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follow up as oil reserves wither,
gas prospects ignite oil sheikhs and ministers spilled into cairo last month for the 133rd extraordinary meeting of the organization of the petroleum exporting countries (opec). egypt, which has attended opec meetings in recent years as an observer, eagerly hosted the december 10 meeting, which was called to discuss production for the first quarter of 2005. opec has been producing at its highest level in 25 years thanks to rising demand in major consuming nations such as the us and china. the cartel agreed during the cairo meet to cut production to preserve lofty crude prices, which fell below $35 a barrel in early december, the lowest since july. though member countries agreed to produce a million fewer barrels per day (bpd) as of january 1, the new output will still include surplus production over an official ceiling of 27 million bpd. slowing economies caused the recent plunge along with high production by both opec and non-opec countries. the future of black gold remains bright. opec members including iran, the united arab emirates, kuwait, libya, algeria, indonesia, venezuela and qatar are expected to accumulate oil export revenues of $330 billion by the end of 2004. record high oil prices have padded the 2004 saudi budget surplus of 98 billion saudi riyals, up from 36 billion saudi riyals in 2003. it’s also been a comfortable year for egypt. oil export revenues are one of egypt’s main generators of foreign currency along with tourism, suez canal revenues and remittances from egyptian expatriates. world oil prices climbed 39 percent to reach $55.67 a barrel on october 25, boosting egypt’s oil export earnings by about 23 percent, or $595 million, over the previous fiscal year earnings of $4.2 billion. the suez canal has also benefited from high oil prices with revenues hitting an all-time high of $3 billion this year. suez canal authority chairman ahmed fadel told reporters in october that high oil prices have made it cheaper for ships to use the canal rather than the longer, costlier route around south africa. higher oil prices also brought investors back into the game. egypt’s oil and gas sectors attracted about $675 million in investments during the 2003-04 fiscal year with the signing of 19 petroleum exploration agreements covering 107,000 square kilometers. during the opec meeting, egypt explored further cooperation in oil and gas projects with arab oil ministers. the ministry of petroleum is reportedly seeking deals to manufacture platforms and oil equipment for countries including syria, jordan and libya, where egyptian oil firms are already operating. egypt’s petroleum projects & technical consultations co. (petrojet) has already begun manufacturing a loading platform for saudi oil giant aramco as part of a $25 million deal. it is also setting up an egyptian-saudi joint oil venture with capital of 3 million saudi riyals. minister of petroleum sameh fahmy has also discussed with libyan oil minister fathi bin shatwan the prospect of future participation in a $100 million egyptian-libyan joint oil venture. the arab company for oil & gas pipelines, in which egypt and libya each hold a 50-percent stake, plans to construct a pipeline that would transfer libyan crude oil to egyptian refineries. egypt is a modest oil producer and independent oil analysts claim
egypt’s crude oil production will soon fall short of domestic
demand. official figures put egypt’s production at 700,000
bpd, but unofficial sources claim production dropped 3.9 percent
in the first half of 2004 to 594,410 bpd. shipments from the first lng plant in damietta on egypt’s mediterranean coast were scheduled to begin in late december. the $1.3 billion plant, with private and public sector shareholders, is designed to process about 7.6 billion cubic meters of natural gas annually. “egypt has become the focus of the world’s lng industry. we have a queue of international investors who are ready to invest in egypt’s future lng projects,” said a senior official at the egyptian natural gas holding co. (egas), one of the plant’s key shareholders. the second lng plant is located in idku city. the plant’s
first train, which has a capacity of 3.6 million tons a year, has
already been sold to gaz de france and is due to reach france in
the third quarter of 2005. by then, egypt will be delivering 10
percent of france’s gas consumption. output from the second
of six potential trains will reach the us in the second quarter
of 2006, and italy a year later. eman wahby time running out for small
banks the unified banking law, passed in the summer of 2003, has banks scrambling to scrape up cash to meet its requirement that all egyptian-owned banks maintain a minimum capital of £e 500 million. branches of foreign banks with local operations, meanwhile, are required to have a minimum paid-in capital of $50 million. banks that fail to complete their capital increases by july 15, 2005 will be forced to merge with partners, be acquired or fold. marwa al-sheikh, a senior analyst at efg-hermes brokerage, said
the new requirements weren’t just about boosting capital. “the
idea is to also create a strong financial and banking sector by
making small banks merge with large banks,” she said. “in
other words, consolidation of the entire banking sector.” in recent months, the cbe has approved a number of mergers, including the union of the troubled misr exterior bank with banque misr, american express bank with egyptian american bank, and credit lyonnais with credit agricole indosuez. egyptian commercial bank and suez canal bank also reportedly filed merger requests in december. the sudden spate of mergers and acquisitions will, no doubt, have
an enormous impact on the long moribund sector. some industry watchers
have predicted that the ensuing consolidation will bring the number
of banks in the country down from 64 to just 23. al-sheikh, however,
suggested this was an exaggeration, since only about two dozen banks
actually need to boost their capital. “we believe the number
of banks will drop to about 30,” she said, adding that those
still standing would be left “with the capital they need to
overcome problems such as non-performing loans.” magdi abdel fattah, manager of al-watany’s bonds department, said his bank understood the rationale behind the move, but would have appreciated a more generous grace period. “our bank isn’t in trouble since we have a small gap to fill, but there are many smaller banks that won’t be able to meet the minimum,” he said. “the cbe should give banks until the end of 2005.” al-sheikh, however, argued that non-compliant banks shouldn’t
be given any more time, since they have known about the requirement
for almost 15 months. “the central bank didn’t see any
serious effort from banks over the course of the past year that
would prompt them to offer an extension,” she said. “it’s
time to consolidate.” larger banks, meanwhile, which already have the capital required, are all for the new stipulations, which officials say will serve to raise the efficiency of the entire industry. sahar al-sallab, managing director of commercial international bank, egypt’s third largest bank, with paid-in capital of £e 1.9 billion, said the move was an “excellent decision” for egypt’s over-banked market. “here, we have a large number of banks, but few services,” she added, “while in strong economies, such as england and germany, they have few banks and many services.” al-sallab reiterated that banks themselves only stood to benefit. “the consolidation will certainly serve to strengthen banks’ capital adequacy and help them stand against liquidity risks and bad loans,” she noted. ahmad aboul wafa mobile networks suffer
growing pains mobile phone service subscribers have noticed a significant deterioration in service in recent weeks. technical problems affecting both mobinil and vodafone networks have observers questioning the capacity of egypt’s cellular phone infrastructure. problems began to emerge on november 22 and 23, when thousands of mobinil subscribers were unable to make or receive calls at certain times. the company claimed the service interruption was due to a malfunction of one of the network’s 11 switches. “it caused a lot of delays,” said office worker omneya ragab. “for instance, my boss tried repeatedly to reach me but was unable.” mobinil claimed the problem was quickly dealt with and not expected to recur. immediately following the network failure, the company sent text messages to affected subscribers explaining that calls made during the days in question would be free of charge. it also issued a press release reiterating its regard for “clarity and transparency in respect for its customers.” barely a week later, mobile phone users were again complaining of network failures. yet this time, the complaints were coming from vodafone subscribers. as the company runs only one switch, the network collapse affected all subscribers – leaving some without service for almost 10 hours. the incident followed a similar one in early 2004 when the company’s switch malfunctioned. some observers attributed the latest spate of service interruptions – on both networks – to system overload. “the existing networks are getting old, and covering more than their capacity,” said ashraf raafat, a mobile phone user who complained of connection problems on both of his mobinil lines. “whenever i call someone, i’m connected to someone other than the person whom i intended to call.” vodafone user mennah shams complained that she, too, had recently been encountering the same problem. according to ali salama, vice-president of state-run fixed-line provider telecom egypt (te) – which will soon have a share of the mobile business through its partnership with vodafone egypt – the problem was being exaggerated. “networks can malfunction at any time. the problem is inflated because mobile communications affect everyone, everywhere,” he said. “operators usually expect those problems, and have recovery mechanisms to compensate people. those are international standards that are being followed.” salama disagreed, however, with claims that the operators’ capacities were overburdened. “the mobile phone is an expensive tool, hence its use by only a small percentage of the population, where teledensity doesn’t exceed 5 percent,” he explained. “the operators are aware of their addressable market, and have studied it carefully to meet its demands.” mobinil, which launched operations in 1998, services some 3.5 million customers, while vodafone egypt’s network, which came on line in 1999, boasts another 2.5 million. while both companies have expressed concerns over potential growth restrictions due to rapid population increase, they are hoping that the national telecommunications regulatory authority (ntra) will eventually allow them to upgrade to an 1800 mhz system. presently, both networks have only 900 mhz bandwidth at their disposal. according to ntra director alaa eddin fahmy, both operators should be granted licenses for the technical upgrade in 2005. “we are finalizing the logistics of the license, and the additional spectrum should be available by next year,” he said. “operators can use it to offer better service quality and extend their networks.” dissatisfied mobile service customers, who at the time of press were still complaining of frequent service interruptions, say the upgrade is long overdue. lina attalah french giant bids for local
cement during an investment conference last november, minister of investment mahmoud mohieldin boasted of lucrative privatization deals in the making. “there are two major transactions we are working on,” he said. “one big transaction shouldn’t be less than half a billion dollars in terms of size... and we will have another one that shouldn’t be less than £e 4 billion.” while speculators are still wondering about the latter, the former’s identity became clear on december 6 when french cement giant ciments francais (cf), a subholding of italy’s italcementi group, made a $550 million (£e 3.4 billion) offer for 65.9 percent of market leader suez cement company. cf already holds 34.1 percent of the firm, while the remainder is held by the government and private shareholders. the french group has been active in egypt since 2001, when it first picked up 25 percent of suez cement, later increasing its stake to 34.1 percent. should the offer be taken, the deal would represent egypt’s
largest ever privatization in terms of money. the previous record
was also set by a cement firm, assiut cement, which was purchased
by international cement giant cemex in a series of acquisitions
collectively valued at over £e 1.4 billion. the french offer has brought criticism of the government, which has been often questioned for only privatizing the public sector’s most profitable companies, for less than fair prices, leaving loss-makers on the shelf. mai attia, an analyst at hc securities, believes the stake is worth more than the proposed price. “i believe the offered price for the share is undervalued,” she said, “but that will depend on the decision of the government and private investors, who will decide to sell or not to sell.” cement traders also see the offer as a threat to the cement industry, which is now dominated by foreign players. “the offer is very lucrative but we should not sell our cement companies because the cement industry will be totally monopolized by foreign companies,” said ezzeddin abou awad, head of the cement traders’ association. “it is a big risk to sell the company, especially after the closure of some cement companies in europe. i think we should think of a way to control domestic cement prices instead of selling our companies to foreign investors.” mohieldin previously stipulated new conditions for selling off state-owned companies. buyers, he said, cannot raise prices of products produced by companies slated for sale for six months or lay off workers for at least three years from the date of the purchase. abou awad, however, believes the ministry would have no authority to protect workers from being laid off after the selling process. “the investor who buys a company has a different method of managing the company than that of the government and the minute the contract is signed many workers are dismissed,” he told business monthly. cemex, for instance, implemented a $40 million early retirement
scheme shortly after acquiring assiut cement in 1999. the plan reduced
its labor pool to just shy of 1,200 workers, down from 3,700. eman wahby and ahmad aboul
wafa fertilizer falls short despite government claims that the local supply of nitrogen-based fertilizer is sufficient to meet domestic demand, farmers and private producers are still complaining of scarcity. local cultivators attribute the shortage – which has brought noticeable price hikes – to the decision of local fertilizer companies to export the bulk of their production to more lucrative international markets. government sources put domestic fertilizer production at over 10 million tons per year, including 9 million tons of azotic (nitrogen-based) fertilizers and 1.44 million tons of phosphorous-based fertilizers, mainly from state-owned manufacturers. while national demand for fertilizer is about 8 million tons, most private and state production is exported, leading to an unnecessary shortfall in supply. farmers say the root of the problem is not the producers’ penchant for export, but rather the state monopolization of the sector. they urge the government to privatize the industry rather than make new investments in public sector production capacities. since the start of the privatization program in 1991, the government has partially privatized two major fertilizer companies, abu zaabal and abu qir. the latter company alone controls some 70 percent of the local market. traders say the problem isn’t limited to the state’s inordinate share of the market. they claim a small cabal of influential traders has monopolized fertilizer production for over a decade, buying up entire inventories from producers then selling them to smaller traders and farmers at a profit. “instead of fighting monopoly, the government sold the shares of abu qir to six traders who took full control of local production,” said mursi al zayyat, a trader based in assiut. other traders noted that when prices go up on the international market, the cartel exports about 80 percent of its production for more lucrative returns. private traders quickly follow suit. consequently, the price for a 50-kilogram bag of fertilizer has risen from £e 15 in recent years to the current market price of £e 30. “we have a gap between supply and demand, and it costs the government huge amounts of money to import fertilizers, especially given that the local price is £e 600 and the international price is £e 2,000 per ton,” said sherif al-gabali, chairman of abu zaabal fertilizers and head of the fertilizer traders & distributors association. an advocate of export controls, al-gabali added: “we should free the local market of price controls – even if it’s done gradually – because international prices are more attractive.” his reasoning was echoed by the deputy chairman of one private fertilizer company who complained of losing $150 for every ton sold on the local market. “the government should provide us with competitive prices – otherwise, we shouldn’t be blamed for exporting production,” he said on condition of anonymity. minister of foreign trade and industry rachid mohamed rachid recently announced that the government would allow fertilizers – at long last – to be influenced entirely by supply and demand. government intervention, he said, should be limited to supporting companies that offer farmers the commodity at lower prices. as of press time, though, local producers were still selling at the same prices. while the government is hoping to boost local production – envisioning a 50-percent increase by 2007 – by encouraging local and foreign investors to build new factories, this has proved easier said than done. mohamed abdel rehim abou hagra, chairman of the general authority for industrialization’s chemical department, told government daily al-ahram in november that it would be difficult to lure investors to the industry, especially since a single production line can cost upwards of $350 million. “besides, investors have to pay taxes and transportation expenses, and, therefore, must resort to export in order to recoup profits,” he was quoted as saying. according to al-gabali, investors will only build new plants in economic free zones, where they are exempted from fixed prices and enjoy the right to export. “it’s strange that most of the projects that the government takes part in are being built at the free zones,” he said. “this is an alarming phenomenon.” ahmad aboul wafa nile succumbs to road expansion a controversial project to create an arterial road in cairo along the nile is raising tempers. the government project, still under study, aims to widen the existing nile corniche, which is of some 3.8 kilometers in length, by adding some 12 to 15 meters between the maspero and magra al-oyoun area to the west of cairo. minister of housing and urban communities mohamed ibrahim soliman said the project aimed to “develop the corniche, upgrade civic buildings around the nile and reduce traffic jams in downtown.” he dismissed any possibility that the project would cause any damage to the highly touristy area surrounding the nile, which hosts a string of international hotels. “to the contrary, the project will work to beautify the area,” he said, adding: “many hotels have offered to contribute to the project already.” according to hibba bilal, public relations manager at the newly
opened four seasons hotel, the road would be an asset only if the
minister’s words hold true. “our landmark position with
the nile view is a selling point for us,” she told business
monthly. “as long as it is not affected, we can accommodate
any changes. we would also be interested in any solutions to the
downtown traffic problems.” the £e 250 million project envisions two-way traffic along the nile corniche, but would require extending the asphalt into the nile in several places. according to soliman, some 300,000 cubic meters of the river would be filled. he stressed, however, that the landfill would only account for 2 percent of the nile’s volume in this stretch to be compensated by dredging on the opposite side of the nile to remove the silt that is clogging the river in front of the marriott hotel. soliman refuted claims that the project would damage the nile or its banks, claiming the landfill – to be set down using nile boats – would help treat the badly eroded eastern bank of the nile. he said the ministries of housing and irrigation would coordinate efforts to identify the optimum method of implementing the project in a way that causes minimal disturbance to water resources. outspoken urban planner milad hanna has his doubts. “widening the street by filling of some of the nile’s waters is very risky and can cause some serious environmental imbalances,” he said. “the nile is a sacred resource that should not be touched except by specialists.” impact studies for the project are expected to take four months, while implementation is slated for an 18-month period. the government has not named who will fund and implement the project, nor given details of a tender. hanna described the government’s scheme as “plaster planning,” a term used to describe partial and incomplete solutions that lack farsightedness. he sees the only real solution to cairo’s persistent traffic problems as expanding out of the confines of downtown. “we need to encourage people to leave cairo by creating better housing and employment opportunities elsewhere,” he said. lina attalah, |
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