Economy in a week: The scramble for other energy options
 
 
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Egypt’s energy debacle continues this week with conflicting statements from the Petroleum and Electricity Ministries. Meanwhile, although GDP growth has been disappointing, it appears foreign direct investment (FDI) from the United Arab Emirates (UAE) could spur growth over the coming year.

Energy: Conflicting talk, little action

Egypt’s energy shortage has driven the government to find alternatives to scarce natural gas resources in a scramble to fire up power generators, allowing the city that never sleeps to stay wide awake.

After realizing that seizing international oil companies’ share of gas exports would only lead to overwhelmingly negative media attention, the government’s most recent of attempt to address the problem has involved approaching several international oil companies for natural gas imports.

The only company mentioned by Petroleum Minister Sherif Ismail was Algeria’s Sonatrach. Ismail told the privately owned Al-Borsa newspaper that his ministry was negotiating for imports of around 400 million cubic meters of liquefied natural gas (LNG) daily over the coming summer.

Saudi Arabia also offered a helping hand after it pledged support for Egypt’s energy needs earlier this month through the end of summer, when electricity consumption peaks.

In the same vein, the Ministry of Electricity set forth an emergency plan which has been put on hold pending the Ministry of Petroleum’s ability to provide the former with 200 million cubic meters of gas daily, according to Mohamed Habib, vice president of the Electricity Holding Company.

The Ministry of Electricity’s emergency plan was scheduled to be implemented this summer. However, the Petroleum Ministry temporarily froze the plan due to lack of funds, which would necessitate US$900 million, Habib told the privately owned Al-Mal newspaper.

In the media, conflicting statements have been passed back and forth as to whether the Petroleum Ministry would be able to come up with the upfront payment to proceed with the emergency power plan, or would put it off altogether. Al-Mal quoted sources as saying that gas imports would not be delivered before August, in effect hampering the plan.

The government has been forthright in exposing the power problem, and there is a growing conflict between public sector entities over a web of financial arrears. But the real issue that is rarely discussed is that Egypt currently has no facilities to import LNG.

Though a tender for a floating and regasification unit was awarded to Hoegh LNG, reports surfaced that the Norwegian firm rejected the tender due to disagreements over the commercial terms of the project offered by the Egyptian Natural Gas Holding Company (EGAS). However, Ismail denied the report at a press conference on Monday, stating that the tender is in its final stages.*

LNG terminals can take up to six months to be constructed after a contract is awarded.

Electricity rationing starts in May

The Ministry of Electricity will begin a series of power rationing campaigns in May to reduce consumption by 20 percent, according to a ministry statement released last Monday.

The spokesperson said the ministry would be targeting various segments of the population, based on income level and demographics, through different media outlets.

Ongoing negotiations between the Ministries of Petroleum, Electricity and Environment have been assessing the best approach to reduce consumption, but no timeline was set for the 20 percent target.

Price increases may be used as a strategy to limit electricity consumption. However, Minister of Electricity Mohamed Shaker said that such a decision must be first approved by an elected parliament, while taking into consideration the lower income segments.

GDP at 1.2 percent in first half of 2014

Fifty percent of the government’s stimulus package was spent between July and January, said Planning Minister Ashraf al-Araby at a conference on Saturday.

The government introduced the first LE30 billion package in late 2013, with the majority of the investment going into infrastructure projects, industrial areas and restructuring of state-owned companies.

The government introduced a second package in January totaling LE34 billion, two-thirds of which would be dedicated to public investments, with the rest covering the newly introduced public sector minimum wage.

Araby said the majority of the second package is financed by the UAE, which contributed almost LE21 billion in investments, housing and transportation projects.

During the conference, Araby revised the optimistic targets the government had previously set for GDP growth from 3-3.5 percent down to 2 percent by the end of the year, after noting the economic slowdown in the first half of fiscal year 2014, when GDP amounted to a low 1.2 percent.

MAF disperses first tranche of US$500 million investment

The Dubai-based Majid Al-Futtiam Group, which invests in sectors ranging from retail and real estate to fast food chains, said it would disperse the first tranche of an LE3 billion loan, with an initial payment of LE170 million.

The loan is intended to fund part of the Mall of Egypt in 6th of October City, which has been promoted as the largest shopping mall in North Africa, with a total investment cost of LE4.9 billion. The National Bank of Egypt and Banque Misr will be arranging the contributions of an additional consortium of seven banks to cover the remaining financing.

The MAF loan comes as part of a larger investment of LE16.5 billion in Egypt to be spread over five years.

MAF’s CEO Iyad Malas paid a visit to Prime Minister Ibrahim Mehleb to discuss the company’s plans for investment while negotiating requirements needed from various Egyptian authorities to facilitate the consortium’s development plans.

At a time when Egypt is in dire need of foreign direct investments, Mehleb endorsed the project while taking immediate action to facilitate the process as far as permits and approvals.

Egypt’s FDI peaked in 2008 at LE13.2 billion. After the 2011 uprising, foreign investments dropped to LE3 billion by 2013.

Over its timeline, the project expects to create over 125,000 direct and indirect jobs, according to Malas.

Foreign reserves on the rise

While foreign reserves are at less than half of 2010 levels, the Central Bank of Egypt’s (CBE) Governor Hesham Ramez said last Wednesday that they continue to grow. By the end of February, Ramez said reserves were up slightly, reaching US$17.3 billion from US$17.1 billion in January.

Down from US$36 billion in 2010, net international reserves hit a critical low of US$13.5 billion last year. However, support from Gulf States, both in deposits and in kind, have helped reverse the downward trend.

A drop in foreign currency earners hit reserves hard, mainly due to a drop in tourism numbers. Another negative factor was the CBE’s efforts to prop the falling pound versus the US dollar.

Ramez said he expected reserves to keep increasing, though he did not state any reason for his optimism as he addressed reporters at a conference.

 

* This article was updated to reflect the Petroleum Minister’s denial that Hoegh LNG tender was canceled.

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Sherif Zaazaa