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Ammon News - (Financial Times) - Jordan will begin to make long-delayed, politically sensitive electricity price rises after the fasting month of Ramadan which ends in early August, as it confronts a large fiscal deficit and new disruptions to its supply of Egyptian natural gas.

Malek Kabariti, Jordan’s minister of energy, said at the weekend that electricity tariffs would rise by up to 15 per cent. The increase will take affect later for households, which will begin to pay higher electricity prices from the beginning of 2014.

The timing of the price rises is being watched closely within the pro-western monarchy and by its foreign allies because of fears for its stability as the Middle East copes with war in Syria and escalating conflict in Egypt.

When Jordan removed the subsidy on fuel and raised prices last November, rioting broke out in Amman and other cities. Some of the demonstrators chanted slogans calling for the overthrow of King Abdullah.

The International Monetary Fund has been pressing Jordan’s government to remove power subsidies to stanch mounting operating losses at the National Electric Power Co, or Nepco, which faces rising fuel prices and chronic problems because of the interruption of gas flow after the repeated attacks on the gas pipeline in Sinai, Egypt.

Rising fuel prices and problems with Egyptian gas have led to a chain of debt as Nepco’s arrears to generation and transmission companies mounted, and these companies in turn ran up arrears with Jordan’s petroleum refinery, which borrowed to fund the shortfall.

Economic growth in Jordan has halved from more than 6 per cent to about 3 per cent over the past three years because of the global economic slowdown and political tumult in its region. The country also hosts more than half a million Syrian refugees.

Last month Moody’s Investors Service downgraded Jordan’s government bond rating to B1 from Ba2, citing the country’s “deteriorating fiscal metrics,” including a budget deficit that peaked at 8.2 per cent last year. The move deeper into “junk” status followed a one-notch downgrade by Standard & Poor’s, which in May cut Jordan’s rating a notch to BB-minus from BB.

According to the IMF, Nepco’s losses, combined with higher government sending in the past two years, have driven up the country’s debt-to-GDP ratio by about a fifth to 80 per cent at end-2012.

Jordan’s government and the IMF are aiming to soften the blow of the price rises by shielding the poorest Jordanians from them. Households that consume 600 KW/hour per month or have bills worth less than 50 Jordanian dinars will be exempted from the price rises for five years.

Last November’s removal of the fuel subsidy, which caused rioting, was accompanied by cash transfers for poorer families.

One economist said the planned electricity price increase would be likely to cause broader inflation. “Fuel goes into the price of everything, so everything will rise,” says Yusuf Mansour, chief executive of Enconsult, an Amman-based economic consultancy.

However, analysts said that they thought that government’s cautious approach meant that any unrest would be contained.

“The government is not planning to lift all the subsidies at once [so] I think the impact of it can be contained,” says Oraib al-Rantawi, director of the Al-Quds Centre for Political Studies in Amman. “We will see some demonstrations here and there in cities, especially in Amman and the south, but it will be limited and containable.”

Jordan is building a liquefied natural gas terminal at the Red Sea port of Aqaba. It has also held tentative talks on importing gas from Israel’s newly exploited offshore fields.