Rites of passage

A symbol of national pride and independence, the Suez Canal has seen better days. On the 45th anniversary of the nationalisation of the Suez Canal Company, Sherine Abdel-Razek looks at the canal then and now
It was a triumphant moment for Egyptians everywhere the night late President Gamal Abdel-Nasser stood in Alexandria's Manshiya Square and defiantly announced the nationalisation of the Suez Canal. The Egyptian people had suffered deeply to bring the canal into being -- hundreds of thousands died digging the channel virtually with their bare hands under the corvée system. They had seen little reward for their efforts, however, as control of the enormously valuable resource was wholly enjoyed by foreign powers.
Everything changed on the night of 26 July 1956, and people rode a wave of inspired nationalism to shed decades of humiliation under colonial rule. The canal became a symbol of resistance, but such revolutions don't come for free. The worst was expected, and there was more struggle ahead when the Anglo-French-Israeli aggression against Egypt struck later that year.
Not only an emblem of independence, but the Suez Canal also weathered impassioned days of war and glory to become one of the country's most valuable foreign currency earners -- until recently, that is. Today, the Suez Canal faces a new kind of battle, waged by the free market economy. The fierce competition in international transport faced by the Suez Canal Authority (SCA) threatens to undercut the power and influence it once wielded.
Inaugurated 140 years ago, the Suez Canal continues to top the list of main shipping routes for international transport. But starting in 1995, canal revenues started to decline, reflecting political, as well as the economic changes across the globe. The 1997 Asian financial crisis had far-reaching repercussions, including a sharp reduction in the number of shipments being carried through the canal. More trouble was ahead when the United States began covering more of its oil needs from nearby production sites, such as the Caribbean Sea and Nigeria. This trend saw a decrease in traffic of tankers carrying exports of Arabian crude oil. Canal earnings dropped 5.3 per cent in 1998, going from $1.85 billion in 1997 to $1.78 billion.
Other factors in the shipping industry have also conspired to reduce the canal's money-making capabilities. Mohamed Ezzat Adel, former SCA chairman and one of the handful of men who helped seize the canal in 1956, told Al-Ahram Weekly that the canal is losing money because the number of passing vessels has dropped. One of the key changes behind the losses is a shift towards using supertankers instead of lower-capacity tankers. Moreover, the transportation industry as a whole has witnessed consolidation on a global scale -- the trend towards mergers has allowed transportation companies to fully utilise the space on different shipping vessels, ultimately lowering the number of vessels used.
To keep the SCA competitive, the canal's draught was deepened to 62 feet, enabling it to accommodate the world's largest bulk carriers. Specialists point out, however, that the canal will have to be deepened further to some 70 feet in order to accommodate fully laden very large crude carriers (VLCCs). Plans to this effect are expected to be completed by the year 2010. By this time the canal's permissible draft will have increased to 72 feet, allowing for the passing of most of the ships expected to be in use, including 92 per cent of the currently existing ultra-large crude carriers (ULCCs) and oil tankers.
Already officials are boasting of an increase in revenue to $1.9 billion in 2000. However, the boost may simply be the result of the SCA's new pricing policy, which, along with discounts for certain oil tankers, offers a 35 per cent discount to liquefied natural gas (LNG) tankers and even larger discounts for the largest LNG tankers. The discount pricing was tempting enough to lure Qatar early last year to export its oil through the canal rather than through Israeli ports.
Another smart policy pursued by the SCA was to juggle several currencies so as to hedge against the risk of a retreat in currencies worldwide. According to Hamdi El-Tahan, head of the People's Assembly Transport and Communications Committee, the SCA operates within IMF special drawing rights (SDR): a basket of currencies that includes 39 per cent US dollars, 21 per cent German marks, 11 per cent French francs, 11 per cent pounds sterling and 11 per cent Japanese yen.
But these precautionary measures will not be enough to guard the SCA against the tough competition it is receiving from alternative routes, most notably the Red Sea-Mediterranean SUMED oil pipeline. The 200-mile SUMED pipeline runs from Ain Sukhna, on the Gulf of Suez, to Sidi Kreir, on the Mediterranean, and is owned by the Arab Petroleum Pipeline Company (APP), a joint venture between Egypt (50 per cent), Saudi Arabia (15 per cent), Kuwait (15 per cent), the United Arab Emirates (15 per cent), and Qatar (5 per cent).
According to El-Badri Farghali, Tagammu MP for Port Said, "Since 1967 Israel has planned to develop ports and routes to compete with the Suez Canal as an alternative route for international trade traffic in the Middle East." Israel did extend a land route linking Ashdod port, on the Mediterranean coast, to Eilat port, on the Gulf of Aqaba. The route includes pipelines to transfer oil, as well as railways and highways for transporting goods, making the route a viable substitute for the Suez Canal. So far, the Suez Canal has not suffered from this alternative, but Farghali argues that this could change, as transportation by land routes takes less time and costs less than sea routes. Farghali also noted that the World Bank recently granted a $1.3 billion facility to develop Ashdod and Haifa ports in Israel.
Former SCA chairman and canal visionary Mohamed Ezzat Adel concedes that the waterway is in a tough spot. But he is optimistic, noting that the canal has the advantage of working in the clear. "The Suez Canal has been doing business for 140 years now," explains Adel. "That means that it has fully covered the value of the investments that were injected into the project. For any other project to reach this point, it will take a very long time. The only other way is to charge higher tolls."
The Suez Canal still tops the list as the best shipping route in the world. Panama and Greek Cornisa canals are considered equally relevant, but are obviously not geographical competitors. Perhaps the only challenge to the Suez Canal in the movement of oil from the Gulf region to the Mediterranean is the SUMED pipeline.
Not everyone considers SUMED a real threat, however. Hamdi El-Tahan of parliament's Transport and Communications Committee believes that SUMED will not adversely affect SCA revenue. The bulk of income comes from fees paid by passing tankers, reasons El-Tahan, and these will not be affected by the pipeline. The SCA also offers incentives for tankers to off-load a portion of their cargo through SUMED, in order to enable them to pass through the canal and reloading at the other end of the pipeline.
MP Farghali, however, is not convinced, and he is attacking SUMED at the roots. Farghali argues that SUMED was approved as a transport route for cargo of vessels the canal could not accommodate. But the APP got more ambitious. Today, SUMED permits tankers small enough to traverse the canal to transport their oil through the pipeline.
While the effect of SUMED is controversial, the impact of linking the East Port Said (Sharq El-Tafri'a) and west Suez (Ain Sukhna) terminals has also raised many fears. "Both ports will be linked by a land canal that could compete with the Suez Canal. Ships can off-load their cargo in one of the two ports and reload later at the other port," said El-Tahan. In this case, Egypt will not benefit from the transit fees, as both ports are privately managed by multinational companies.
As the Suez Canal remains a symbol of national integrity, talk of privatising the SCA has done little more than raise an outcry. Plans to privatise affiliated services are under way, however, but privatising the SCA itself remains for most Egyptian a question of politics not economics.
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