Egypt’s oil and gas sectors have been vital drivers of the economy through years of dictatorship, revolution, and democratic upheaval. Like any aspect of life in Egypt since the January 25 revolution, the industry’s fortunes have ebbed and flowed. And yet its relationship with Egypt’s under-construction democracy is more complex than it might first appear.
July 3, the day General Abdel Fattah al-Sisi announced the end of one year of Mohamed Morsi’s beleaguered presidency, and set out a transitional “roadmap” for the future. While Egyptians were celebrating in the streets—Tahrir Square was a carnival of fireworks, military fly-overs, and car horns that day—oil and gas businesses were nervously eyeing their prospects. What would all this mean for the fuel sector? In many ways, it was another in-flesh incarnation of what one analyst called the “materialization of political risk” in post-Mubarak Egypt.
Egypt’s internal struggles since 2011 have had an undeniable effect on the fuel sector, as well as foreign investments in it. Egyptian officials are working hard to dispel foreign perceptions of perceived “anti-democratic” developments in Egypt. On January 22th, industry and trade minister Mounir Fakhry Abdel Nour emphasized the need to “correct” these views, adding, “Egypt is open” for business, The Washington Post reported.
Despite months of upheaval, there is still a process which the sector is meant to follow. After the state and foreign company have made a concession agreement, the contract by law must pass through Egypt’s democratic institutions. Sameh Khodeir, senior partner at Zaki Hashem & Partners, a large law firm based in downtown Cairo, lays out the process.
“The EGPC or EGAS [Egyptian Natural Gas Holding Company] usually sends a concession to the cabinet first,” he explains, occasionally looking down at Law 66 of 1954, which covers the handling of concession agreements between Egyptian governments and foreign companies. “The cabinet, being the executive body of the state, have to take the opinion of the state council. After the cabinet approves it, they then refer it to the parliament according to the law. This is the basic procedure.”
After parliamentary approval, the concession should be “promulgated” (decreed) by Egypt’s president. “This authorizes the Minister of Petroleum to contract for exploration and/or exploitation.” Egypt’s interim president, Adly Mansour, has so far signed off on 21 new concessions.
“The natural resources belong to the state and the people, so these contracts should pass through the parliament and go through the right legislative procedures,” Khodeir continues. “This ultimately gives the minister of petroleum the right to sign the contract on behalf of the state.”
“That’s usually what happens,” he says, but because the country is currently without an elected body, Mansour has signed off on contracts in his capacity as interim president. Khodeir believes the process, clear and well established, creates a practical procedure for exploration and exploitation contracts. Despite the sometimes high-risk nature of the oil and gas sectors, the process is meant to “ensure the continuity of the business,” Khodeir explains.
Ahmed Farid Moaaz, country manager and director of Sea Dragon Egypt, agrees. “If the parliament discusses the content and listens to the arguments set out by the owner—the petroleum ministry—it goes smoothly and easily.”
And yet Moaaz admits that Egypt’s democratic institutions have brought up problems in the past. Parliamentarians in the past knew “very little” about the oil contracts they were discussing, he claims. “The kinds of personalities composing previous parliaments were not qualified enough to pass any kind of judgment on these things. Only special committees were professional enough to talk about them seriously.”
Mahmoud Elfeky, a member of the Shura Council’s economic committee before June 30th, claims the last parliament played an active role in reviewing agreements as “mediator.”
“Committees modified some agreements between the Egyptian government and foreign companies…and saved USD 250 million for the country through loopholes in contracts. Bonuses, for example.” When asked if parliamentarians were best disposed to review, amend and ratify contracts, Elfeky says: “Of course they were qualified. [Egypt’s] parliament is like any parliament in the world – we came to the parliament through fair elections. We were the legislative authority and we serve only the people.”
Moaaz believes the 50% representational quota (for workers and farmers) in previous parliaments, a relic of Egypt’s Nasserist past, meant a sizeable portion of MPs would not be disposed to properly judge a concession agreement passing through the chamber.
“Laborers and farmers are not normally educated enough to know about special business matters—like oil,” he explains. However, Egypt’s new constitution—passed with a 98.1% approval rating in the January 14-15th referendum—has put an end to the parliamentary quota. “The new constitution has got rid of that. The next parliament’s composition will be freely elected by the people and not mandated by a special quota descended from the old socialist regime,” Moaaz says. “I think that will have a big impact.”
“I hope that the new parliament is going to be a different composition and qualified enough to pass fair business judgments on these contracts.”
Mika Minio-Paluello works with the Egyptian Initiative for Personal Rights (EIPR) and has written several books about the global oil sector’s relationship with democracy. “Oil contracts tend to be quite complicated and hard to assess, particularly in terms of revenue flows. [Parliamentarians] are not clued up at all.” He suggests that one way to improve the system in the future would be to make the contents of concession agreements publicly available, like in the British parliamentary system, whereby specialists, non-governmental organizations, and the media promote public debate about oil deals passing through the political system. “If contracts aren’t public in the first place, then it’s entirely up to the MP to work through it and many of them don’t have the relevant expertise.”
Ultimately this can turn the parliament’s consultative process on fuel contracts to mere box-ticking, whereas the law states that parliament should be discussing, debating, and consulting contracts before ratification. But democracy is not just confined to the four wood-paneled walls of the parliamentary chamber. Moaaz believes part of the problem comes from a lack of public understanding of the sector. “One problem we know the oil sector has faced in the last 30 years is that we’ve failed to educate the public,” he explains. “The oil sector is all about risk rewarding business. If the government is able to educate the public, then people will be more willing to accept that a company will be sharing the revenues of an oil concession with a foreign partner because it has taken that risk.”
It is possible for any Egyptian to walk into a bookshop and buy a book of law setting out the basis for any concession agreement. However, the revenues and negotiated elements that define each concession agreement are obviously not included, perhaps the most important and contentious elements of any deal. “The system is transparent enough but people are not spending their time learning about it,” Moaaz claims. “That message has to be clearly published and clearly understood by new MPs. Then the people will understand exactly what the business is all about.”
A sudden public appetite for fuel sector knowledge is unlikely when most Egyptians focus on a return to political and socio-economic stability. But looking back at the records of Egyptian parliaments in the past, small changes could have meaningful effects—to ensure fuel and democracy enjoy a mutually beneficial relationship in the future.
Tom Rollins is a freelance journalist based in Cairo.
He tweets at @TomWRollins