The private sector is reaching for a bigger share of the oil industry, reports Sherine Nasr Everyday, more private sector companies are entering the oil sector as service providers to displace the largely public sector companies. The government, after years of dominating this industry, is now allowing more private capital in the form of sub-contractors who provide countless and substantial services. There are some 300 private businesses already operating in the field, while at least 60 more were established recently as joint ventures. The private sector holds a share ranging from 35 to 100 per cent in these new companies. "It is normal to see the private sector growing and gradually replacing aging state-owned companies," Minister of Petroleum Sameh Fahmi told a meeting of the Egyptian Junior Business Association (EJBA) last month. "Nevertheless, we have to stop thinking in terms of public or private sector; these are all Egyptian companies. They all work hard towards the same goal of helping build a strong and vital oil sector in Egypt," Fahmi added that the ministry's ultimate goal is to develop the sector and create real job opportunities. Notably, the majority of the owners of these private entities started in the public sector, and, since beginning their own businesses, have hit it big. Egypt's long experience in the oil industry has enabled it to venture into at least 12 Arab and non-Arab countries, including Saudi Arabia, Kuwait, Qatar, Jordan, Morocco and Venezuela. Egyptian companies are directly involved in extraction and transportation operations, in addition to a variety of other oil-related activities. Despite this success, no directory has been compiled of these private companies, detailing their activities and defining their ratings. "Unless we publish a company directory with detailed information about these companies, it would be difficult to tally them and ascertain their quality," argued Khaled El-Wagih, head of EJB's energy committee. The committee was launched in 2005 to help member companies in the petroleum field, and later expanded "to include all members working in the fields of electricity, as well as new, and renewable energy," El-Wagih explained. One of the committee's main objectives is to improve the level and price of energy, develop the petroleum sector and increase the role of the private sector in this field. "While the sector continues to face major problems," according to El-Wagih, service exports provided by private Egyptian companies to other countries over the past two years are estimated at some $2.5 billion. Topping these obstacles is the state's monopoly of the production and distribution of electricity, which consumes the state's budget in the form of subsidies. The new private companies operating in the petroleum sector are also mostly small and medium-sized entities in need of development and upgrading. "To meet the first challenge, we suggest legislative amendments to allow private companies to operate in energy production," proposed El-Wagih. "In the meantime, an association for all private companies in the petroleum field should be created, and the business environment should be further developed to assist these companies to reach international standards." He further recommended that the Ministry of Petroleum adopt a mechanism to provide these companies with technical support and training as a means to upgrade their performance. In response, Fahmi said he was willing to establish a holding company for petroleum services, in which shares will be equally divided between private companies and the Egyptian General Petroleum Corporation (EGPC). "Under the umbrella of this holding company, two other companies should emerge," suggested Fahmi. "One to provide petroleum services inside the country, and the other for services abroad." This initiative would ultimately lead to the establishment of a conflict resolution mechanism to correct faulty practices in the market, he added. "This mechanism is certain to eliminate genuine problems, since contracts in this field are always long-term and it is a nuisance to hire companies which are not serious about their business," added Fahmi. Over the past few years, the ministry has been criticised for exporting large amounts of natural gas, instead of directing it to the rapidly- growing, heavy energy-consuming petrochemical industries. Critics believe that Egypt has lost the value-added of exports of petrochemical products to an ever-growing world market. In the fiscal year 2005-2006, the oil sector contributed some LE52 billion to the budget, LE42 billion of which were directed to subsidising oil products. "Subsidies for 2006 jumped to LE48 million, as local energy consumption registered unprecedented increases compared to the previous years," noted Fahmi. Paradoxically, and as a result of heavily subsidised fuel, the more fuel is sold domestically, the bigger the losses. Egypt's proven gas reserves have almost doubled from some 36 trillion cubic feet (tcf) in the early 1990s to 67 tcf in 2004. This roughly stands for almost one per cent of total global reserves. "As long as we are able to satisfy the country's demands of oil and gas, while exporting to maintain a surplus of hard currency, we are optimistic," declared Fahmi. This is thanks to re-pricing gas in international treaties, otherwise, Egypt would have paid some $3.8 billion in 2005-2006 according to old prices. Although no major oil discoveries have been made recently, Fahmi believes that figures are mostly reassuring. In comparison to other Arab countries, oil and gas discoveries in Egypt during the past five years are relatively high. In 2002, Egypt was home to 22 out of 57 oil discoveries in the Arab world, and 10 out of 18 gas discoveries. In 2005, Egypt's share of oil discoveries was 38 out of 56, and 11 out of 13 in gas discoveries. On the international level, the minister indicated that Egypt is keen on being present at all world energy forums to closely monitor changes in the debate, especially that securing energy demands has become a hot topic. He was referring to the EU-OPEC (Organisation of Petroleum Exporting Countries) Energy Dialogue held in Brussels last June, and the first Global Energy Roundtable hosted by Egypt in November. "Developed countries need to buy oil to satisfy their growing developmental needs," Fahmi said. "They will buy it at any price." A dialogue between producers and consumers has never been more serious, he noted, and needs to continue to be constructive for the benefit of both sides.
