Over the past month, rumors were spread in every corner of Egypt claiming that the government is to start a privatization plan for the petroleum companies. Since then, a wave of disagreements, oppositions and discontents has dominated the petroleum scene, asking for replies and facts from the government in general and from the Ministry of Petroleum in particular
These speculations erupted due to the Ministry latest decision to get the Middle East Oil Refining Co. (MIDOR) abide by the new law of abandoning the taxes exemption given to companies operating in the Free Zone. This new law was approved by the People’s Assembly earlier at the beginning of 2008.
In an article published in Al-Ahram Newspaper, the daily state-run publication, last month, the Committee of Industry and Energy of the Shura Council has totally refused any attempts from the government side to sell MIDOR for any investors. After a visit to the petroleum companies located in the governorate of Alexandria, Mohamed Farid Khamis, Head of the Committee of Industry and Energy declared that the company supplies a large share of solar, benzene and jet fuels to serve the local market demands.
Medhat Youssef, MIDOR President said that the company’s market value counts for approximately $4.5 billion, revealing that the company achieved a $308.2-million net profit in 2007 and $110 million during the first quarter of this year. Youssef added that $500-million total profit is to be achieved by the end of 2008.
MIDOR produces 2.9 million tons of petroleum derivatives, worth $1.95 billion, directed to the local market, and another 1.8 tons worth $1.04 billion for exportation. The company’s head capital is to be raised from $930 million to more than one billion during this year.
It is worth mentioning that MIDOR has been one of the industrial institutions that have been affected by the recent decision approved by the People’s Assembly to abandon the taxes exemption given to the free zone.
In 2006, MIDOR refined around 4.5 million tons during 2006 and achieved $1.4 billion as total operational revenue, scoring a 21.5% increase compared to previous year. The company’s net profit counted for $162.5 million; 59% increase.
Moreover, the company refined for others 2.4 million tons of crude oil costing $134 million, which highlighted an increase of $9 per barrel.
Accused of having Israeli shareholders, Youssef affirmed that the company is 100%-Egyptian owned; the Egyptian General Petroleum Corporation (EGPC) holds 78%, Enppi 10%, PetroJet 10% and Bank of Suez 2%.
MIDOR’s lab consists of nine production units characterized by their advanced technologies and designed based on international features ensuring environment protection. The lab is operated by specialized, well-experienced Egyptian cadres qualified to run such high technological labs.
“If the government insists on selling the petroleum companies; it has to offer at least 80% of the shares to Egyptian investors only,” said Khamis to Al-Mal Newspaper. The Head of the Committee of Industry and Energy wonders the reason behind targeting the most successful and profitable sectors such as the petroleum one, especially with the current challenges facing the entire world; the shortages of food, water and energy.
Hamdy El-Banbi, Former Minister of Petroleum warned of applying any privatization move, declaring that refining labs are a main security factor for the country and should be in the hold of the government in order to control prices of petroleum products in the market. “The concept of privatization pays attention to profit in the first, which contradicts the current government’s target to provide subsidized products to citizens,” highlighted El-Banbi.
Salah Hafez, Former Vice President of EGPC believes that before moving to privatization, the strategy of “free prices” of petroleum products should be applied first. Hafez told the daily Egyptian independent newspaper Al-Masry Al-Youm that the petroleum industry is a strategic sector which strengthens the country’s security and safety, yet it can sell some, not all, of the companies’ shares as applied in the UK.
From his side, Eng. Sameh Fahmy, the Egyptian Minister of Petroleum replied indirectly to rumors by announcing the purchase of the 2% share of the Suez Bank to get MIDOR fully owned by the government. This deal is the first of its kind; first time the government buys shares from the private sector. Fahmy clarified that MIDOR serves 25% of the local demands. “Although this refining lab was initially established for exporting, MIDOR is currently targeting the Egyptian market as its top priority and plans are set to maximize its capacity,” added Fahmy.
At the end of 2007, Fahmy continuously announced that plans to increase Egypt’s daily output of petroleum products are on track as scheduled. Fahmy said the ministry aims to increase oil output by 100,000 barrels per day (bpd) to 800,000bpd in 2008 by developing recent discoveries in the Gulf of Suez and the Western Desert.
An increase of output should be associated with an expansion of refineries’ capacity and this is the current strategy. Last November, GS Engineering & Construction signed a $1.8 billion contract to build secondary processing units as part of a new refinery being built by the Egyptian Refining Company, on late August 2007. GS will build the units in the refinery in Mostorod, north of the Egyptian capital Cairo, by September 2011. The complex units include an 80,000 bpd vacuum distillation unit (VDU), and a 40,000-bpd hydrocracker that can transform low-quality products into middle distillates which are in higher demand.
Moving in the same context, Citadel Capital, an Egyptian private equity firm with investments in energy and cement, announced in last October that it would start building a $2.4 billion refinery with an annual capacity of 5 million tons (100,000 bpd) of refined products, which will be completed in four years, according to plans.
Egypt’s refining capacity; the largest in Africa owns nine refineries which have a combined crude oil processing capacity of 761,700 bbl/d. The largest being the 146,300-bbl/d El-Nasr refinery at Suez, which is owned by the Egyptian government through the EGPC and operated by its subsidiary, the El Nasr Petroleum Company.
The government has plans to increase production of lighter products, petrochemicals, in addition to octane gasoline by expanding and upgrading existing facilities. The oil refining sector in Egypt looks set for big expansion, with at least two new projects being promoted. One is a 500,000 bbl/d refinery to be built near the Suez Canal. The second is a 130,000 bbl/d refinery to be built at Ain Sukhna, on the Red Sea coast. The 500,000 bbl/d export-oriented oil refinery is to be a joint venture among Egyptian, Saudi Arabian and Kuwaiti investors; start up is scheduled for summer 2009.
By: Yomna BassiouniDownload