Hopes: The Sector Awaits its New Leader

With an incipient new ministerial cabinet, the petroleum sector awaits a new leader, and purview to every individual in the industry is the multitude of stumbling blocks hampering the efficient functionality of the Egyptian petroleum sector. Indeed this sector is one of the few organs of the economy that have persevered during the previous 16 months; it too suffers substantially dysfunctional bureaucracy.

Individuals from every corner of in the sector aspire for genuine reform, a notion that currently resonates throughout the entire nation. Ergo, the upcoming minister has a tremendously difficult task as his obligations will extend far beyond those of his predecessors. The Egyptian identity in itself is at an evolutionary stage, and the seemingly apathetic and lethargic attitudes that once characterized, if not dominated, the mentality of most Egyptian workers is being gradually replaced by a sincere desire to become more self-aware, righteous, productive and most importantly, protective of their rights as citizens and workers.

In such a state of transformation, the new leader will have to come face to face with strong tide of change, which necessitates readjusting some of the archaic practices that have long curbed the realization of the sector’s full potential.

It behoves the forthcoming minister to move away from the orthodox practice of nepotistic appointments to the industry’s key positions; such choices should be based on competence and merit, rather than loyalty, friendship or any other personal relationship.

A glimpse of Foreign Investors’ aspirations

Several chairmen of veteran petroleum companies operating in Egypt have proposed suggestions exclusively to Egypt Oil & Gas that they believe would render the sector more efficient and hence increase its overall productivity.

When asked about the top three priorities that should be addressed by the new ministry, Mr. Jeroen Regtien, Chairman of Shell Companies in Egypt, commented that it is for “the new government and new minister to determine their own agenda and priorities, ”but proposed several suggestions that the new administration might want to consider.

At the top of Mr. Regtien’s list is the issue of clarity. He advocates, “creating clarity around the investment climate for oil and gas to ensure that top quality companies continue to invest in Egypt’s future.”Like most industry experts Mr. Regtien realizes that onshore“producing fields are depleting and discovering new sizable easy reserves is becoming more difficult as the ‘easy oil and gas is gone’.”

He further elaborates that due to the aforementioned reasons “companies like Shell are looking for other resources such as unconventional and/or enhanced oil recovery techniques.” These resources necessitate “new technology, new ways of working, large investments and a different type of license agreements which accommodate long development and production periods.”

Developments of offshore deepwater targets, he adds, “require novel ways of incentivising the investor…[as]the current terms and conditions don’t take account of the cost of offshore exploration and development and therefore stand in the way of economic development.”

Another issue emphasized by Mr. Regtien is “moving towards a deregulated gas market, while protecting the most economically vulnerable parts of society.” He explains that doing so “would allow operators to sell all or part of their gas entitlements on the open market…[which] would result in increased development of Egypt’s gas resources as gas fields that are currently stranded could be developed, while reducing the country’s subsidy burden and addressing the emerging demand/supply imbalance.”

Lastly, Shell’s esteemed chairman reiterated a call that has long been echoing in the sector, which is “streamlining the EGPC, EGAS and Ganope.” such that the speed of decision making and response to operators’ requests significantly improve and rules and regulations are not weakened but simplified [and made more transparent to all]. Examples of policy areas that should move significantly faster are license extensions, bid rounds and contract renewals.”

Dana Petroleum’s Country Manager, Mr. Nick Dancer, also voiced several suggestions that he believes should rest at the forefront of the new minister’s list of priorities. He firstly highlighted the issue of the EGPC’s outstanding debts, stressing “timely payment from EGPC to the foreign investors for the petroleum products produced under their concession agreements.”

Another point of great significance underlined by Mr. Dancer, one that has been subject to constant debate, is the Production Sharing Contract (PSC) regime; whether it’s the most suitable and efficient type of agreements model at this point in time.

Illustrating his point, Mr. Dancer states that “the Gulf of Suez has seen a dramatic decline in exploration, and the recent bid rounds have seen a poor level of take up by the industry.” Therefore, he poses the question of whether “the Ministry [would] consider some radical initiatives, breaking away from the PSC environment, to allow better terms or a form of tax relief on failed exploration, to encourage a higher level of activity?”

The pricing of natural gas is also an issue that was raised by Mr. Dancer. He proposes the removal of “fixed gas prices from concessions and allow for more market driven pricing, which would enable many sub-commercial offshore gas discoveries to be commercialized.”

The issue of fixed gas pricing has recently been remedied by new the terms and conditions of EGAS’ most recent bid round. However, altering the industry’s pricing schema to become market-driven rather than price-driven is a major impediment that necessitates deep structural change to the extant system as much as it requires a change in the mindset of those assessing the technical specs proposed by investors.

Public sector hopes and concerns

This side of the industry suffers from a variety of problems, most of which stem from the rampant disorganization and lack of communication between the various bodies regulating the sector.

A high-ranking source in the EGPC, who preferred to remain anonymous, underlined the importance of “unifying the regulatory terms governing relations between public-sector companies and the EGPC through barring the practices of preferential treatment by the EGPC that vary from one company to another.”  Moreover, he stressed the revision of the current agreements to ensure a fair distribution of income, thus preserving national interest from exploitation.

The government, he continued, should also “encourage domestic investment in the upstream part of the industry, which is dominated by foreign investors, through providing special incentives to Egyptian investors level the playing field in this highly competitive market.”

In addition, he placed great emphasis on having a strong regulatory body that rigorously oversees the industry’s technical and financial movements in order eradicate the mentality of corruption that has festered during the administration of the old regime.

Geologist Mohamed Mahmoud Al-Gezeiri, Assistant Chairman for Exploration and Board Member at Gebel El Zeit Peroleum Company (Petrozeit), stated that “Egypt’s petroleum sector is a leader in all areas, whether it be upstream, downstream or agreements, adding that it is necessary for the sector to have a cooperative and complimentary relationship with other ministries and sectors of the country, so as to relieve pressure from the sector and achieve the growth that is required in the coming period”.

Rashid Petroleum Company (Rashpetco)’s Assistant Chairman for Exploration and Board Member Dr. Haidar Saad Othman, relayed his hopes that, regardless of the identity of the new Minister, the debt owed to foreign companies must be restructured and repaid in accordance with a schedule, so as to raise investment in the sector and keep investors from seeking more lucrative options elsewhere.

The Egyptian petroleum industry, like any other in the country, has its fair share of impediments. The incoming minister of petroleum will inherit these impediments, along with a fair share of unrealized potential, and will be tasked with fulfilling said potential in spite of the obstacles at hand. The shackles that once strained the organic development of the sector are gradually loosening, however, raising the probability of an auspicious future not just for the petroleum sector, but for the country’s economy as a whole.

By Mohamed El-Bahrawi


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