The enabling atmosphere for coal in Egypt

Since the Cabinet’s decision to allow the use of coal under current regulations, there has not been much clarity in the public sphere as to how coal will be made a reality in Egypt and the timescale for it.

Perhaps driven by the legal ambiguity his announcement has created, Prime Minister Ibrahim Mehleb has essentially allowed the use of coal without the promised EU-style regulations required in the original Cabinet announcement allowing coal, and yet “under the current regulations” coal is still illegal to import and the Egyptian Environmental Affairs Agency (EEAA) cannot grant licenses for its use until the law is amended.

In a roundup of old and recent announcements, the following factors indicate that a new era of energy provision in Egypt is more than just vague political announcements, but a web of international and business interests coalescing around one mission: to bring coal to Egypt as soon as possible.

On March 20, 2014, the Italian government announced a non-repayable grant of US$1.3 billion for energy and infrastructure projects in Egypt. The announcement does not offer greater detail but Italy has business interests in Egypt that would benefit from coal use, namely the cement company Italcementi. In 2009, Egypt was Italcementi’s largest profit-earner, with profits of €788.7 million in 2010.

Meanwhile, the British government commissioned a survey on the expansion potential of ports in Egypt. The report, publicly available on the embassy website, clearly states that they see huge potential for growth and expansion, especially in the Mediterranean Sea ports. The former Director of Trade and Investment at the British Embassy confirmed that Great Britain’s experience in port infrastructure construction and expansion means that the UK is very interested in supporting Egypt’s port expansion in exchange for contracts with British companies to complete the works. Whilst emphasizing that what the expanded ports are then used for (e.g coal) is of no consequence to the British government, and they are not lobbying for Egypt to use coal or advising on energy policy, he recognized it is still a large contribution to the preparedness of Egypt for receiving large shipments of coal from all over the world, given that Egypt has inconsequential native supplies of coal to feed its demand.

A delivery of 76,000 tons of coal from the US was made into the Port of Alexandria last week. The Alexandria Port Authority failed to confirm whether it was a shipment of coal to be used in a cement factory, but US government statistics for US exports of coke coal (which is legal to import and is used in the steel industry in Egypt) show that it has not exported coke coal to Egypt since 2012, implying the latest shipment is indeed to supply cement factories. Furthermore, the River Transport Authority, responsible for transportation up and down the Nile in Egypt, publicly stated that they have overseen the transportation of 60,000 tons of coal to cement factories in the last four months; this would roughly include at least one month before the Cabinet decision was made.

The Alexandria Port Authority website shows there are plans for expansion of the port facilities to better accommodate coal, specifically by 2015, but they directly confirmed the two ports within their authority are equipped with coal bunkers currently. Nevertheless, the safe transportation of coal from port dock to factory (a polluting process itself, especially in hot and dry climates) is not included under current regulations companies are operating within. Media sources in early June reported that trucks transporting coal to factories were found in Lafarge’s Ain Sokhna factory and Torah and Suez cement factories (both owned by Italcementi). Although the EEAA confiscated the deliveries, they did not take legal action against the factories for importing without a license, as is their remit.

The removal of Laila Iskandar from her post as Minister of Environmental Affairs has been seen by many as a blatant attempt to remove her opposition from the Cabinet to speed up the introduction of coal. Indeed the reapointed Khaled Fahmy has announced his intention to facilitate the beginning of “clean coal” use as soon as possible within his first week. If he is using the energy industry terminology for clean coal, this would mean Fahmy intends for Egypt to be using advanced coal technology, requiring stringent monitoring and regulation, and therefore costly installation of filters and gas-fixing technology to remove as many harmful particles from the emissions of cement factories and other forms of power generation using coal as possible.

Sherif Abdel Messih, CEO of Future Energy Corporation (an Egyptian energy investment and project development company), commented on Fahmy’s statement, saying “Technically speaking you can design advanced coal power plants that have reduced pollution and emissions compared to conventional coal power plants. These advanced coal power plants are referred to by the coal industry as “clean coal” as a way to promote it. What they don’t tell you is that the cost of such plants is so high it will never be built by any Egyptian businessman or government. So what will happen is they will widely use the term clean coal to get the public convinced that there are cleaner types of coal, and once the approval is given, the cheapest types of coal power plants will be built which will result in deadly pollution to the Egyptian air and water sources. A clean coal power plant could cost around $3 million per MW, while a standard dirty coal power plant could cost $0.6 million per MW. You tell me which one will end up being built in Egypt.”

A cement industry inside source confirmed that two cement factories started using coal in production two weeks ago, namely Lafarge and Arabian Cement. This has not been possible to confirm from the factories themselves however. Nassef Sawiris sits on the global board of Lafarge — one of the two biggest cement companies in the world — the Egyptian subsidiary of which was the first to be fined by the EEAA for illegally importing coal before Cabinet ascent for it had been given, and sources show it did not learn its lesson as they have imported more since. Combined with Lafarge Egypt’s intense lobbying of government for coal, their enthusiasm to begin using coal was evident from an early stage, making the industry rumors of their quick switch to coal use consistent with their track record.

Amidst industry forging ahead with its pre-prepared plans to switch to coal, the judiciary has not escaped the spotlight. In the final hearing of the ECESR case against the government decision to import coal, Judge Hassouna Tawfiq, who had been previously showing signs of sympathy with the ECESR position (according to the lawyers attending to the case), stepped down from the case, citing discomfort and “embarrassment” as his main reasoning. Whilst it was construed as a benefit that he did not just rule against the case, instead stepping aside to allow its hearing under another judicial circuit, ECESR stated it indicated he had been pressured to return a judgment in favor of the government, or at least keep it rotating through judicial circuits, avoiding judgment for as long as possible. The case has already re-started its journey through the Administrative Courts from the beginning again.

Since his appointment as President, Abdel Fattah al-Sisi has not explicitly mentioned coal, in fact his energy policy has so far mentioned nuclear and solar energy as primary solutions to the shortage. His energy advisor, the esteemed Mohamed al-Sobky, head of the Department of Electricity at Cairo University, has publicly stated that Sisi’s energy vision does not include coal for electricity, in which case, a significant part of the Cabinet decision under the transitional government will not be realized. What is intended in its stead remains unclear however.

With regards to bank financing, according to Mahinour al-Badrawy, research director at ECESR, Egyptian civil society’s correspondence with the European Bank for Reconstruction and Development (EBRD) indicates that the bank has plans to fund a project for the switch to coal within Egypt’s cement industry. There has been no public announcement as of yet, but given their previous correspondences and reactions to civil society questioning in their last AGM in 2014, Badrawy has said she would not be surprised to find an announcement of a loan to fund coal in the cement industry in the near future. Similarly, this week HSBC Egypt was reported to be “mulling over” financing LE1 billion in eight cement companies’ switchover to coal.

In total therefore, there is a generally enabling atmosphere signaling the beginning of coal’s first steps into Egypt. Political and economic forces are lining up to align themselves behind a policy introduced under Morsi, whilst business stakeholders are moving quickly to make it a reality on the ground.

 

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Isabel Bottoms