Initiating oil and gas exploration projects demands close compliance with governmental authorities, particularly the military. Holding companies under the Ministry of Petroleum award blocks in bid rounds to the most competitive bidder so that eventually, commercial development can take place in that concession area. But an extensive sequence of permits and approvals must be obtained between these two points before the IOC can begin its work.
From ratification to ministerial permitting, the relentless bureaucracy leading up to oil or gas exploration puts the Egyptian General Petroleum Company (EGPC) in a duel role as a regulative body, as well as the business partner of international oil companies (IOCs) in resulting joint ventures. Some IOC executives perceive a conflict of interest here and bemoan needless red tape—regulations that EGPC emphatically insists are in place to protect national interests. Unfortunately, lack of transparency for both oil companies and the government make it difficult to discern objectively what the practices are of one of Egypt’s dominating sectors. The following was ascertained from industry sources as well as governmental information.
Bid Round and Ratification
Bid rounds are hosted by one of The Ministry of Petroleum’s holding companies: EGPC, the Egyptian Natural Gas Holding Company (EGAS), or the Ganoub el Wadi Petroleum Company (for concessions in Upper Egypt). After the concession is awarded to the most competitive bidder, it goes through the ratification process, which typically takes one year (see “Egypt: Crude Democracy?” in this issue, for in-depth analysis of oil and gas legislation).
Hamid Ibrahim A. Karim, General Manager and Managing Director of Gemsa Petroleum, says ratification typically goes smoothly if the Ministry of Petroleum reviews it carefully first. “By the end of the day you will never have qualified people within the parliament to evaluate or take responsibility for something like that. It has to come from the Ministry. It is very technical and economical and the people in charge of evaluating the bid round itself—that is their responsibility,” Karim said.
However, disapproval of a concession at this stage is not unprecedented if “the conditions offered by the IOC in somebody’s mind, in the parliament for example, are not competitive enough,” says Ahmed Farid Moaaz Country Manager and Director of Sea Dragon Egypt, “but it’s very rarely done.”
Currently, due the lack of parliament, the president is ratifying concessions, and at an accelerated rate. According to political and economic expert David Butter of Catham House, “The fast-tracking of agreement ratification while there is no parliament” has helped encourage the “recent revival of IOC interest in exploration.”
Accessing Permits and Ministry Permission
Once the concession is ratified, the permit process begins. Agricultural permits are necessary when the working area belongs to the Ministry of Agriculture, from the Ministry of Tourism in areas under their ownership, or from the Ministry of Antiquities if areas have archeological restrictions, Mahmoud Atta, Exploration Manager of TransGlobe in Egypt informs. Accessing approval needs to be acquired from landowners or local governments if the concession is in a populated area. An environmental impact assessment (EIA) must be submitted to the Egyptian Environmental Affairs Agency (EEAA) for approval.
For environmental permits, the EEAA reviews the “concession or well location, the plan of seismic or drilling program, the impact of the executed program on the environment [in that] area, and the assessment of the restoration of the environment after completing the work,” says Atta. According to the EEAA’s 2005 EIA Guidelines for Oil and Gas Sector, after the EEAA evaluates the documents, the assessment may be approved, with or without recommendations. This approval can be made explicitly, or implied by lack of response after 60 days. Alternately, more data may be requested to complete the report, or the assessment could meet disapproval, which is subject to appeal. However, since the EEAA doesn’t publicize EIA reports, it’s unclear to what extent they are actually completed by IOCs or enforced by the EEAA.
According to Moaaz, concerning accessing approval, the most difficult areas to acquire permissions for are the most heavily populated, despite any general agreement that may take place initially. “If you take an area in the Delta for example, this area has farmers, industrial buildings, whatever. You have to go and compensate each and every one of them. You have to go to the local authorities and deal with them. Then you have to go to the individual owner of the piece of land and compensate him. If you’re going to cut a tree, you’re going to have to compensate the owner of the tree. But it’s up to your negotiating skills.”
A Series of Military Approvals
For unpopulated areas however, the main authority IOCs have to deal with is the military. According to Tim Armsby, partner of the law firm Eversheds, there are no Egyptian laws or public documents stipulating the military permission process, and there is an utter lack of transparency. Nevertheless, there is multi-tiered process in which IOCs continually return to the military for approvals of every activity, sometimes experiencing over a year of delays.
Before the bid round, general permission is taken from the military for the proposed concession area on the map. This was not always the case. IOCs had to take the risk on their concession without indication from the military that they would be permitted to do work there. Now, informs Moaaz, “it will be carved from the concession and the rest of the concession will be given to the IOC, [which saves] me the embarrassment that happened several times. Like in the Western Desert when the company was awarded a concession, but they couldn’t access it. Without reason.”
According to a source who prefers to remain anonymous, after an on-land concession is awarded, the area must be cleared of any existing mines. This must be done exclusively by the military; no outside service company is involved of the mine-clearing process, which can take about six months.
Once the concession is cleared of mines, further military approval is required pending a seismic acquisition survey. The IOC contracts a service company to complete it, which ideally takes three to four months. Military approval of the seismic survey often comes with certain restrictions on certain areas, and of course disapproval is always a potential.
Based on the seismic survey and the various restrictions given by the military, the company can determine where specifically to drill wells within the approved areas of the concession. Then, the IOC must seek additional approval from the military for these particular sites. Again, any approval typically comes with restrictions on proposed locations, and this stage of the process can take two to three months. In the case that the military rejects the request outright, a committee between EGPC and the military will be created to make a new drilling plan according to strategic and scientific research.
Throughout the entire permit process, dealing with the military is the most unpredictable and time-consuming. Anything can account for the military relinquishing previously approved areas. It could merely be a matter of military maneuvers having shifted over the coarse of the several months passed since completing other tests and permits, which suddenly conflict with the IOCs plan. Certain restrictions on any given area can be permanent or temporary. Rejections and restrictions can come spontaneously with no explanation, after months of time and money invested in a certain project. Yet seasoned IOCs are familiar with the process, and they always have hidden options in case the military refuses development of any given area.
A Country in Transition: Implications and Recommendations
IOCs often struggle to fulfill governmental standards quickly and efficiently in an effort to avoid expensive time delays, and EGPC’s role is to help facilitate the process. “EGPC has done their best to alleviate most of the problems we used to have with government awarding the concession,” Moaaz says, yet their best isn’t always enough. “The IOC has to do everything,” he continues, “and I have to chase the army, the Ministry of Agriculture, the local authority, the municipality, I mean, you name it. And that is a killer.” According to Armsby, EGPC is nearly incapable of influencing the military, and they lack motivation to help accelerate the process for other permits since their minority share of the cost is provided retroactively to the IOC in cost recovery.
Ideally for IOCs, they would receive unconditional permission for all drilling activities prior to the bid round. “In my opinion,” says Moaaz, “it has to be done before you award the concession to the IOC, at the highest level, in detail, and it has to be rubber stamped by all the authorities. I as an IOC should receive a free area to deal with so I don’t have to start over again.”
According to sources within EGPC, getting these approvals isn’t really possible until after measures have been taken, that are illogical to complete before the bid has been awarded—a seismic survey for example. However, EGPC is required to compensate the IOC for money lost on the seismic survey for a rejected area, and the clock is reversed for the time lost on the concession. Armsby cites Egypt’s General Authority for Investment and Free Zone’s (GAFI) “one-stop-shop” system as a potential model for streamlining the process, in which establishing companies acquire necessary approvals from one desk.
The recent unrest and Egypt’s transitional government has had a varied impact on the sector and the permitting process, particularly concerning the military. It has become more complicated, more restrictive, and according to Armsby—more delayed.
“The government has to decide what EGPC is. Is it my partner? Or is it the governor? EGPC is currently playing both sides and it’s counterproductive for Egypt,” says Moaaz. However, he sees the current political situation as an opportunity to improve the efficiency and efficacy of the regulative systems that have been in place for decades, citing success in Brazil’s oil sector, which has experienced a boom following the separation of the government’s oversight role from its role as an operator. “That change has to be made now, and it’s very appropriate to make it now as we are rebuilding Egypt. That’s where we have to start, that’s where the oil sector has to start.”
By Lily LeachDownload