Category Archives: Israel

Egypt-Israel Gas Deal A Pipe Dream

An Egyptian company’s plan to import gas from Israel is nothing but a pipe dream, according to documents viewed by Rebel Economy and interviews with people familiar with the situation.

Last week, Dolphinus Holdings signed a seven-year deal to buy an estimated $1.2 billion of natural gas from Israel’s Tamar field, but negotiations haven’t included the firm that actually owns and operates the pipeline, East Mediterranean Gas, according to a letter sent from EMG to Israel’s largest gas sellers operating on the offshore Tamar gas field.

Egypt gas pipeline

The letter states that “EMG was not a party to the reported deal and was not included in such negotiations. There are no discussions held between EMG and Dolphinus on such a transaction and there have been no negotiations held in the past.”

This is just the latest twist in the story of the notorious Egypt-Israel gas pipeline, one that has been cursed with misfortune and represents a tangled web of espionage, global diplomacy efforts, big business and even terrorism (the pipeline has been bombed more than a dozen times by unknown militants in Sinai).

EMG, which built and operated the pipeline, was founded by one of Egypt’s most controversial tycoons, Hussein Salem, but is now owned by a consortium of companies including the American billionaire, Sam Zell and the Thai government’s state gas company, PTT.

Several Egyptian government officials were imprisoned over the deal after the uprising and the new government cut off its contract with EMG (claiming it missed payments). That set in motion several high-profile international arbitration cases by EMG against the government. EMG is seeking billions of dollars in damages for its shareholders.

The last four years have been disastrous for Egypt’s economy, including its energy sector. The country is now in such desperate need of gas that it agreed to buy liquified natural gas at a huge cost from European sellers.

It’s ironic that a pipeline originally designed to send gas into Israel for Egypt’s profit is now being considered as a way for a hobbled Egypt to buy gas from Israel. The rationale is easy: importing gas over a 90-km pipeline from a neighbour is much cheaper and requires less infrastructure than bringing in LNG from abroad (which requires specialised plants to turn it into useable gas).

But this deal cannot take place without EMG’s approval and that seems nearly impossible, according to a person familiar with the discussions.

That it because there is no way EMG’s shareholders will agree to drop their arbitration cases against Egypt, the person said. The Egyptian government said that would be a prerequisite of approving any deal to import gas from Israel. Even so, the Dolphinus deal would only represent annual revenues in the tens of millions of dollars for EMG, versus billions won from arbitration settlements.

To make matters even more complicated, EMG owes the state-owned National Bank of Egypt in excess of $170 million, according to documents reviewed by Rebel Economy, a loan it took out early on to build the pipeline. It was paying it off until the Egyptian government cancelled EMG’s contract in 2011. (A classic case of Egypt inadvertently screwing itself.)

So for this deal to work, shareholders of EMG would not only need to forego the possibility of billions of dollars of compensation but also agree to not get paid anything for years because any money EMG makes would be used to pay down its debts.

That may be one of the reasons why they have been excluded from the negotiations, but it’s only the tip of the iceberg for this messy non-deal.



Breakfast Wrap: Citadel’s New Energy Chief, Centamin Spat, Mubarak-Era Projects

Egyptian private equity outfit, Citadel Capital, has appointed petroleum industry veteran, Mohamed Shoeb, as Managing Director of its energy division.

It is the latest sign of how Citadel is quietly moving toward filling a gap in the energy market which is likely to be left after a reform of the country’s energy subsidies.

Shoeb is the former head of the state-run gas company, Egyptian Natural Gas Holding Company (EGAS), and prior to that was the vice Chairman for operations at the state oil company, Egyptian General Petroleum Corporation (EGPC).

The problems attached to both companies do not reflect kindly on Shoeb; EGAS was at the centre of a politically controversial cancellation of a gas contract to Israel, while EGPC is facing a potential bail-out from Egypt’s banks because of a mounting debt pile to foreign oil companies and banks for energy exploration.

However, the former EGAS head brings experience and knowledge of the nation’s state energy industry (and its specific challenges) that would be hard to find elsewhere.  Importantly, he has deep connections in the sector that will come in very useful for Citadel at a time when its most high-profile investments are in the energy market. These include:

– a $3.7 billion financing package for the Egyptian Refining Company project 

– A joint venture with Qatari investors to import liquefied natural gas into Egypt from mid-2013

UPDATE – This morning Citadel Capital sent a statement saying it had sold one of its investments, in a further sign that the private equity firm is focusing its strategy around five sectors including energy and transportation.

Its portfolio company National Petroleum Company Egypt Ltd. sold National Petroleum Company Shukheir Marine Ltd. to Sea Dragon Holding Ltd., a subsidiary of Canada’s Sea Dragon Energy.

“This transaction is the first of a number that will see us exit non-core portfolio and platform companies as part of our transformation over the coming three years into an investment company,” said Citadel Chairman Ahmed Heikal.

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A spat between EGPC and Centamin’s Sukari goldmine appears to be almost resolved after customs authorities on Sunday allowed an export shipment of 1,600 kilograms of gold to the Netherlands, Egypt Independent reports.

Shipment had been halted by Egyptian customs because the petroleum and finance ministries had said Centamin owed the authorities back-dated payments for fuel. Centamin denied this and said its payments were up to date.

Josef El Raghy, chairman of Centamin, has faced labour strikes and fuel shortages that have forced the firm to halt production twice this year.

It’s a stark reminder of both a highly bureaucratic state where the lack of a signature can halt valuable exports that could shut a company down, and how fuel shortages at EGPC have the potential to trickle into important industries across Egypt.

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One clear characteristic of the Morsi administration’s economic programme is its resemblance to Mubarak-era projects.  The following is no exception.  Egypt Independent reports:

Prime Minister Hesham Qandil has tasked the agriculture, irrigation, electricity and investment ministries to begin implementing a project the government hopes will reclaim and cultivate a million new acres of farmable land over four years

The mega-project aims to build up wheat production by 25%, corn production by 15%, and oil production from 10% to 40%. Sounds ambitious. For many investors, this announcement may appear flippant, especially given the agriculture minister’s throwaway remarks that “the project aims to reach self-sufficient production levels”.  By when? And how? Critical questions such as this are almost never answered.
National Bank of Egypt, the country’s biggest state bank, will finance the project. NBE has increasingly become the “Bail-Out” bank of Egypt, supporting EGPC and stepping in when projects get pricey.
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Perhaps this project has the more realistic traits.  Egypt’s renewable energy authority, (NREA) will offer 7, 622km sq of land for private sector investors to wind energy stations under the Build, Operate, Transfer (BOT) scheme, Daily News Egypt reports.
The BOT scheme has been used by Egypt regularly in the past to help get past the financing hurdle for big infrastructure projects. It means a private entity receives a concession from the private or public sector to finance, design, construct, and operate a facility stated in the concession contract.  The government benefits from the final product – in this case, wind energy.
Under the BOT scheme:
Land would be sold to private companies for a small fee under the BOT scheme, granting them use anywhere between 20 to 25 years. Products used by private companies in the production of renewable energy sources would not be subject to taxes or customs duties.
Land is being offered in the Gulf of Suez area (1,222 sq km), West Nile (4,200 sq km) and East Nile (2,200 sq km) regions.
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Energy giant BP is seeking to change the terms of its contract with the Iraqi government for the Rumaila oilfield in a reflection of the challenges facing western oil companies as they try to ramp up oil production in a country still dogged by poor infrastructure, red tape and export bottlenecks, the Financial Times reports.
The company is asking to scale back production, underscoring “how a lack of infrastructure and bureaucratic problems are constraining the growth of Iraq’s oil industry, forcing companies operating there to re-evaluate their production plans”.  


EGPC’s Revolving Door: Chairman of Egypt’s State-run oil company to stand down

The head of Egypt’s state-run oil company, the Egyptian General Petroleum Corporation, will step down in January as the institution faces a growing debt pile and rising premiums for fuel imports, an official at EGPC has told Rebel Economy.

Hani Dahi, who was appointed chairman of EGPC in March 2011, will retire on January 3rd and will be replaced by Sherif Hadarra, who spent time as an executive at Sumed oil pipeline, said the official who did not want to be named because the announcement has not been made official yet.

An official at Midor, an Egypt-based refining company, also confirmed the move naming Mr Hadarra as the successor.

Before his position at EGPC, Dahi was chairman of EGPC’s engineering affiliate, ENPPI.

With many of Egypt’s debt and energy problems rooted with EGPC it is no surprise the current management is keen to get out.  In the last decade EGPC has become Egypt’s most indebted state entity with a debt pile exceeding $30 billion.

According to industry sources, in 2002, EGPC’s total debt stood at half a billion Egyptian pounds.  In 2012, that debt pile has jumped to 200 billion pounds.

The organisation has also maxed out financing to fund oil and gas exploration from banks including National Bank of Egypt and Morgan Stanley.  

Sources say the magnitude of Egypt’s debt is such that at BP’s global board meeting, Egypt’s debt repayment plan is brought up as a topic of discussion.

Other scandals have also seen high-ranking officials linked with EGPC now in jail.

In May, EGPC along with the state-run gas company, the Egypt Natural Gas Company, filed a request for arbitration against East Mediterranean Gas Company (EMG) over a deal to supply natural gas to Israel, Hani Dahi said at the time.

The two state-run companies filed the request on May 3 after EMG breached the terms of the contract by delaying payments for gas, which it exports to Israel.

But energy experts and officials involved with the gas pipeline deal believe the real reason was that EGAS and EGPC were having trouble producing enough gas to meet export contracts, Bradley Hope of Abu Dhabi’s The National reported in June, further implicating management at the two state-run companies.

What does all this mean for the country’s decision-making and management going forward?

Industry players say EGPC’s track record of appointing specific people to senior positions in state-linked companies is merely a precursor for a cabinet position.  Abdullah Ghorab, the last minister of petroleum before Osama Kamel, was the head of EGPC before he was bumped up to the ministry in 2011.

With oil and gas one of the most contentious issues the new government is having to deal with, Egypt’s president Morsi and his aides may be shifting key positions in the bureaucracy to best manage their biggest problem.



Holiday Reading: China Backdoor For Iran, Mubarak’s Corruption, US policy on Egypt

Happy holidays everyone. (It is the Islamic holiday of Eid Al-Adha, for those that don’t follow the Middle East too closely).

Here are some interesting reads.

Iranian sanctions 

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Breakfast Wrap: Iraq Central Bank Head Suspended, Mubarak’s Laundromat

Nothing is more controversial in business and finance than banking, as we saw yesterday with the media storm that erupted after the departure of Vikram Pandit as chief executive of Citigroup.

But the most contentious of all are the central banks.  These are organisations sitting at the juncture of both economic and government policy.

Yesterday we saw how controversial this industry can be when the governor of Iraq’s Central Bank was booted over allegations he had intentionally weakened the value of the Iraqi dinar against the US dollar.

“The cabinet decided to authorise Abdelbassit Turki, the head of the Board of Supreme Audit, to run the central bank indefinitely,” Prime Minister Nuri al-Maliki’s spokesman Ali Mussawi said, adding that Sinan al-Shabibi had been suspended from his post by the anti-corruption watchdog.

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Breakfast Wrap: How Egypt Can Learn from Iran’s Subsidy Mistakes

Is this Déjà vu? Or does it feel like the Egyptian government is repeating the same mantra on energy subsidies almost daily?

Yesterday Egypt’s government said it plans to cut energy subsidies by setting a universal limit on how much cheap fuel and cooking gas every household can buy.

The upside of this announcement, which would garner skepticism for a reader that may have seen similar plans announcement over the last few months, is that the plan outlined by petroleum minister Osama Kamal is more detailed than we’ve seen before.

It would mean both rich and poor receive the same allocation of the subsidised fuel and would then pay a higher price for additional amounts consumed.  It is a backtrack from the coupon system that was discussed only last week.  

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Resisting The Massacre: A Personal Account of Sabra-Shatila

This is the story of a young man who lived through the Sabra-Shatila Massacre in Beirut, 1982. This is his detailed testimony of the few days before, during and after the massacre. Rebel Economy’s editor is close to this person whose real name has been changed for security reasons.  

The following introduction is by Raja Khalidi, senior economist with the United Nations, Geneva.  

I am glad this testimony has been published because it is the first time, maybe in the 28 years since it was published that I had read it in full. And though a wrenching experience after all these years, I hope you have the chance to read it in a calm moment.

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Breakfast Wrap (Quickie): Egypt And Israel, Egypt Destined To Become Gas Importer, Qatar Explainer

Disclaimer: This morning’s wrap was written in lightening speed.

Al-Futtaim Group and Emaar Properties, two real estate developers from the United Arab Emirates, plan a 5 billion Egyptian pound ($820 million) tie-up to build a retail and entertainment complex outside Cairo, Al-Futtaim said on Tuesday.

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How the Egyptian government is apparently largely standing by its trade agreements with the Jewish state, by Ben Gittleson in the Daily Beast.

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Breakfast Wrap: Arab Spring Funding, IMF Speaks Out, Bikinis Allowed

More than a year and a half after the beginning of uprisings across the Mena region, which toppled dictators and liberated societies, Europe’s development bank has made its first investments in Morocco, Jordan and Tunisia and said it was preparing to invest up to 200 million euros (160.9 million pounds) by the end of the year in the region.

The European Bank for Reconstruction and Development (EBRD) also soon hopes to get approval from shareholders for investments in Egypt.  It’s not clear who these “shareholders” are.

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Breakfast Wrap: Why “Quick Wins” Fail, Egypt Finance Explainer

Egypt’s prime minister was on a rare hour-long conference call with investors yesterday where he repeated the mantra that the country is working to jumpstart the economy and revive important sectors such as tourism.

He also reaffirmed that there would be no currency devaluation “at the moment”.  Instead he said “we are aiming within three months to create quick wins on the ground“.

Rebel Economy has warned before that “quick-wins” are never successful or sustainable.  A case in point is the “Morsi-meter”, established to show President Morsi’s performance in his first 100 days, but shows only 4 promises out of 64 have actually been achieved after 80 days in power.

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