Tackling the country's energy problem will be a major challenge for Egypt's next president. His predecessor Mohamed Morsi was removed by mass protests last July partly spurred by power cuts and fuel shortages. The present crisis reached a peak last week when streets across the country were plunged into darkness as a result of power cuts. These had come about due to shortages of the gas supply needed to operate power stations. In their wake the government gave a green light to importing coal for power generation despite fierce opposition from environmentalists. “Egypt's production of natural gas has dropped by 14 per cent to 5.2 billion cubic feet (bcf) a day,” Hafez Al-Salmawi, director of the Egyptian Electric Utility and Regulatory Agency (EgyptERA) told Al-Ahram Weekly. The energy crisis comes against the background of estimated gas reserves of 70 trillion cubic metres. Egypt was a gas exporter from 2005 to 2010. Production only declined after the 25 January Revolution. The 14 per cent drop in production came on the back of foreign producers' reluctance to invest in new exploration activity for a cash-strapped government unable to pay them their share of production. Egyptians, upset by long hours of blackouts, were not appeased by the government move. Talk shows and headlines shed light on the hazardous impact of introducing a highly-polluting source of energy. Anti-coal campaigner Ahmed Al-Droubi, coordinator of the Egyptians Against Coal pressure group, said that the plan to import coal could come at the expense of other sectors of the economy and endanger the health of millions of Egyptians. Coal is the dirtiest of all energy sources and the greatest contributor to global warming. Coal-fired power plants have the highest ratio of CO2 output per unit of electricity of all fossil fuels. Coal burning also produces hundreds of millions of tons of solid waste products annually, including fly ash, bottom ash, and mercury. Mercury — which can cause brain damage and blindness — is released when coal is burned and ultimately makes its way into the water supply. The government said that the move would only be allowed if the companies concerned abided by strict environmental-protection rules. And while under the law no business can import coal without a special permit from the Ministry of Environmental Affairs many cement companies have already started negotiations to set up a coal-importing company. The cement companies, mainly owned by multinational companies, have been lobbying for coal imports, claiming that gas shortages have reduced their capacity by 50 per cent. Medhat Stefanos, head of the cement production division at the Federation of Egyptian Industries, said that using coal was an ideal solution for cement factories, rejecting claims that coal would cause pollution. “Emissions from burning coal like fly ash are absorbed in the production process and become part of the cement, actually improving the quality of the product,” he said. Concern over interruptions to supply and fears of public anger over blackouts pushed the government last week to further reduce gas feedstock to the energy-intensive cement and steel factories. EGAS, the holding company responsible for gas distribution in Egypt, has told cement plants that it will decrease gas supplies by half by August. Egypt's energy crisis has been exacerbated by a generous subsidy programme for the energy used in transport, households and industry. These subsidies have been in place since the early 1950s and they have encouraged consumption, said to have increased by at least 12 per cent over the last three years. According to the minister of petroleum the energy subsidies bill will reach LE140 billion this fiscal year compared to LE130 billion last year. Egypt, once a natural-gas exporter to markets from China to Chile, slashed its natural-gas shipments by half last year, falling behind Equatorial Guinea in the league of Africa's gas exporters according to data compiled by Bloomberg. Instead of exporting the gas, the government, trying to calm the angry streets, has pumped more to supply the local market, failing in the process to provide international producers with their share to fulfill their export deals. British Gas (BG) has declared a situation of force majeure and stated that the direction of gas to the domestic market has stripped the company's overall output this year by the equivalent of 50,000 barrels of oil. Other companies, including BP, Eni of Italy and Apache of the US, which last November sold a one-third stake in its Egyptian business to Sinopec of China for $2.95 billion, have expressed concerns over late payments and unfulfilled contracts. Egypt used to export both liquefied and piped gas. It exported 647 bcf in 2009, a figure that had halved by 2012. Court actions against export gas contracts to Israel and successive attacks on pipelines have stopped exports to both Israel and Jordan. The low supply of gas has resulted in the country's two liquefied natural gas plants, owned by multinational companies like the UK's BG and the French Gaz de France, to come to a halt during the past year. During the five-year period to 2010 Egypt also shouldered $10 billion in lost revenues due to corrupt export deals to Israel, Jordan and Spain, according to the findings of a recent report by the Egyptian Initiative for Personal Rights. Mika Minio-Paluello, co-author of the report, said in a press release: “I've analysed oil and gas contracts from Uganda, Kazakhstan and Congo, and I've never seen a country ripped off this badly. The Egyptian people are paying for elite corruption with blackouts, black market fuel and a collapsing economy.” The country, under pressure from increased demand and fears of lawsuits from foreign companies, started to import gas in December 2012. However, as Egypt does not have a regasification plant that can make shipped liquefied natural gas compatible with its gas-based power plants and factories it finds itself in a dilemma. Its best import deal was the gas-swap deal with Qatar before the ouster of Morsi, which saw the country taking all the gas produced by its foreign partners for local consumption and Qatar covering for these companies' export commitments. Saudi Arabia, Kuwait and the United Arab Emirates have since granted Egypt $4 billion in oil products, but their diesel is not compatible with Egypt's gas-based power plants and factories. These Arab shipments will cover the country's energy needs until August and the government has said that it is preparing contracts to buy natural gas from then on. It is also finalising a deal to buy a floating terminal to re-gas liquefied gas in Ain Sokhna. More alarming, a Wall Street Journal article last month noted there have been talks between Cairo and Tel Aviv about a deal in which the former will import up to eight billion cubic metres of gas a year from the Leviathan field in Israel. The negotiations started in August but agreement is unlikely before the presidential elections. Unnamed local as well as Israeli sources told the WSJ that the Israeli gas would be directed to liquefied natural gas facilities run by the UK's BG Group in northern Egypt via an underwater pipeline or the existing Ashkelon-Al-Arish line in the Sinai Peninsula. While a spokesperson of the Egyptian Ministry of Petroleum has denied the news of imports of Israeli natural gas, the fact that the same drilling company finalised a similar deal to sell gas to Jordan last month does not make it seem such a far-fetched option. Additional reporting: Nesma Nowar and Noha Moustafa
