By Mohammed Adel and Sara Aggour
The petroleum sector is among the most profitable for the state in terms of foreign investments, and is considered to constitute vital support for all government institutions. However, it is also bearing the largest subsidy bill, which is meant to be covered by revenues from the sector itself.
In light of events that threaten political and relative stability and economic growth, The Daily News Egypt conducted an interview with the biggest economic institution in the country, represented by Executive Chairman of the Egyptian General Petroleum Corporation (EGPC) Tarek El Molla.
How many companies have made offers so far in the bidding process, which was launched in January by the EGPC for oil and gas exploration?
Approximately ten international companies have bid so far, the most prominent of which are US’s Apache, Germany’s RWE, and Italy’s ENI. There are no new companies, as all of them currently work in Egypt.
The process will be completed and the bid awarded within six months of closing the door to offers at the beginning of next July.
The bidding encompassed 15 areas and is the EGPC’s second tender since 2011. The process aims to attract international companies to work in Egypt. It includes five areas in the eastern desert, of which four in the Gulf of Suez, and ten in the western desert, which represents one of the largest oil production sites in Egypt.
What is the total amount of loans obtained by EGPC and currently being repaid?
The total amount of loans paid by EGPC is approximately EGP 42bn, and $250m is paid each month as instalments to the banks we interact with.
Several measures are being taken to solve the problem of bank credit ceilings. Most facilities that have been concluded with banks are circular, meaning that once payment is made, the banks may re-use the paid amounts again without increasing the credit ceilings.
Loan payments to JP Morgan and Morgan Stanley will be completed at the end of this year, and we were granted a grace period that extends through 20 March. This will give us greater flexibility to benefit from crude oil production and ease the financial burden on EGPC.
What are the additional amounts of fuel oil and diesel that will be imported over the summer?
Additional quantities of fuel oil and diesel fuel valuing $260m per month will be imported throughout the summer months to provide for power plants’ needs. Approximately 300,000 tons of fuel will be imported, which amounts to $200m, as well as 70,000 tons of diesel worth $60m, on top of the normal import rate.
What is the monthly increase in debt to foreign partners?
Debts due to foreign partners are growing at a rate of $300m per month, and the value of the share of the foreign partner from which the EGPC received gas and crude oil is worth approximately $700m per month. Only crude oil produced in Ras Gharib is currently being exported because it is heavy and cannot be refined in Egyptian refineries.
EGPC is committed to reimburse its foreign partners in accordance with the schedule that was recently agreed upon. EGPC has begun paying, but the only solution that addresses the root of the problem is to increase our production of oil and natural gas.
If EGPC’s dues from government bodies are liquidated against debts to foreign partners, suppliers, and loans, how much would the resulting amount be?
The difference would reach EGP 30bn at the end of this year in favour of the EGPC if a settlement was reached on the debt represented by loans, foreign companies, and suppliers from our debts to government bodies. The continuously increasing debts to government agents are a main factor behind the inability to commit to paying dues to foreign companies and suppliers.
What has happened regarding a plan to renew and replace refineries?
A new report is currently being prepared and focuses on plans to renew and replace Egyptian refineries, and it will be reviewed this week and then sent to the minister of petroleum so that he can present it to the executive chairman.
EGPC, through its plan for the current and coming fiscal years, strives to renew refineries and establish a naphtha catalyst repair unit in order to produce high-octane gasoline, as well as adding a new complex for oil production.
The plan for renewal included the establishment of new units to treat butane, naphtha, and nitrogen as well as supplying rhenium to the platinum catalytic repair unit, and EGPC has prepared a list of labs in need of development and updating.
The private sector will be permitted to participate in implementing some of these projects, as the petroleum sector will cover the rest through self-financing and contributions from Egyptian banks.
Egypt owns nine refineries, some of which were established more than 50 years ago and whose total refined energy totals approximately 35m tons annually. The refineries are currently working at 80% of design capacity.
Have there been any increases in fuel consumption rates?
Yes, gasoline consumption rates have unexpectedly risen recently to 19,000 tons per day as opposed to only 17,000 tons per day.
I believe this is due to the spread of electric generators which operate on gasoline in the local markets. This is not a good indicator, because it reduces the amount of naphtha that is exported outside of Egypt. Naphta is added to high-octane gasoline to produce 92- and 80-octane gasoline to provide for the market’s extra needs.
What is the total amount of investments that you hope to be pumped into the market through foreign partners throughout the coming fiscal year?
The total amount of investments targeted to be pumped into the petroleum sector by foreign companies is approximately $8.3bn for the coming fiscal year in accordance with the plan that has been agreed upon. This is considered to be a good amount in light of the unstable circumstances the country is experiencing.
The total value of investments made in the current fiscal year by foreign partners reached $7.5bn.
How much debt is due from government agencies?
Government agencies debts to EGPC amount to about EGP 157bn, a value comprised of petroleum products and subsidy differences.
Ministry of Finance’s debts to EGPC amount to approximately EGP 90bn, including about EGP 32bn in price differences for fuel utilised by power plants.
The Ministry of Electricity pays for gas used to generate electricity at a rate of $2.5 per cubic metre compared to $0.18 several years ago, as the Ministry of Petroleum receives price differences from the Ministry of Finance directly.
The rise in the finance ministry’s debts can be attributed to the absence of full payment of financial subsidies for the value of petroleum products. This pushed EGPC to make payments from within its own resources, leading to an accumulation of debt.
Approximately EGP 50bn has been settled for the value of petroleum product subsidies. The settlement was achieved through EGPC’s revenues which make their way to the state treasury, taxes, and customs, making the finance ministry in debt to the petroleum ministry at the end of each year.
A settlement for the second half of the fiscal year regarding subsidy values had not yet been made.
EgyptAir’s debts to EGPC total about EGP 4.3bn as a result of failing to pay the value of fuel received in full. EGPC also stopped paying the monthly instalment agreed upon in the original schedule, worth EGP 25m.
EGPC has estimated its dues from the ministries of Electricity and Transportation, the railway, contractors, and industrial consumers to be approximately EGP 62.7bn.
The Ministry of Electricity receives a quantity of fuel worth EGP 2m per month, but does not pay its dues on a regular basis. Fuel oil supplies for power plants have been increased in order to cope with the power crisis. These quantities for fuel oil amount to 26,000 tons per day, while diesel has reached 850 tons daily in addition to 80m square metres of gas.
What is EGPC’s plan for producing crude oil throughout the coming fiscal year?
In its plan for the next fiscal year, EGPC is targeting 690,000 barrels per day of crude oil production compared to the current 680,000 barrels per day. This is considered a relative increase in light of instability in paying dues to foreign partners.
All petroleum leaders are engaged in continuous meetings and negotiations with foreign partners to increase oil and gas production rates in their areas of privilege.
How do you view rationing petroleum product subsidies alongside a relative raise in fuel prices?
Fuel prices have moved a bit. Diesel fuel will have a positive impact by lowering consumption rates and increasing EGPC profits. Everything will get a bit better.
The value of petroleum product subsidies represents a large proportion of the woes of Egypt’s economy. These subsidies are calculated based on the difference between petroleum product prices in the domestic market and the actual value of the cost of providing the products whether they are produced locally or imported from abroad.
However, Egypt actually consumes petroleum products worth EGP 350bn at world market prices, which includes all kinds of products, among them gasoline, diesel, fuel oil, and butane gas.
The value of imported petroleum products per year amounts to EGP 192bn, while what is actually obtained only reaches EGP 41bn, leading to the difference between costs and revenues of EGP 151bn annually.
How do you view the investment market within the petroleum sector in light of the current situation?
Egypt is a large and promising market with great potential deriving from her reserves of crude oil, gas, and human resources. I must emphasise no foreign companies have the intention to enter into the market in light of our having accumulated EGP 5.9bn in debt.
All leaders that interact with foreign companies are close to reaching solid agreements and establishing plans to increase production rates.
What is the current situation with smart cards as they relate to petroleum product sales? What do you have to say about the government’s inability to determine a final deadline to make them available to customers?
A final deadline for approving smart cards has not yet been made, but the cards have been implemented within the process of distributing petroleum products to power stations. This represented a positive impact on observing the transport petroleum products on their trip from the warehouse to the stations.
The smart card system helped distribute accurate statistical reports for following market movement and providing information, which allows us to continue working on the process in the coming months in order to ration the continuously rising value of subsidies.
Approximately 11,000 machines were distributed across gas stations for smart card use, and the cost of each machine is EGP 3,000.
EGPC has automated 15 petroleum product companies operating in Egypt as well as 102 fuel depots, linked 2646 gas stations within Egypt to the smart card system, and automated 748 direct clients at 1666 discharge points, in addition to 662 transport agents who own 6968 trucks, tractors, and trailers for transporting petroleum products.
Smart card usage at power stations has taken place without specifying any quantities for citizens or altering the prices in force. The main goal of implementing this electronic system is to tighten control and discipline the system of transporting, handling, and distributing petroleum products in order to eliminate smuggling and ensure subsidised fuel reaches those who truly deserve it.
Major clients of fuel consumers utilise smart cards to pay for fuel, and the movement of fuel oil products has been added to the system. Those using and benefiting from the system should coordinate in order to ensure that the plan is activated.