Egypt Electricity Conspiracy

“Ask the ministry of petroleum about it, it is their responsibility”.

That’s what a spokesman at the Egyptian ministry of electricity said last week, shifting the blame for power cuts that have plagued Egypt in recent weeks to the oil ministry.

The spokesman’s comments may not reflect well on Egypt’s bureaucratic camaraderie but it does point out the obvious; Egypt’s highly indebted oil ministry is behind the country’s electricity black-outs.

The government spends two thirds of its total subsidy bill of 150 billion Egyptian pounds on fuel. Much of the spending goes to keeping natural gas below market prices.   In other words, the oil ministry is running one of the most inefficient subsidy systems in the world, on par with Iran, Russia and China.

[caption id="attachment_239" align="aligncenter" width="483"] Subsidies in 2011/2012 budget, Egyptian Center for Economic Studies[/caption]

Cheap subsidised prices have contributed to a surge in energy consumption that the country can ill afford.  So the government is trying to cut subsidies through the relatively painless strategy of switching to greater use of natural gas from more expensive fuel oil and diesel.

But there is a catch; Egypt is already heavily reliant on gas for electricity generation.  Around 90% of the country’s electric generating capacity is thermal (natural gas) making it no surprise that shortages end up cutting the supply in the hottest months of the year during peak demand.

That is bad news for Egypt, where electricity use has doubled in the past ten years, writes Johnny West, founder of OpenOil, a Berlin-based oil consultancy in this Al Jazeera article.  Only a third of that is due to population growth.

Plans are underway to tap wind, solar and even nuclear power sources to lift electricity generation by at least another 4,000 megawatts to plug the gap.

Even if Egypt was to meet its demand this way, bigger problems are on the horizon.

For one, the ministry of petroleum owes several billion dollars to various international energy companies.   It is also understood that Egypt’s biggest state bank, National Bank of Egypt, is not providing letters of credit to the ministry of petroleum to fund energy needs because the risk of lending has become too large.

Then came the bombshell in June, when Egypt cancelled its gas deal with Israel amid a web of regional politics and corruption charges.  Many reasons were given for this.

But one that reflects the magnitude of Egypt’s gas problems has been posed: the rapidly rising domestic demand for natural gas impacted Egypt’s ability to produce enough gas to meet export contracts, writes Bradley Hope in this investigation for The National.

Energy experts and officials involved with the gas pipeline deal believe the real reason behind the cancellation was that the two main companies involved in the exports, Egypt Natural Gas Company (EGAS) and Egypt General Petroleum Company (EGPC), were having trouble producing enough gas to meet export contracts.

‘”We are currently at a critical level in Egypt,” said Magdy Nasrallah, a consultant to energy companies in Egypt and a professor in the department of petroleum and energy at the American University in Cairo, said in May.  

Nasrallah believes Egypt will not sign any more export agreements for several years because consumption will outpace supply.”‘

Electricity black-outs are a warning to Egypt’s authorities to find alternative energy fast or push through much-needed loans to fund its wasteful subsidy system.

One Comment

  • Mostafa
    Posted August 7, 2012 at 6:16 pm | Permalink

    That’s a good read, thanks.

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