Debate over prospects to privatise the gas and oil sector in Egypt has begun, Sherine Nasr reports The oil and gas sector in Egypt is about to undergo a historical facelift. For better or worse, only time will tell whether or not the imminent developments in the sector are on the right track. The Egyptian Cabinet will soon discuss a draft law presented by the Ministry of Petroleum to establish a regulatory agency to take charge of oil and gas activities in Egypt. The aim is to create a more competitive atmosphere in one of Egypt's most strategic sectors. Meanwhile, the Kuwaiti news agency quoted Magdy Rady, Egyptian Cabinet spokesperson, as saying that "a bid will be introduced to modernise the Egyptian General Petroleum Corporation [EGPC]," now the sole owner and operator of Egypt's oil and gas resources. While EGPC will continue its activities in the areas of exploration, drilling and production, activities such as refining, distribution and marketing will be taken over by other subsidiaries, leaving the door before private sector companies, both local and international, wide open, to step in and take a piece of the cake. According to Rady, the regulatory agency for oil and gas affairs is part of the government's programme to deregulate the sector. "The agency would prevent monopolies in the oil and gas market and would enhance competition," said Rady during a press conference last week, adding that EGPC would remain the resource owner on behalf of the state, but it will no longer have authority over the industry. Rady's short statement opened the way to a handful of questions, most of which remain unanswered. The newly suggested structures, if later endorsed by the People's Assembly (PA), would end half a century of EGPC's monopoly over each and every activity in the oil sector in Egypt. Established in 1962 as an evolution of the General Petroleum Authority which was created in 1956, EGPC has continued to play its role as the sole owner, distributor, contractor, marketing and pricing body of oil and gas in the country. At present, EGPC constitutes one of the biggest oil corporations in the Middle East and Africa as it owns or operates with other foreign partners seven public sector refineries, 40 exploration companies, 40 production companies in addition to Misr Petroleum and CO-OP, once two main market distributors of oil products that have lately been growing into less competitive entities. "It is obvious that the government is moving ahead with its plans to liberalise major economic sectors. It is slowly but surely releasing itself of the responsibility of being the main player in the market, a role it has played for decades now," said oil expert Amr Kamel Hamouda. The expert further underlined that over the past three years the Ministry of Petroleum has repeatedly been pressed to come up with a new formula to guarantee more transparency by the EGPC on its inputs and outputs. "The corporation's accounting system is so complicated that it seldom reveals the actual volume of expenditure and profits," said Hamouda. In planning to establish an independent body to regulate the oil sector in the country, the government is trying to duplicate the successful model it followed a few years ago in the telecommunications sector. The fact remains, however; telecommunications and energy resources are not akin. "What proved to be effective in one sector can hardly be the same in another," said Ibrahim Zahran, former chairman of Khalda Petroleum Company and member of the National Specialised Councils. "Telecommunications companies can compete because they more or less provide the same service, while there are a dozen activities in the oil industry, each is of a different nature," said Zahran, who cited exploration, drilling, refining, marketing and petrochemicals to give a few examples of how broad and different activities in the oil industry can be from each other. Barring exploration, which will continue to be regulated by EGPC according to long-term agreements ratified by the PA, the draft law appears to set the stage for endless presumptions and speculations, none of which has been sufficiently tackled by the short statement given by the Cabinet two weeks ago. According to Hamouda, the new initiative casts its shadow on the future of an industry that has been recognised as the backbone of Egyptian economy for more than a century now, and puts at risk the future of at least 75, 000 people working in the hydrocarbon sector. Moreover, it imposes an issue of pressing social consequence. "Who will pay the bill of heavily subsidised oil products if the private sector steps in and operates according to free market rules?" said Hamouda, who added that if the private sector purchased crude oil according to international prices, then it would naturally sell its products at international prices. According to the present formula, EGPC receives 65 per cent of the country's crude output for free. As owner of the crude as well as the refineries, it was natural for EGPC to set the price of different oil products. Nevertheless, Zahran argues that the issue of subsidies has been blown out of proportion during the past decade, and that the actual figure of subsidies on oil products is much less than has been propagated by the ministry. "The EGPC receives Egypt's share of crude, estimated at 65 per cent of the total output, for free," said Zahran, adding that the government will continue to export oil subsidies so long as energy- intensive industries do not pay the market price. In 2005, the World Bank and the Energy Planning Authority conducted a study on oil subsidies in Egypt and concluded that actual subsidy of oil products was estimated at LE8 billion. "The figure may have doubled since, but the LE72 billion of oil subsidy allocations for last year and the recently announced LE50 billion for 2009 cannot be further from the truth," argued Zahran, who emphasised that it was never the habit of the oil sector to stretch a needy hand to the state's coffer. "In 2000, the oil sector contributed a surplus of $6 billion to the budget," he added. But subsidies and pricing are not the only issues at stake. There are also issues related to distribution, marketing and planning for the future. While oil experts examine the repercussions of the new situation, many agree that liberalising the oil industry will improve service and attract more investment into the sector only if the process is done in full transparency and is targeting as a top priority the welfare of the Egyptian people. "There is little evidence this is the case right now," said Hamouda, who argued that no specialised bodies such as the Supreme Council for Energy have been consulted, no criteria have been laid out or made public, and the whole matter is shrouded in ambiguity. More alarming still is the fact that Egypt is becoming a net importer of both oil and natural gas. According to the Central Auditing Agency, Egypt's production to consumption registered a deficit of five million tonnes of oil in 2007-2008 and 4.1 million tonnes of natural gas for the same year. "In a nutshell, Egypt is delving into an era of energy crunch and we are not doing anything about it," said Zahran, who added that exploration activities inside and outside the country must be intensified. "Call it EGPC or call it a regulatory body, it does not matter. If we do not have a national industry of our own or the vision to plan for the future, liberalising the sector cannot be more detrimental," he added.
