Egypt’s biggest refinery about to get bigger
Map of Mostorod

Situated in the heart of the densely populated Mostorod district in Qalyubiya, Egypt’s largest refinery has been the source of passionate criticism since plans for its expansion were announced in 2008. Designed to reduce the country’s dependency on diesel imports and other lighter fuel products, the US$3.7 billion project would massively expand the Cairo Oil Refinery Company (CORC), a 1969 complex located 40 km north of Cairo.

This expansion — currently the largest investment on the African continent — has stirred enthusiasm on the part of the government and industrials, but many locals and NGOs have grave concerns about the project’s financiers and its environmental impact.

The Egyptian Refining Company (ERC) will expand from within the boundaries of the CORC’s industrial complex, which is bounded on one side by the Ismailia Canal and by patches of resilient agricultural lands on the other, squeezed between the industrial complex and a dense urban sprawl.

ERC’s plan is to buy 67 percent of CORC’s fuel oil, use it as a feedstock, refine it and produce over 4.1 billion tons of lighter petroleum products — mostly diesel (an estimated 2.3 billion tons), but also gasoline, jet fuel and Liquefied Petroleum Gas (LPG).

“Egypt’s demand for diesel is higher than what the country can refine,” explains Thomas Thomason, the CEO of ERC. “So when we’re operational in 2016, we will provide 50 percent of the diesel Egypt is currently importing. It’s a fantastic project for Egypt.”

The bulk of ERC’s refined products would then be sold to the Egyptian General Petroleum Company (EGPC) at international prices to satisfy the growing domestic demand.

Construction on the project has not yet begun. Thomason explains that teams of experts are currently examining the soil to identify contaminants, tearing down leaking tanks and relocating the offices and warehouses to another piece of land.

“CORC, like most of Egypt’s refineries, is like an old taxi. If a tank does not leak, it means it’s empty,” Thomason explains.

The larger operation of soil and water remediation will take place in the course of the construction, according to Thomason.

Local resentment

Although the expansion is still in a preliminary phase, Mahinour al-Badrawi, from the Egyptian Center of Economics and Social Rights (ECESR), explains that the local community is bitterly resentful towards the project.

“In 2010, the residents of Arab al-Hessn, a neighborhood located nearby the complex, were forcefully evicted from their homes by the police,” she says. “People believed their eviction was linked to the extension of the refinery, and there was no transparency in the process.”

When asked if there was indeed a link between the project and the police intervention, ERC Community Development Manager Sayed al-Shennawy answered, “Big no! The project footprint is inside the complex, in the existing petroleum complex. We haven’t taken any land from anybody.”

Shennawy believes that the governorate itself issued a decree back in 2007 to evict the residents, which only took effect in 2010. But the reason why the governor decided to evict some families in Arab al-Hessn and relocate them in alternative housing a few hundred meters away is not clear, he says.

Badrawi explains that when ECESR conducted a field visit in Mostorod in March this year, they encountered sharp hostility from people living across from the refinery, and even outside the community.

“They kept asking ‘What do the petrol people want from us?’” she says.

Other locations like Sadat City and Badr New City had been considered for the new refinery, but eventually Mostorod was chosen because, of the nine refineries active in Egypt, it is the only location close to Cairo that is a petroleum hub, Thomason explains.

“Cairo and Upper Egypt areas represent 65 percent and 44 percent of the total consumption of fuel oil and diesel respectively, and the complex already exists,” he adds.

ECESR and other NGOs created a group called Mostorod Monitor to tackle the social and environmental impact of the refinery’s expansion. The group comprises the Egyptian Association for Collective Rights, Bankwatch, the Egyptian Center for Civil and Legislative Reform, EIPR, ECESR and Hahya bil ism faqat. Involved in housing issues, the latter started working with the Arab al-Hessn community in 2010, when the evictions took place.

For Badrawi, aside from the project’s financiers and main shareholders, the most worrying issues are air and water pollution. Farmers told her in March that the crops on the agriculture plots located right on the fence died prematurely and produced bad yields, unlike crops grown on lands further away.

Thomason retorted that these claims could not possibly have any link to ERC’s operations, since they hadn’t started yet.

Air pollution rates, which are already exceeding both national and international standards, are bound to worsen once the refinery is in operation, Badrawi points out.

But according to the Environmental and Social Impact Assessment (ESIA) study commissioned by the ERC, the new refinery will produce EU V grade diesel and IAA worldwide specification jet fuel for use on the domestic market, which will trap 99.9 percent of sulfur.

“Compared to the fuels currently used, 93,000 less tons of sulphur will be released into the atmosphere by vehicles,” Thomason claims.  He also stresses that CORC, which is currently powered by coal, will switch to natural gas, and that ERC has pledged to be 100 percent gas powered. Also, double seals will be installed on CORC’s floating roof tanks to reduce fugitive hydrocarbon and greenhouse emissions.

“We’ll be improving the environment in Mostorod area, as opposed to the cumulative impact being worse,” Thomason asserts.

For its water needs, CORC taps into the Ismailia canal or indirectly into the Nile. ERC will reuse CORC’s water, and then clean it up through a three-stage treatment process, before discharging it in the sewer. They had originally planned to discharge the wastewater back into the canal, but decided against it, since “throwing it back into the canal would create tension with the neighboring communities,” Thomason claims.

Grey finances

On the financing side, the ERC import substitution project is a public-private partnership (PPP), with the private sector investing alongside the government. Financing for the project includes US$2.6 billion in debt and another US$1.1 billion in equity. 

“The reason why we set up a PPP to finance the upgrade of CORC is because Egypt does not have US$3 billion to invest in such a project,” says Thomason, stressing that EGPC is a 23.8 percent shareholder in the company.

Badrawi explains that “two of the main shareholders are Citadel Capital and EFG Hermes — two private equity funds located in tax havens.”

The project financiers and partners include, among others, the European Investment Bank and the Chinese, Japanese and African Banks for Development. The European Bank for Reconstruction and Development (EBRD), which was contemplating a US$40 million involvement in the project, seems to be reconsidering.

Nibal Zgheib, the communication advisor at the EBRD, explained to Mada Masr in an email that “for the time being, the EBRD is monitoring fast moving developments in Egypt.”

The European Investment Bank, for its part, is officially supporting the project and approved a Euro 346 million loan in 2010, of which 233 million has been disbursed.

According to Anne Sophie Simpere from Bankwatch — an international NGO that monitors the activities of international financial institutions — the EIB is doubly involved as a shareholder of Inframed, another investor in the ERC project. 

Simpere explains that Bankwatch contacted the EIB to ask if the loan was going to be reconsidered after the revolution.

“But nothing has changed. There haven’t been any questions on the political implications of the revolution, or on the quality of population consultations under Mubarak,” she says.

Both ECESR and Bankwatch find the European banks’ backing of the project troubling .The NGOs warn that the financiers’ involvement is based on a five-year-old ERC-commissioned environment and social assessment, which, according to them, “does not comply with the minimum standards of international financial institutions.”

For his part, Thomason believes that although the politics in Egypt have changed, the situation in Mostorod has not changed, at least materially. He explains that several thousand interviews were done by social scientists to get the baseline developed back in 2008, and that, since then, “the needs of the community haven’t changed.”

Louise Sarant