Connecting residential households to natural gas: an economic and financial analysis

Egypt is a country rich in natural gas. But because of the high subsidies on LPG and the relatively high connection charges for natural gas, most urban and semiurban households continue to use liquefied petroleum gas (LPG) for cooking and for heating water. That's a big problem for the government, which provides substantial subsidies for LPG. This paper shows that converting households, including low income ones, to natural gas can be economically viable: the savings from avoiding subsidies on LPG can finance most of the costs of switching the residential load from LPG to natural gas. The remaining share can be borne by households through their savings from switching. The system for connecting users to the gas network involves an output-based aid approach. The costs of connections are recovered through contributions by users and through a subsidy provided by the government and channeled through the gas distribution companies. The gas distributors prefinance the costs of connections through debt or equity. Once connections are verified, the distributors are allowed to recover these costs through rates over a four-year period.