Can you brief us on your career history up till now?
Originally I started in the 1980s in the private sector as a Process Engineer in water and wastewater treatment. Then moved to ENPPI in 1983, where I worked for around 17 years in different posts, where the last one was as General Manager for projects.

Later on I moved as Assistant to the Chairman in Petrojet, after that I was appointed as Vice Chairman for the Egyptian Petrochemical Holding Company (ECHEM) for planning and projects. This was followed by me moving to Mobco as Chairman and CEO, and then back again to ECHEM as President and Chairman to the Executive Board. Afterwards I became the Minister of Petroleum and Mineral Resources.

I currently freelance as a consultant to many international organizations, specifically in the petrochemical sector. In addition, I am volunteering in a lot of jobs, including the Organization of Building and Developing Egypt encompasses a lot of young, ambitious and creative individual workers, thus integrating their inventions for bigger jobs including solar energy research and application, agriculture, industrialization, even textile you name it.

You became Minister of Oil on August 2nd 2012. In the time of Prime Minister, Dr. Hesham Kandil. What were your expectations? And why did you accept it?
Originally a friend of mine was nominated as Minister of Petroleum at that time and all of a sudden I have been contacted, requesting me to me with the Prime Minister, but what crossed my mind was that I was to work for either the ministry of industry or ministry of investment due to their vacant status.

It was actually a surprise when the Prime Minister at the time told me that the former President [Mohamed Morsi] did not favor the other candidate and he was requested to propose another name for Minister of Petroleum.  He told me frankly that I was the last one on the list from the petroleum sector, and if I did not accept that nomination they were going to get someone from outside the petroleum sector. Then I had no choice but to accept out of loyalty to the industry and Egypt.
if you are going to harm the industry you are going to harm Egypt. Unawareness of this sector and its circumstances would lead to a lot of delays due to the need for accommodations.

Why do we have natural gas shortage?
We don’t have a shortage in natural gas, we are maintaining the same production rates. The problem is that we had future plans that would lead to consuming more gas quantities, which wasn’t produced yet.  We were expecting to produce 6.4 BCF per day by 2012 and the required quantities at that time were 6.3 BCF per day, but that didn’t happen, and we maintained a 5.5 BCF per day. That’s to say we’re lacking 1.0 BCF per day. In 2013 production rate was planned to reach 8.4 BCF per day from new developments, which didn’t happen. Simply you’re lacking developments that lead to increased production.

In order for development to happen you need investors, where are the investors?
The current investors can’t inject any more cash unless they’ve paid their overdue bills. This behavior of delaying payments started in 2010 leading to an accumulated overdue, reaching 6.5 billion USD, which under the current economic situation can’t be paid back in a year. As much as we care for compensating the overdue bills, we also want to maintain the current invoices on time.

With the debts to IOCs issue and the challenges currently facing the economy, could you give us your insights on the circumstances surrounding the development of the country?
The debt issue did not impact the bids that we newly announced simply we’ve awarded approximately 22 new concessions over the last 6 months that were tendered before, some of them in the deep water, some of them in the Western Dsert, some of them in the Red Gulf area and in the Red Sea area.
What we are worried about is the current situation and how to reconcile all their overdue. It is not that tough to handle as we reached an agreement with them to inject some additional investments in order to increase the current production and we allocated a share of this new production as a compensation of their overdue.

Can you describe the mechanism for fuel sales and marketing in Egypt, and what are the obstacles faced while you were a Minister?
Due to local regulations you cannot sell at two prices. We actually spoiled the market by selling not only gas, but oil products as well at very low prices in comparison with the prices of the international market. When we increased the gas price from 3 to 4 dollars per million tubes the producer decided to sell a ton at 620, we spoiled him. They are now used to get something like 150% profit margin and they are not in a position to reduce it, this is not logical. Nobody in the world can imagine that he is getting a 150% profit margin.    

Can you define corruption, and what the solution is to combat corruption?
Corruption in this case would be selling natural resources at lower price to a selected a number of business men to make a fortune. I guess we have many of them.
Despite of the realizing growth rates that exceeded 7% this did not actually help the community to recover, we had seen that poor people are getting poorer which means that this 7% was only limited to a limited group of businessmen, but the majority of the society can not feel it.

The solution is that we first of all have to find alternatives to the petroleum products, for energy consumption. We’re currently consuming all the natural resources of the country in businesses that do not add real value to the natural resources. Generating electricity from natural gas or diesel oil is not a good solution for energy, taking into consideration that you have alternatives, like solar cells, windmills, and even nuclear resources.  Currently you can get cheaper electricity from solar cells rather than oil resources at a rate of 10 cents per kilowatt, while it costs you right now something like 20 cents, so you can get it at a half price. This will actually save not only your budget but also your resources and your natural resources. Second, you can redirect all these oil resources to other higher value industries such as chemicals where you can get an added value of something like a hundred times when you generate power.

In order to replace those corrupt investors you need to have an established government, and established system, to attract newcomers. How long do you think the interim government is going to continue, with no parliament, and do you think investors out there are waiting for things to change?
The oil and gas business has a habit of being resistant to surrounding problems, good examples of that are Libya and Iraq.  With the current efforts I do not expect people are going to wait long. Political improvements are needed for us and the investors to explore the future in Egypt. The question really is: are we back to the dictatorship era or are we really going to improve the situation thus applying the rules of freedom?

What’s your vision involving the current production sharing model? Is it what we could claim to be financially attractive to investors, or should there be further amendments?
The second day I was appointed as a Minister, I formed a committee led by Dr. Mustapha Refaei, to prepare a report on the added value gained coming from the oil and gas business over the last 15 years.  I just wanted to evaluate the current situations and circumstances and how we could improve it.  Some people consider the oil and gas business in Egypt as a black box, which it is not, it is truly transparent, the only item which is not announced is the agreed pricing because it is different from contractor to contractor.

Can you explain the bidding process for oil and gas concessions?
The process involves announcing a tender where some areas are allocated where we have expectation of oil and gas reserve in these areas. The people submit offers, they start making analyses, and then if they agree to it, they submit a bid with terms and conditions except for the selling price of the product to the Egyptian market because this is optional, as they can export their share.

Based on this they start making an offer, which includes the number of wells and their costs, including drilling and development.
There are terms and conditions, when calculated over 30 years compared to others, as for each concession you have 4 or 5 different figures.  After this, we start making this analysis, and the best conditions that represent the best net present value (NPV) is the winner.
You have the concession but you still do not know how much gas can be produced and what the real expenses will be. Once you achieve what we call a commercial discovery we discuss the depth of the water, the maturity of the field, and the type of resources it encompasses.

Every bidder has a certain figure in mind as an Internal Rate of Return (IRR). Bidders realize this IRR by negotiating their share (which is around 15-25%), the mechanism of recovering the expenses, the selling price of the product to the local market, specifically to the Egyptian government, keeping in mind that, there are 4 identified for concession agreement; simply royalty, profit sharing, production sharing and services. This is applied all over the world.

First, you get a bidder who is paying for your royalties, 40%-50% that you get per year for this concession. Second, is to know how much the contractor is producing. What are his profits? Then you share with him the profit. Third is the production sharing agreement (PSA) where you form a joint company, then you start operating the company jointly where a certain amount and quantity is allocated to the bidder and you [Egyptian Government Partner] share the rest, and the last one is you get contractor to work on your behalf paying him the actual cost of doing the job and the oil or gas used. These are the four criteria.

In Egypt we are applying the production sharing methodology because it’s clear for us, we know how much gas, how much production is realized. We can easily monitor and control the production cost as we are jointly doing the job with the partner. In addition, it allows for some technology transfer, not on the upstream activities, but on the downstream activities, such as oil and gas treatment.

Recently we applied the contractor criteria to the north Mediterranean region with BP, agreeing to pay them a rate ranging from 3.1 to 4 dollars per million standard cubic feet discovered.   

Do you see the production sharing model as a conflict of interest since the moderator is the partner at the same time?
EGPC is a partner but carries a share since [they’re] not really investing and the partner [IOC] is paying all the investment. There is no conflict. Let’s say EGPC is a partner with BG in a field, the partnership actually comes into force when the commercial discovery is announced—when the gas pricing is announced and agreed upon—so there is no conflict. After that what [EGPC is] doing is monitoring and controlling the production activities in order to assure that the fields are producing in accordance with development plans in place.

What are the current reserves for natural gas and oil in Egypt?
The current reserves for Egypt for natural gas are around 70 TCF, and for oil around 30 billion barrels.

Why do we have different figures, why is it that we don’t have transparency in information when dealing with this line of work?
It is because of the dynamic state of the reserve figure. The problem is that we have access to the production figures on an hourly basis, so the figure is actually changing every hour.

Who knows about negotiations taking place within the People’s Assembly (Parliament)?
Only members who are part of the concession agreement, who happen to be six members from the EGPC board. They’re knowledgeable about the circumstances and negotiations. Those members are the Minister of Finance, the Treasurer of Egypt, the Minister of Industry, the Minister of Investment, the Minister of Electricity, the Minister of Local Development, and the Legal Counselor of the Cabinet.

Why are those negotiations top secret?
Complete exposure would hinder the success of the negotiations process. Confidentiality is maintained even after the negotiations. However, we announce the percentage division, and the rate of recovery, expenses and the signatory certificate that is given by the contractor, which is openly announced in the official newspapers.

Why doesn’t the losing bidder get to know the reason behind his inability to win the bidding?
For the same reason, the quoted price is never the decisive factor, however, a whole formula is used: the capital expenditure (CAPEX) and the operational expenditures (OPEX) for ten years, leading us to the evaluation price. However I am not required to announce my evaluation criteria to prevent unwanted negotiations.

Allow me to ask you about your personal black box, your conflict with former President Morsi, since you took your role as Minister?
There were never personal conflicts, I used to perceive them as lovely people, but there are ones who hid behind the prime Minister and the president at that time whom I might’ve had conflict with.

Who are the people veiled by the president and the prime Minister?
I don’t like to talk about politics, and it’s not honorable to point the finger at people who can’t defend themselves, however I’ll talk business wise: The fuel consumption rate per year is 80 million tons, the foreign price range is around 880 USD/ton and it increase to USD 910, thus the net price should have been EGP 422 billion, and you want to sell them for 70 billion EGP inside the country. Thus, it sounds rather ridiculous to be asked to sell them with usual price. So if we sell them for 70 the government pays 130. The organization used to account for 200 billion dollars.

Did that have anything to do with the USD exchange rate at that time?
No, those 80 million tons had 70% of them produced by us, this was calculated by the following method: the unrefined oil had a different cost, as the unrefined oil was worth USD 100, which could be used in production of products worth USD 150, so 70% came from national production, thus it costs nothing, which of course is a preposterous theory.

There is a term that applies to this situation, “the code of fortune.” According to their theory the other 30% is the percentage reserved for the international supplier, and based on that, the liter of diesel would cost EGP 4.5. It’s sold in Europe for 2 USD and the import price was for USD 1,000 per ton excluding the shipping and storage costs, and internationally it was sold for USD 2,000 per ton. Each ton fills up 80 tubes, and the tube at that time was EGP 2.5. When it reaches shore after being taken off the ship, it would cost EGP 200, thus this feasibly was unacceptable, especially if other suppliers are owed, for example to pay the electricity suppliers. Then you were even asked to overcome the debt on your own and that included taxes too.

Are they currently applying the same method?
Yes they are. I’ve said that the recent number exceeded USD 350 billion, and the current oil Minister didn’t retort, even when I confronted him with the current numbers in a symposium. I said that out loud due to the conflict with the treasury. Support is defined by the international price of the product—the price of the product in the national market. The catastrophe caused by the persistence to wrongly use the subsidies rules lead to a deficit of up to 65%, which lead to no one wanting to invest neither internationally nor nationally.

We need to] put an end to financial conflict caused by the unbelievable expenses that companies had to cover on their own, the operating cost was always an obstacle I had to face. Upon the day of my resignation the electrical bill was worth EGP 50 billion, today that number reached to EGP 80 billion.  From the 1st of February till the 28th of April I had to send harsh messages to the electrical company denoting that the sites won’t be provided by electricity unless they are paid upfront.
This was a very heavy conflict, as they thought I was instigating the market against them. I was not doing this to move prices—the truth of the matter is that today the electricity costs 100 billion worth of products, then electricity has to stop being supplied in stations working with gas and oil, and should be directed to stations working with solar energy. For example, for every year around 1,000 mega being transmitted through solar energy, costing a rate of EGP 0.7 per watt. Today it costs EGP 1.50.

What would it cost us to use those unconventional methods to achieve that kind of saving?
It costs nothing to apply this method—that is financed by the private sector, which provides electricity for 70p as it part of their sponsorship, and believe me they are making a profit too.

Is the government moving in that direction?
The government does not want to move in that direction, as the energy companies are profiting from the current situation. There are maintenance contracts, and income is being given regardless of the surrounding circumstances. Thus, the current conflict is caused by personal interests and corruption as the private sector would [have to] cut down on their income and profits. That’s for the electricity. Another big problem is in the fuel consumption. However, the electrically powered cars can be charged to move longer distances for a cheaper price (2 kilo-watt for 300 km), and the car speed can go up to 200 km/h. If we are dealing with gasoline the expenses would be higher as it requires two barrels of oil per 300 km. I am suggesting this alternative to push the citizen to take decisions in accordance with the needed requirements to develop the country. Thus within ten years, 50% of the support costs would be reduced. All of these suggestions were given to the Prime Minister and the President at that time, and nobody was listening.

Why did you have a hard time implementing your ideas while being Minister of Petroleum?
The application of an idea was highly dependent on the political party that you came from and I belonged to none of them. Their point of view was that diesel oil is is in demand, and the expenses would be cut down by it being distributed among other parties including the civil organizations, which were owned by the Muslim Brotherhood. That would increase the cost of the tube to 8 EGP, and I wouldn’t play that kind of game. And if you keep on haggling you become not favored.

Did you know that you were going to be dismissed during the change in the ministries?
I became [Minister] with the state mind of knowing that the state of presidency was temporary. I knew that I wasn’t staying for long. That was an incentive driving me to do my best and to leave a big mark behind me that would make a difference.

How many countries did you travel to while you’re Minister of Oil to resolve national fuel issues?
I traveled to Russia, Libya, Iraq, Qatar, and that was due to the inefficient output of [Egyptian] refineries, and truly it is ridiculous how we wanted to import products while our refineries’ output was 80%. The reason we traveled to Russia was to negotiate importing gas, but we had to give them an alternative for our demands during the negotiations. The method of the Muslim Brothers was dependent on “thug-like dominance” over the gas sources, leading BG to announce force majeure.

Is it true, that we are going to import gas from Israel via BG?
We don’t have the right logistics to import gas from Israel. The natural gas pipeline between Israel and Egypt is always under attack, and the borders are not prepared for this kind of arrangement. Plus the import price is higher than the export price we were offering them.

While you were the Minister, the cement companies claimed that they didn’t have enough gas to work efficiently. Can you give a brief about the problem?
The claim isn’t true, and I asked for a sheet explaining the consumption rate of the dependent companies, as they took more than they needed and the natural gas meters has no control over it. The amount factories need is based on the production rate. As you can see there is a problem with control too, which would lead to facing liabilities by the company situation.

What were the recommendations you provided to solve the Egyptian energy crisis?
I suggested to the new estates and housing compounds to add solar sheets to the houses to provide more energy to the cumulative energy network, thus decreasing the daily cost of the daily consumption of the houses. All these developmental plans have been presented to the Prime Minister and the President of that time, and even the current Prime Minister isn’t keen to apply those new methods.

What’re your visions to mitigate the crisis?
Well I have been trying for a while and it hadn’t resonated yet with the government. Back in the day there was an agenda behind every decision, that is to say they were waiting till their own governments will come then they can take those decisions and relate that to themselves. I am here talking about an all-encompassing vision for the Egyptian society. Imagine that we can use electrical cars and not using gas fueled cars, which would lead us to not need the subsidized rate. We can use that remainder in the needed facilities including the transportation facilities, thus saving EGP 65 billion.

Is there a war between the private-sector mafia and the government?
Yes there is, it is all dependent on personal gains, so what do you expect? They all have this attitude of hindering wills and passions but I will not give up and I will not get frustrated. And currently I am creating alternatives so as not arrive at a dead end.

By Sherif Elhelwa