ROLE

The generals who eased aside fellow military man Hosni Mubarak after a popular revolt against his three-decade rule 15 months ago have pledged to oversee a fair presidential election this week and to hand power to the new president by July 1.

But few Egyptians believe the army will give up a key role in society and commerce - where senior officers control major business interests. Most expect it to go on trying to maintain order as any new leadership struggles with reviving the economy. Already under fiscal pressure, and with growth faltering, Egypt's government saw its need for fuel imports rise in April when fire shut down a refinery.

The total volume it is tendering for now is equivalent to 24 cargoes of gasoil for delivery to the ports of Alexandria and El Dekheila on the Mediterranean and a further 12 cargoes to Suez, on the Red Sea. The tenders, for delivery over three months from July to September, close at the end of this month. Trade sources said trading giant Glencore is currently among Egypt's biggest suppliers of gasoil, winning over half of the volumes sought in a tender earlier this year.

Comparing Egypt's total fuel imports over time is difficult, since it buys in the less public spot market on occasion if its main purchases under term contracts fail to cover its needs.

Saudi Arabia has transferred $1 billion to Egypt's central bank, part of a Saudi support package that also includes $500 million for development projects, $250 million to finance purchases of petroleum products and $200 million for businesses.

Further ahead, Egypt's new rulers, whose powers and political complexion have yet to be determined, face a looming fiscal crunch that could see them try to cut fuel subsidies, which account for a fifth of state spending.

Negotiating a $3.2-billion emergency loan to tide Cairo over a balance of payments crisis, the International Monetary Fund is expected to require a commitment to financial reforms that may test the patience of Egyptians, who have already seen job losses and other hardships as political turmoil has hurt the economy.