Factories in the dark

Egypt’s peak energy consumption season is still months away, but fuel shortages and power cuts have already become an everyday occurrence, leaving both homes and businesses in the dark.

Manufacturers have been hit hard, losing productivity and revenue as energy shortages leave many factories standing idle for hours on a daily basis, prompting fears about what will happen in the summer, when demand for energy is traditionally at its highest.

“Already the ministers of Electricity and Petroleum informed some companies that due to the shortage of power and fuel, they have to suspend work,” says Mohamed Hanafy, general manager of the Chamber of Metallurgical Industries.

Companies in his sector are being asked to shut down for anywhere from two to six hours every day. Earlier in March, the Ministry of Electricity said it would begin a series of power rationing campaigns in May to reduce consumption by 20 percent.

Steel and aluminum mills, which depend on the electrical grid, have no recourse when they receive such requests, Hanafy adds. Operators generally get around two hours warning, after which a shut-down is automatic, leaving them with no choice but to comply or risk damaging their machinery and endangering workers.

“For the melting process, it’s very dangerous to cease operation at any time,” he says.

Hanafy estimates that each hour a steel plant is shut down it costs LE800,000 in lost productivity; for the country’s aluminum smelter, that figure can reach LE3 million per hour.

“This figure is to be added to what it will cost them in repairs,” he says.  On top of that cost is a loss of efficiency. Stopping production may ease pressure on the grid at critical times, but restarting requires an extra surge of energy.

“Cutting power to many of the factories for several consecutive hours has led to suffering for the factories,” says Mahmoud Fouad, executive manager of the Chamber of Wood Working and Furniture Industry. He estimates that power disruptions in the furniture industry have increased the cost of production by almost 30 percent.

Even manufacturers that operate outside of the electrical grid report problems due to difficulty sourcing primary fuels like diesel and natural gas. The most high-profile of these industries is cement, which in January had its gas allocation cut by 50 percent, leading to a slump in production and a 30-percent spike in prices.

In turn, the government has been talking about resorting to coal imports to power cement factories, but the move has faced resistance from the Environment Ministry.

Other sectors are affected as well. Located in 10th of Ramadan City, ceramic maker Ideal Standard runs most of its operations with diesel and natural gas, explains group safety and environmental health manager Ahmed Azzam. Diesel fuel has often been hard to find, forcing the company to resort to the black market.

“Sometimes there are no problems, sometimes it’s difficult,” he says, reflecting a level of inconsistency and unpredictability that now concerns factory owners.

On two or three occasions, Azzam says, the natural gas that powers the plant’s kilns has also been shut off. When this happens, it takes up to three days to get them back up and running.

These natural gas cuts have been attributed to problems in the pumping station, including a bomb threat, rather than shortages, Azzam says. But he has also received requests that indicate that their local electricity provider is precariously short on cash. Normally, it can take up to a week for a large company to process and pay an electric bill.

“I was asked to pay immediately,” says Azzam. If not, he was told, the electricity company couldn’t continue providing power. Even then, he adds, electricity is sometimes cut with short notice, or even no notice at all.

“One of the main problems is that nothing is clear, you have to watch what’s happening and react accordingly,” he says. “It’s vague — I can’t tell you what’s happening even after one hour.”

On the other hand, some companies downplay the effects of these shortages.

“We are suffering, but I wouldn’t say it’s a big deal,” says Ihab al-Messiri, chairman of garment producer GATT. “One hour or something each day, we can live with it.”

He for, one, is confident that newly appointed Electricity Minister Mohamed Shaker will be able to resolve the problems quickly. “We hope he will improve a lot, and this is his field,” says Messiri.

Others, however, are afraid of what will happen in the summer, when households and businesses across the country crank up air conditioners, sending demand for energy spiking.

“I can’t imagine at all,” says Hanafy, talking about the summer.

“I expect that the crisis is getting worse,” adds Fouad, who predicts it will have a negative impact on industry as a whole.

So what’s the problem?

Egypt’s power shortage has two aspects, explains Osama al-Said, managing director of electrical consulting and contracting firm Masa Electro: having enough power plants and keeping them running.

The first problem is installed capacity — the maximum amount Egypt’s power plants can produce. For two years this has stood at 27,500 megawatts, Said says, while demand rises by around eight percent a year.

Two new plants that were expected to be up and running before summer have been delayed. One is a 1,300-megawatt plant in Ain Sokhna which was supposed to be operational by the end of 2013 but is now expected to go online sometime between August and December. Then there is a 650-megawatt plant in Banha, reportedly in its final stages. Another project, a 2,250-megawatt complex in Giza, is not due to be completed for another year.

“Provided that all else goes well, there is enough fuel, no practical problems, we are looking at a shortage of 3,500 to 4,000 megawatts,” Said says, an already significant gap between installed capacity and demand that would swell to “scary” proportions if things don’t go as planned.

At the moment, the most urgent problem is fuel. Depending on the day to day availability of gas, actual generation can currently be as little as 18,000 megawatts per day, Said explains.

After decades as a petroleum exporter, Egypt has been a net energy importer since 2008. Recently, the government reported that in the upcoming financial year, the country’s demand for natural gas would exceed supply.

Egypt’s financial woes have accelerated the problem. The government has racked up billions in debt to foreign oil companies, and plans to build a natural gas import terminal are yet to materialize, leaving Egypt with no way to import gas even if it can pay for it.

The government is looking into new sources of fuel, says Said. Using coal for energy generation is currently under discussion at the Ministry of Electricity, he says. So is nuclear power.

But even proponents of these controversial power sources don’t claim they will present an immediate solution. Building a nuclear plant will take years, and the most optimistic timelines for coal use say two to three years.

How can companies prepare?

Plants that run on liquid fuels are stockpiling. Ideal Standard, for example, has been building extra storage tanks over the past few years, Azzam says. Others are searching for alternative fuel sources: in addition to lobbying heavily for coal imports, Suez Cement has invested in a wind farm in the Gulf of Suez and also in a plant to convert municipal waste into fuel.

Many companies are also looking for ways to cut down on their fuel use. Azzam, for example, is going through a course to be certified to meet European standards for energy management. Lecico, another ceramic firm, has been looking into conservation measures, such as cutting the hours ventilation fans are used or recycling heat from kilns and furnaces, says quality manager Sarah Reyad.

Fouad, of the woodworking chamber, proposes that industrial clusters be allowed to establish non-profit energy companies to generate power for themselves, while Hanafy of the Chamber of Metallurgical Industries hopes the government can bring imported gas into the grid, and charge producers a price based on the average cost for local and imported gas.

Beyond that, producers who depend completely on the electrical grid feel they can do little but hope for a solution from the government.

Industries like steel depend on electricity to operate, says Hanafy, “They cannot have a stockpile of electricity.”

For these factory owners, the problem is completely out of their hands.

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Isabel Esterman