Egypt’s state oil company, the Egyptian General Petroleum Corporation, is in big trouble.
It has racked up billions of dollars of debt in the last decade with some estimating its dues to banks and oil companies is as high as $20 billion.
The magnitude of EGPC’s debts is such that it would be rare to find an oil company in Egypt which is not owed money. The growing debt pile highlights the government’s struggle to meet its rising energy bills while trying to keep subsidised prices to avoid public unrest.
This Reuters story describes the problem in a nutshell:
Egypt has been delaying payments to firms producing oil and gas on its territory as it has struggled with dwindling currency reserves, rising food bills and sliding tourism revenues since the 2011 revolution that overthrew Hosni Mubarak.
Most oil firms hope to recoup the debts in full, but they acknowledge it could take years. While they are still planning to invest in new projects in Egypt that will help it avoid an energy meltdown, the debt situation remains a challenge.
The government’s delay in paying its debts to oil and gas producers could hold back investment in the sector and potentially endanger Egypt’s energy security.
But exactly how many companies have been impacted and what kind of money are we really talking about?
The following spreadsheet, acquired by Rebel Economy from an investment bank which has major interests in Egypt’s energy, lists the debts owed to no less than 42 companies for oil and gas exploration.
The spreadsheet shows that while a number of small companies are owed money, several large energy companies have achieved special repayment deals with the government.
Of the companies listed, Italy’s ENI agreed to allow EGPC to delay on a $100 million payment, the UK’s BP agreed to defer $600 million, and BG Group also of the UK, $589.8 million.
The spreadsheet ends January 2012, but it one of the clearest barometers of the scale of EGPC’s debt to oil companies that has been made public. Even this document is seen as portraying a conservative total debt figure of only $3.44 billion when actual debts to oil firms are estimated to be at least $5 billion.
If you want to look at this in more detail, click here.
Yet this is just the tip of the iceberg.
EGPC’s debts to banks, to countries that are lending the country fuel at sometimes preferential rates, and even debts to other ministries (the finance ministry has injected billions of dollars to the electricity ministry) set a frightening precedent for what Egypt is facing today.
With Egypt’s inefficient and costly energy subsidy system at the core, this is yet another example of why the country must take long-term steps to reform the system or be forever in debt to others.
Billions of dollars of financing earmarked for Egypt is mounting up behind an IMF dam.
Until Egypt agrees a final deal with the International Monetary Fund for a $4.8 billion loan package, none of the estimated $14.5 billion in additional financial support and aid will be released.
The effect of the delay on signing the loan are far-reaching, and are now affecting Egypt’s ability to finance a faltering energy subsidy system.
US banking giants, JP Morgan and Morgan Stanley, are holding off on as much as $1.7 billion to $2 billion of financing for Egypt’s state-run oil company the Egyptian General Petroleum Authority until the IMF loan is set in stone, Egypt’s Al Mal newspaper has reported (Arabic).
The financing, which was first announced in December, was partly to help EGPC cover dues to foreign oil partners and sustain imports of petroleum products. EGPC is in billions of dollars of debt partly because it has kept up an inefficient subsidy system that imports fuel at international prices but distributes to the public at very discounted prices.
Other loans that are contingent on the IMF loan include: $6.3 billion in EU aid, $500 million from the African Development Bank, $1 billion from the US. The remainder is coming from the World Bank and other smaller lenders.
The reality is that without the IMF loan, investors and financiers will have little confidence in Egypt.
With the nation’s credit rating also now on par with Greece, investors are unlikely to make bold moves into Egypt without some reassurance that the country is recovering.
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.