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FERTILIZER PLANT BATTLES OPPOSITION
BY GEOFFREY CRAIG
It was a rare victory for a grassroots campaign over business interests. Last April, the government halted the construction of a controversial fertilizer plant in Damietta after environmentalists and local residents protested against the factory, which they claimed would pollute the area.
A parliamentary committee formed to investigate the effects of the fertilizer factory, a joint venture led by EAgrium, the Egyptian subsidiary of Canada’s Agrium Inc., found that the plant didn’t present an environmental threat, but recommended moving the project to a different location within Egypt due to public opposition.
Prime Minister Ahmed Nazif, who said the government would consider the commission’s findings, then began negotiations with EAgrium and the company’s parent company in Canada to find a solution.
Agrium has insisted all along that the plant, which would be Egypt’s sixth nitrogen facility, is safe and has met all of the Egyptian government’s requirements. In a statement issued last June, the company said it “continues to be disappointed with being singled out from other projects, considering it has advanced the project to world standards and has followed the same procedures as other world class capital projects located at or adjacent to the industrial port of Damietta.”
Located about 100 kilometers west of Port Said on the Mediterranean coast, Damietta has lured scores of businesses over the past decade due to its port and natural gas infrastructure. Pipelines converge around a natural gas export facility in Damietta. In addition to boosting exports, the government has utilized the country’s natural gas reserves to develop downstream industries, such as fertilizer production, which uses natural gas as the main feedstock.
Four years ago, Agrium, Canada’s second-largest fertilizer producer and the world’s third-largest nitrogen producer, began eyeing Egypt as an investment destination. The company already had nine nitrogen facilities in the United States, Canada and Argentina with a combined annual capacity of over 5 million tons. With international fertilizer prices soaring due to demand for more food and biofuels, Agrium decided to expand its distribution into Europe and Asia.
Egypt’s geographic location and low operating costs helped to convince the company that it was the best country in which to build a major facility. In May 2007, Agrium announced its plans for a $1.2 billion fertilizer plant in Damietta. The deal clincher was the “long-term competitively priced gas” agreement it had inked with the Egyptian government and “prime access to world markets,” the company said.
EAgrium acquired a 60-percent ownership stake in the project, along with the Egyptian Petrochemical Holding Company, the Egyptian Natural Gas Holding Company, the Egyptian Natural Gas Company and Saudi Arabia-based Arab Petroleum Investment Corporation.
Up in arms
This announcement helped to solidify Damietta’s growing reputation as a major industrial and shipping hub. But the area is also known as a summer playground to thousands of limited-income Egyptians, who flock to its crowded beaches, creating a strong tourism industry in the governorate.
Squeezing residents, tourists and factories so close together reflects the poor urban planning in Egypt, according to Salah El Haggar, a professor of environment and development at the American University in Cairo. “In developing countries, we have a problem with land-use plans,” he notes. “In developed countries, they always have a land-use plan that figures out the best way to get a benefit out of an area. If you look at the land-use plans in Egypt, you’ll see they are not well designed.”
As a result, he says, industrial zones often encroach upon residential or tourist areas, causing people to view new factories with a mixture of mistrust and enmity. Such was the case around Damietta, which has a tourism industry estimated at upwards of LE 200 million per year. One of the more popular spots is Ras Al Barr, a beach resort that lies about three miles from EAgrium’s factory site.
The government had zoned the site for industrial purposes, despite its close proximity to a tourist area. Construction proceeded without interruption until last April, when several environmental non-governmental organizations initiated a local fight to stop the factory.
The campaign grew to include residents, small business owners and local government officials. At rallies, people shouted slogans against what was dubbed the “factory of death,” hung protest signs in shop windows, submitted a petition to President Hosni Mubarak, and threatened rioting if the factory continued. Local school children even wore black armbands as a sign of protest.
The local media portrayed the conflict as a modern variant on David versus Goliath. It appeared that David had prevailed when the Ministry of Housing issued a stop order on April 21 on the premise that EAgrium lacked requisite building permits.
But the real issue was the degree of public opposition facing the project. Afterwards, Mubarak took the unusual step of telling EAgrium that it must achieve consensus in the community before the project would be allowed to continue.
Taking on big business
The turn of events was surprising because there have been only a few successful environmental grassroots campaigns in Egypt. In early 2004, for example, the Hurghada Environmental Protection & Conservation Association launched a media campaign that helped to stop the tourism ministry from selling Giftun Island, a natural protectorate in the Red Sea, to a private Italian real estate developer for $2 billion.
The scarcity of such cases reflects the weak condition of local NGOs, says Shareef Ghoneim, CEO of the Egyptian NGO Support Center. “There are only a few strong NGOs, and they aren’t cooperating with each other. They have yet to turn into real civil society organizations that citizens see as their representatives and voices to the government.”
The confrontation with EAgrium was a rare example of NGOs working together to form grassroots movements, but Ghoneim hopes that it will encourage more NGOs to cooperate and mobilize their constituencies in order to carry out advocacy campaigns.
At the same time, he concedes, Egypt is still missing a layer of expert NGOs specializing in particular fields, such as the environment.
In the EAgrium campaign, for example, the opposition’s argument that the factory represented an environmental and health threat was basically untrue, says El Haggar, who is also vice president of the Association for the Protection of the Environment. “This is an international company and they would never [use] any process that is a polluting process.”
The problem was that EAgrium failed to effectively articulate this message to the community. “What kind of presentation did EAgrium give in the public consultation? What kind of detailed description about impacts, benefits, etc., was presented during this? It was like a social gathering,” he says. “After the public consultation, a lot of rumors began, and one of them was that this project was carcinogenic.”
El Haggar believes that EAgrium could have prevented rumors from spreading had it first developed good local relations. “You are entering a new community,” he says. “You think you will enter without telling the people what you are going to do, and the types of benefits and impacts?”
After the controversy erupted, EAgrium strongly defended itself. At a press conference in Cairo last May, Greg McGlone, EAgrium’s managing director, said, “We will not do anything that harms the local community since it is part and parcel of the project.”
But it was too little, too late. Even though the parliamentary fact-finding committee agreed with the company, public opinion on the matter seemed settled. And the committee, therefore, recommended to the government that the factory be relocated. EAgrium subsequently rejected this proposal as economically inviable due to higher operation costs and loss of project financing. The company says it has already sunk approximately $280 million into the project and 42 percent of the construction was already complete.
Negotiation tactic?
EAgrium and the Egyptian government have continued negotiations while the construction site remains idle. Other than relocating the factory, Nazif has offered two additional options: a buyout of EAgrium’s investment in the project by the government, and/or the transfer to EAgrium of an interest in a government-owned nitrogen facility, to be operated by Misr Oil Processing Company (MOPCO), being commis-sioned adjacent to the EAgrium site.
It’s unclear what stake EAgrium would get in the MOPCO venture, but it would certainly be less than 60 percent, the amount held in the current project.
The government-built factory is slightly smaller than EAgrium’s, with a planned annual capacity of 635,000 tons of urea and 396,000 tons of ammonia, compared to 1.3 million tons and 100,000 tons, respectively.
Yet the MOPCO factory hasn’t raised anyone’s ire over environmental concerns. Nor could the argument be made that the government-owned plant would benefit local farmers more than the EAgrium factory, because both are export-only facilities.
Rising international fertilizer prices make exports a potentially lucrative business. Should EAgrium accept the government’s proposal to acquire a share in the MOPCO venture, it would not be the exclusive marketer of the nitrogen products produced by the factory.
The fact that the government is proceeding with its own fertilizer plant, which is located in the same area as EAgrium’s controversial plant, has cast some doubt over the importance of stopping the EAgrium factory for environmental reasons. Some go as far as to speculate that the government’s willingness to bend to public opinion has more to do with the desire to restructure the commercial terms of the factory.
After forging an industrial policy based on providing cheap natural gas to energy-intensive industries, the government has been forced to revise its stance in light of concerns about efficient use of its gas reserves. The gov-ernment, for instance, began phasing out natural gas subsidies to energy-intensive industries earlier this year. It aims to fully eliminate these subsidies by 2009. It has also vowed to reexamine export contracts signed years ago when international prices were much lower than at present.
Resolving the impasse
The case may still go to an international arbitration panel, which would settle the dispute. Agrium has stated that it would seek full recovery of its costs, equity contribution and future lost profits. But an arbitration panel is typically a last resort, analysts say. Parties try to hammer out an agreement beforehand because arbitration is an expensive and potentially long procedure.
It also sends a bad signal, possibly deterring future foreign investors from coming to Egypt, a Canadian businessman in Egypt told Business Monthly. “Anyone looking at investing knows there is arbitration to fall back on, but in his heart, he doesn’t believe it will end this way at the start. Otherwise, why would he bother investing in Egypt? There are plenty of other countries to invest in.”
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