Egypt’s President Mohammed Morsi will today meet the chairman of BG (British Gas) Group.
This meeting is extremely interesting for several reasons:
1) Egypt’s government owes BG Group at least $500 MILLION for exploration it has carried out in the country (a source familiar with the situation told me, as per this article I wrote). It is actually widely regarded in the corporate community that BG is owed at least double this amount.
BG, like the other main foreign operators in Egypt, including BP, Eni and Repsol, work in the framework of joint ventures with the state-owned Egyptian General Petroleum Corporation. But these joint ventures often mean massive oil companies are waiting for their payout months later.
2) Despite the country’s immense known and possible gas reserves, debts owed to international oil and gas companies by the Egyptian government are said to be at least US$4 billion. Some reports put the figure at $6 billion.
So after years of buying gas at international prices and selling at significantly subsidised prices in the local market, the overstretched oil ministry is being forced to reschedule payments to its international suppliers.
3) Egypt’s oil ministry, simultaneously the richest and most indebted, has turned to the finance ministry in the last year to fund its fuel purchases. Just today, the finance ministry allocated $159 million to the EGPC (the state owned oil company) to pay for more imports of fuel that are then used for meeting domestic demand (i.e. subsidies).
It already brings the total allocated since July (the start of the new fiscal year) to $1.36 BILLION. Last year’s allocations stood at about $6 BILLION – about as much as the oil ministry is said to owe.
So what will happen in today’s meeting? Will President Morsi beg BG Group to be patient and consider Egypt’s position post-revolution? After all, political turmoil has gripped the country.
Or perhaps it will be the other way round – BG Group demanding its money from Morsi – pay up or we’re going elsewhere.
Considering Egypt’s vast resources, this may be a backwards move for an international oil company with its eye on future profits. However, importantly, unlike the small oil companies working hand to mouth, big oil companies can afford to leave and set up shop elsewhere, just to diminish any worries of mounting debts.
Egypt is also in a difficult position – does it keep selling the oil and gas that is found or keep it at home to meet domestic needs?
One thing is for sure, if Egypt wants to keep its lucrative oil and gas exploration sustainable for years to come – it must quickly start implementing a fuel price hike for the most expensive fuel (thereby only impacting the wealthy) and introduce a coupon system for the neediest.
Enough with the talk, time for action.
Yesterday, just days after a high profile visit from a 100-US business executives, protestors attacked both the US consulate in Libya, killing one American, and breached the walls of the US Embassy in Cairo, because of a film by a US producer that mocks and insults the Prophet Muhammad.
It is a blow to the President Morsi who is trying hard to prove he is a reliable leader of Egypt and a reliable partner to the US.
But it is also a stark reminder of the tensions that exist in post-revolutionary North Africa and the Middle East that are not easily wiped away with business delegations desperate to burnish Egypt’s image as a great investment.
- Egypt’s budget deficit reached 11% of gross domestic product for the fiscal year ending in June, far higher than the 8.6 per cent originally forecast, the Egyptian finance ministry announced on Tuesday. The rise was attributed to a hike in public sector salary increases and a drop in tax revenues because of bad economic productivity post-revolution.
- Egypt, the largest net importer of wheat in the world, this week made its sixth international purchase since the start of the new fiscal year (July). The nation bought 235,000 tonnes of Ukrainian, Russian and French wheat for 11-20 November shipment.
- South Korean electronics giant Samsung will invest LE1.7 billion ($279.3m) building its first Egyptian plant in Beni Suef in a move that will create 1,400 new jobs.