Debts, dues, subsidies, fuel shortages and wage regulation present themselves as some of the most prominent and pressing issues facing the incoming minister of petroleum, as industry experts assure that these problems can be rectified in the space of a year and a half.
The scale and the essentiality of the petroleum industry have consistently been on an upward trajectory during the last few decades. Today, there is no major industry in the national economy that does not rely on petroleum products to some degree; as such Egypt’s coming minister of Petroleum will be tasked with managing a sector the arms of which extend to support and maintain the entire economy.
The outgoing ministry was given the responsibility of ensuring that the sector remains stable and functional throughout a rocky transitional period in Egyptian politics. Now that Egypt is moving away from transition and towards solidifying effective state institutions, the new ministry will be expected to reflect the revolutionary ethics of reform and resolution.
In this context, experts in the petroleum sector and those with a stake in its success are voicing concerns regarding the most urgent difficulties facing a sector which suffers from a multitude of problems. On one hand, the EGPC’s outgoing debts to banks are increasing, and on the other, the institution has been unable to obtain the funds owed to it by governmental entities; the EGPC’s dues to the banks amount to approximately LE80 billion, while it holds debts worth LE60 billion owed to it by state institutions such as the ministries of electricity, finance, and transport.
The banks are now refraining from providing loans to the EGPC, which does not bode well considering the need for funds to finance petroleum-related activities and to buy petroleum products needed to meet local market demand.
Minister of petroleum Eng. Abdullah Ghorab at one point described the issue of liquidity as a problem not of the EGPC but of the state as a whole, as the EGPC’s obligations are tied to the dues it is owed, and until a recent period, he claimed, the EGPC was forced to seek financing through bank loans due to the fact that it was not consistently granted funding from the state. He added that in the wake of the revolution of January the 25th, the EGPC has been unable to acquire bank loans as a result of a credit rating that had reached a point too low for the banks to accept.
Regardless of the scope of the problem, it is crucial for the EGPC to regain some degree of solvency in order to begin repaying its debts and getting its financial house in order. Mr. Osama Morad, former Executive Director of Barclays bank in Egypt, proposed that the EGPC secure a portion of its dues from government entities in order to begin repaying foreign partner debts. He also put forward a more novel suggestion, namely that the EGPC issue dollar bonds in international financial markets rather than relying on bank loans for funds.
A high-ranking source at the Arab African International Bank explained that banks cannot overstep the credit ceiling put in place by the Egyptian Central Bank in financing companies and economic entities. He added that the EGPC is in essence a good client, but it suffers from two primary problems, the first of which is an outgoing debt to banks that has exceeded the limit beyond which banks are not allowed to provide funding, and the second of which is the accumulation of debts owed to the EGPC by other governmental entities, damaging the corporation’s liquidity. The latter in particular has prompted EGPC officials and banking officials alike to call for a swift resolution of all EGPC-bound debts owed by government entities.
According to Finance Minister Momtaz El Said, his ministry has recently granted the EGPC an additional $100 million in order to guarantee liquidity to meet energy needs for domestic and industrial purposes. This raises the total sum of funds granted by the ministry of finance to the EGPC to $4.55 billion, or LE27 billion.
In statements to Egypt Oil and Gas last month, Eng. Mohamed Mahmoud El Gezeiry, Petrozeit’s Assistant Chairman for Exploration, had touched upon the point of other governmental entities and their effect on the success of the EGPC, stressing that full cooperation between all ministries and government entities is paramount to the success of the EGPC and the petroleum sector.
The unpaid debts the EGPC owes to foreign investors have also consistently suffered from a scheduling and organization problem, which has further exacerbated the dilemma. Foreign companies constantly attempt to bring this complaint to the fore, ensuring its place near the top of the list of problems the new minister will be required to deal with in the coming year. As of May 2012, the EGPC’s debts to its foreign partners had reached $8.3 billion.
In addition to unpaid debts and dues, the EGPC’s finances are further stressed by the burden of petroleum subsidies. Former minister of petroleum Dr. Hamdy El Banbi expressed his view that the solution to the EGPC’s financial woes is a decrease in subsidies. Dr. El Banbi stated that the Egyptian petroleum sector loses millions of pounds every year as a direct result of subsidies that disassociate local market prices from international prices in order to satiate domestic needs.
Eng. Mahmoud Nazeem, First Undersecretary for Petroleum Affairs at the ministry of petroleum, revealed that the ministry is giving priority to the issue of subsidies in the coming period, hoping to ensure that they benefit the socioeconomic classes that they were meant to target. The ministry is currently contemplating the removal of subsidies from 95 and 92-octane fuel as well as decreasing subsidization of 90-octane fuel, as these types are consumed by the wealthier segments of Egyptian society. The phasing out of subsidies has already begun and can be witnessed in the portion of the national budget dedicated to fuel subsidies, which has fallen to LE70 billion.
Finances are not the only complication the new minister will have to deal with. The shadow of another fuel shortage looms large over the streets of Egypt, as the country has intermittently been afflicted with severe shortages ever since the uprising of 2011.
Commenting on the problem, Eng. Ghorab had stated that the shortages of vehicle fuel and LNG are a seasonal in nature and are consistently resolved when they arise. He had further revealed that committees have been set up with the ministries of finance, interior, and social solidarity with the aim of eliminating the problem at its root and ensuring that petroleum products are available to every citizen at subsidized prices.
Another complication that will no doubt prove to be a thorn in the side of a minister expected to represent the revolution is the issue of wage discrepancies. Wages in the sector suffer from major discrepancies between different companies, and there is no unified regulation to guide them. Fresh petroleum engineering graduates are hired in some government companies for a monthly salary of LE2,000 pounds, while others are hired in investment companies in equivalent positions for much higher sums that may reach LE15,000. Needless to say, this gulf creates tension and dissatisfaction within the working ranks of the sector, which reflects negatively on efficiency and productivity.
The head of the dissolved Egyptian parliament’s labor committee, Mr. Saber Aboul Fotouh, had addressed the problems facing those working in the petroleum sector in one of the legislative body’s sessions. He had pointed out that several workers in the sector are employed on a project-to-project basis and do not even receive compensation for their work on any particular project until another one has been initiated, while others struggle due to companies’ refusal to grant them permanent employment with its benefits.
A source at the Gulf of Suez Petroleum Company (GUPCO), who preferred to remain anonymous, disclosed that the company had sent the EGPC information regarding the benefits and terms under which the workers at GUPCO and a number of other petroleum companies in the country operate, in hopes that this would result in a unified regulation. The EGPC is yet to act on this, and the amount of priority that the issue has been given is unclear, but an unsettled labor force can only be a hindrance to the sector.
The ministry of petroleum is keen to accentuate the difference between the public sector and investment companies. Ministry undersecretary Ahmed Zaghloul argues that the numbers hired by investment companies are far more limited than those employed by the government-owned companies, adding that the ministry had already resolved a multitude of workers’ problems in the sector, and would put in place a timeframe to tackle the ones remaining.
A number of industry experts insist that all of these challenges, if met with hard and honest work, can be overcome in a period of time that does not exceed a year and a half. Assuming the political situation does not ignite again, the time of transition and survival has for the most part passed. The minister to be appointed, whatever his identity, must now look to address the core problems standing in the way of development, in order to lay a strong foundation for the years to come.
By Ahmed Farahat