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.