Egypt’s energy wealth is monopolised by foreign companies

At a time the Egyptian regime says it is taking strong steps towards converting the country into a regional energy hub, economists confirm that the Egyptian regime is distributing the country’s oil and gas wealth among foreign companies in exchange for little benefit for the Egyptian people.

The energy issue is considered one of the important strategic issues in Egypt, in light of Egypt’s needs for local consumption, which is increasing annually by about 3 per cent.

But the Egyptian regime says it will not only achieve the country’s self-sufficiency, but it will turn Egypt into a regional energy hub, especially after operating the Zohr field in the Eastern Mediterranean water region.

In this context, Egypt signed an agreement with Israel worth $15 billion for a period of 10 years, under which Egypt imports natural gas from Israel in order to liquefy it and export it to the external market.

Since the second half of the seventies, Egypt has turned into an oil exporter, albeit in small quantities.

Egypt has five holding companies to manage its wealth of oil, natural gas and mineral wealth, and through these five companies, there are subsidiary companies, including what is held by the public sector by about 12 companies, in addition to approximately 41 joint companies working in the field of oil and gas.

However, despite the large amount of Egyptian state-owned companies, or in which the private sector participates, foreign companies are controlling Egypt’s oil and natural gas wealth, and most of the discoveries are made through contracts with foreign companies.

The major fields were discovered and the necessary investments made to produce them through foreign companies, as is the case in the Zohr field in the waters of the Mediterranean Sea, from which the Italian company Eni produces gas, or the West Delta field which is controlled by the British Petroleum Company (BP).

According to data in the annual report of the Central Bank of Egypt on the Egyptian economy, the inflows of foreign investors in the oil sector represented $46.8 billion during the period between 2012/2013 and 2017/2018, and an annual average of $7.8 billion.

It is noted from the analysis of foreign investment flows data for Egypt during the same period that foreign investments in the oil sector represent a percentage ranging between 53 and 70 per cent of the total foreign investment flows.

This means that the sector represents foreign interests and that it generates profits for them.

Foreign companies have monopolised research, exploration, and production in Egypt over the past decades, especially BP and ENI, in addition to companies from Spain, Malaysia, France, and America.

Despite the presence of oil and natural gas in Egypt since the mid-seventies, as well as the presence of oil and gas in large quantities in countries neighbouring Egypt, such as Libya, or in the rest of the Arab countries in the Gulf, Egypt did not tend to invest in oil and gas, especially exploration and production activities, even though it possesses resources. 

Egyptian investments in the oil sector were limited to what relates to oil refining or the transportation of oil products. As for the activity of liquefaction of natural gas, Egypt was satisfied with the participation of foreign companies with small shares, but these companies later monopolised this activity.

There are two major gas liquefaction plants in Egypt, the first in Edku. Egypt’s ownership interest in it is only 24 per cent, while a British company owns 35.1 per cent, the Malaysian Petronas 35.1 per cent, and France Gas five per cent.

As for the factory in Damietta, it was controlled by the Italian company Eni with a 40 per cent ownership interest, and a Spanish company with a similar share of 40 per cent. Egypt only owns 20 per cent.

This means that the return on natural gas liquefaction activity in Egypt goes largely to foreigners, and Egypt suffices with small shares.

These figures reveal that the agreement to import natural gas from Israel, which was concluded in 2018, at a value of $15 billion for a period of 10 years, will produce little benefit for Egypt.

The first reason is that the company that owns the pipeline (the Eastern Mediterranean Gas Company) is a joint ownership between Egyptians and Israelis, and therefore Israel is a partner in the revenue of transport and the sale of natural gas.

The second reason is that when gas arrives for liquefaction in Egypt, the largest share of the proceeds goes to the British, Italian, Spanish, Malaysian and French companies, and a small amount is obtained by Egypt.

Egypt announced mid-2019 it would achieve self-sufficiency in natural gas, after the Zohr field reached the full production capacity of 2.7 billion cubic feet per day.

But we have to understand the facts about ownership in this field, as well as in the West Delta field that was signed by Egyptian President Abdel Fattah al-Sisi at the Sharm el-Sheikh conference in March 2015, with production scheduled to begin in 2017.

The West Delta field includes five fields, and was the subject of a dispute between successive Egyptian governments during the Mubarak-era and the British company, but al-Sisi ended this dispute by signing a new agreement.

Under that agreement, the British company will pour $12 billion in investments into the field, in exchange for owning the entire field.

The British company must supply production to the local market of Egypt at a price of three to four dollars per million thermal units, and the British company is not obligated to give anything to Egypt other than fees and taxes.

As for the Zohr field, Eni gets 40 per cent of the field’s returns to recover investment costs, in addition to 35 per cent of the field’s returns, provided that the company’s share is only 35 per cent of the field’s returns after recovering the investment costs estimated at billions of dollars.

However, after entering the project, the Italian company sold part of its stake to other foreign companies, and Egypt was satisfied with obtaining just the ownership transfer commission.