At this year’s three-day economic conference in Sharm El-Sheikh, Egypt signed energy deals and agreements worth over $40 billion with international companies. In a country hit by frequent power outages resulting in substantial losses to the economy in recent years, the government is expected to turn the announced investments into real commitment.
Just days ahead of the summit, there were reports in Cairo and several other governorates of a new shortage in diesel and gasoline octane 80 prompting truck and taxi drivers to queue upat gas stations. The petroleum minister then promised to tackle the problem by injecting larger amounts of petroleum products into the market.
Egypt has been suffering from regular fuel shortages since several foreign oil companies suspended extraction due to increasing arrears after the 2011 uprising. No exploration and development agreements were signed between 2010 and 2013 as Egypt passed through political transition.
The scarcity has come as a result of anincrease in demand that has not been matched by development and maintenance of generation and transmission capacity.
“Egypt’s government estimates an annual increase of about 7-8% in demand,” said Wael H. El-Nashar, President & CEO of Onera Systems, which specialises in solar photovoltaic systems.
Hydropower engineer Eslam Mamdooh says existing capacity totals 31,000 megawatt (MW).Of this, oil and gas account for 91%, with 8% coming from hydropower and less than 1% from wind and solar energy.
Mamdooh, a member of the Constitution Party’s economic committee, explained that fuel consumption consists of gasoline, diesel, butane gas and fuel oil (mazot). Referring to energy use, he gave a rough estimate: 60% for power plants, 33% for industries and 7% for households.
While Egypt has a significant oil and gas infrastructure and a large domestic market, the hydrocarbons sector has come under growing pressure in the past years. Most electric power plants are operated by natural gas, which has seen production shortages, particularly in the last three years.
Increasingly frequent power outages have hampered production at energy-intensive industries such as fertilisers and cement.
Gas production declines by 1.2bn cubic feet annually at least. According to an official at Egyptian Natural Gas Holding Company (EGAS), production will not increase in the next fiscal year. In the mid-2000s, Egypt became a net oil importer.
The shortage of gas, which fuels around 70% of electricity production, has not only caused power plants to shut down but also made potential investors reluctant to put money into building new plants.
El-Nashar is against importing raw material for power production. “We should use existing resources,” he argued, “Our energy mix should be 50% renewable, 20% nuclear and 30% hydrocarbons.”
He stressed that consumer behaviour should change as overconsumption, instead of saving, is common in the average Egyptian household. “Also, the government should restore its trust with citizens and also with investors, and prove it can stick to a plan for the coming 25 years or so,” he said.
“The electricity capacity should be increased by approximately 2,500 MW every year,” Mamdooh said.
The estimated investment: $5 billion per year.
Dr Ibrahim Nawar, Head of the Economic Research Unit at the Arab Centre for Research and Studies, says, “If these deals (signed at Sharm El-Sheikh) go ahead, we can expect a 25% increase in oil and gas production.”
Nawar, a former adviser to the Minister of Trade and Industry, said that the government has cleared more than half of the arrears owed to its international oiland gas partners, and promised to paythe rest by end of next year.But before companies set up new power plants, he wants the government to clarify whether electricity will be priced by the state or on a market basis? Will it be transported through the national grid or private companies have to build their own grid?
Earlier in February, the cabinet passed a new law allowing private companies to distribute and sell power directly to consumers, cutting the Egyptian Electric Holding Company –the monopoly buyer–out of the process.
Going private comes as an attractive option for the government as Egypt cannot afford to upgrade its energy infrastructure on its own.Besides, it cannot depend on donors or private banks to raise capital to build power plants every year.
Speaking at Sharm El-Sheikh summit, Electricity Minister Mohamed Shaker said the energy sector would need $70 billion in investment through 2022.
In Mamdooh’s opinion, a free market should come with a certain protection for ordinary people.
Electricity is heavily subsidised in Egypt, eating up 20% of its budget. The government plans to eliminate subsidies within three to five years. But, the process will be painful. Partially lifting subsidies in July 2014 led to an 80% rise in prices.
Dr Nawar believes Egypt needs to act quickly to provide enough energy supply to preempt another summer of power cuts though he douts that can be avertedin the short term.
“Egypt attracted more investments than what it dreamt of. The funding is there. Now. It’s the government’s responsibility to make it work for the benefit of the Egyptian people and the country.”
The deals at Sharm El-Sheikh
- British Petroleum committed to invest $12 billion over four years to develop gas resources in the West Nile Delta, reportedly the biggest single foreign investment deal in Egypt’s history.
- Italian oil company Eni signed agreements worth $5 billion in several gas discoveries over 4-5 years.
- British energy company BG said it would invest $4 billion in Egypt to develop natural gas fields in the Mediterranean over two years.
- UAE’s Dana Gasannounced a $350 million gas deal.
- German energy firm Siemens signed four MOUs worth over $10 billion with Ministry of Electricity and Renewable Energy to construct several power plants with a total production capacity of 6,600 MW.
- Egyptian General Petroleum Corporation (EGPC) signed an agreement worth around $3 billion with the International Islamic Trade Finance Corporation to import petroleum products for the Egyptian market over the next three years.
- Egypt signed MOUs worth $2.4 billion with Abu Dhabi-based renewable energy company Masdar and ACWA Power of Saudi Arabia to build a number of power plants, including solar plants and a wind plant with a production capacity of up to 4,400 MW.
- General Electric pledged $200 million in a new training and manufacturing facility in the city of Suez.