The oil and gas sector in Egypt has come a long way over the past century, due to the country’s advantageous geographical location, its well-developed infrastructure, as well as its potential for new resource discoveries. While there are various laws, agreements and regulatory frameworks to ensure that all attained resources are protected and used in a social, economic and political way, there remain some minor details that could be improved over the long run.
Framework Overview in the Oil and Gas Sector
By strengthening the regulatory framework, Egypt’s oil and gas sector will have the potential to become more efficient in the future. Currently, the regulatory framework of renewable energy is quite solid in its strategy; as the sector is relatively new and an efficient regulatory framework is required. Nevertheless, should the oil and gas sector apply a similar regulatory framework, the sector would not only improve in its technical efficiency but also in its long-term plans.
It can be noted that Egypt’s oil and gas Modernization Project aims to reform and develop the country’s production and economic status by ensuring restructuring, which is under the umbrella of pillar number two. In fact, the Modernization Project will not only ameliorate Egypt’s current output, but will also serve to accelerate the country’s goal to become a regional energy hub.
Regulatory Framework in Renewable Energy Sector
It is important to recognize that the renewable energy sector covers many fields such as buildings, industries, and transportation. A regulatory framework is set up by looking deeper into each field in terms of the ways in which renewable energy can be implemented to improve the consumption of energy on a daily basis. For instance, one method used in the building sector to compensate for the investments in renewable energy is the implementation of Feed-in-Tariffs (FiTs). FiTs not only ensure price certainty, but also provide an efficient financial incentive that homeowners could benefit from in the long run.
There are other various international examples of efficient renewable energy regulatory frameworks in different sectors such as buildings, transportation, factories, etc. For instance, an example of efficient renewable regulatory frameworks is implemented in the United Arab Emirates (UAE). The UAE has stringent goals to achieve over the coming 50 years. As a matter of fact, the UAE aims to have Dubai’s total energy mix to come from clean energy by a percentage of 7%, 25%, and 75% by 2020, 2030, and 2050, respectively. By implementing the above-mentioned example of stringent goals, the UAE shows, not only its scheme to strive towards a more environmentally-friendly future, but also expresses its support to increase the use of renewable energy in the country.
Another case study to consider is the regulatory framework and goals developed by Morocco. Due to Morocco’s abundance in renewable energy resources, the country has developed demanding goals to achieve in the future. For example, by 2020 and 2030, Morocco aims to integrate renewable energy into its energy mix by 42% and 52%, respectively. This means that by 2030, just over half of the country’s energy will come from a combination of renewable energy technologies. The legislative framework implemented to support these aims allows for the liberalization of the electricity market as well as regulates power production. These laws are set by the Autorité Nationale de Régulation de l’Électricité (ANRE) under the Moroccan Agency for Solar Energy (MASEN), from which most of the local renewable energy is harnessed.
Generally speaking, regulatory frameworks are constantly developed and amended over time to accommodate for any shifts in economic or social impacts. While renewable energy frameworks are implemented in Egypt, energy efficiency remains to be a topic that is rarely discussed. According to a report published by Regional Center for Renewable Energy and Energy Efficiency (RCREEE),
there are currently no general legal framework for any projects particularly pertaining to energy efficiency. Energy efficiency regulations and policies play an important role under renewable energy, as such policies limit energy losses and regulate standards for renewable energy technologies.
In terms of renewable energy, however, Egypt aims to attain 20% of the local energy production from renewable energy by 2020. To support this goal, Egypt has implemented multiple approaches via tenders (which are owned by NREA during design and supply stages of the project), Build Own and Operate (BOO) projects, FiTs via the Egyptian Electricity Transmission Company (EETC), net-metering through grid-connected solar photovoltaic (PV) projects, and even Independent Power Producers (IPP) to consume their own loads or even sell the excess loads to consumers. These approaches are vital to technically and economically support Egypt’s future goals.
A Comparison: Oil and Gas vs. Renewable Energy Regulatory Frameworks
The use of regulatory frameworks in the oil and gas sector is necessary to ensure that corporate social responsibility remains. Because Egypt strives for national environmental security, it is imperative that the oil and gas sector establishes an efficient regulatory framework even more than that of the renewable energy framework.
Moreover, it can be noticed that renewable energy regulatory frameworks are more updated due to its recent entry into the industry, as opposed to that of the oil and gas sector which has been around for longer with less frequent updates. As a result, there are evident differences between the frameworks in both the oil and gas sector and the renewable energy sector.
For instance, one main difference between both sectors is that while renewable energy projects are usually based on Build, Own, and Operate (BOO) schemes, the oil and gas sector mainly implements a ‘concession system’, in which case the contractor’s ownership of such assets remains only until the stage where such assets are recovered once more.
Another main difference between the two sectors is the way in which prices are set. To be specific, in the renewable energy sector, it is the Ministerial Decree that decides prices of purchased power attained from any renewable energy-based project. However, in the oil and gas sector, the prices of crude oil may be altered based on international crude oil prices; while the price of natural gas is based on a mutual agreement between the purchaser and the seller.
Additionally, it should be noted that any items or equipment that are imported in the oil and gas sector will be relieved from any customs taxes or tariffs. However, in the renewable energy sector, the situation differs; any renewable energy technologies or equipment to be imported will succumb to a 2% customs tariff.
Consequently, the topic of taxes is different in both sectors. In fact, according to legal expert, Essam Taha, “Under the petroleum Concession Agreements, contractors shall not pay the income tax on its net profit and such taxes shall be paid by the national company on behalf of the contractor and shall be exempt from all taxes applied in Egypt. On the other hand, renewable energy projects have promising incentives that can be implemented under the Investment Law. In fact, such incentives will be deducted from the net taxable profits for a period of seven years from the starting date of the project.” The deduction from the net taxable profits may range between 30% to 50% of the investment costs; of course, this percentage is dependent upon the geographical area in which the project is established.
Therefore, after carefully assessing the incentives granted to renewable energy projects, it can be concluded that the oil and gas sector’s concession agreements have more advantages than those of renewable energy projects. This conclusion indicates there is always more room for improvement in both sectors and that each sector has its own set of advantages and disadvantages.
There are various plans of action that have already been formulated for future work. In fact, the Ministry of Petroleum and Mineral Resources had announced during a conference in July 2018 that there are four main points that will be focused on in the long run. The first point includes developing the current legal framework, specifically Law 20, which stipulates the law that governs the Egyptian General Petroleum Corporation (EGPC). The second point discusses reassessing and redeveloping current concession agreements and/or any other forms of relations with International Oil Companies (IOCs). Thirdly, the restructuring of financial ownership between affiliates and state-owned entities is essential in the framework. The final point aims to attempt to integrate a single amalgamated plan as well as a financial statement that the oil and gas sector could include into the local budget. While these points may be difficult to achieve, their development will become beneficial to all entities once attained.
From a design perspective, there are also various areas in the regulatory framework that could be improved. For instance, the focus on value creation is imperative in order to ensure stability in the future. Value creation can be achieved through better efficiency of holding companies, assertive decision making throughout all the levels in an organization, and utilizing resources in an efficient way. It is also important to consider that establishing clear work flows expedites operational procedures and ensures role clarity. More importantly, establishing Key Performance Indicators (KPIs) enable sector companies to have clarity with regards to the tasks at hand and what should be expected of companies in the short and long run. These are examples of recommendations that could be implemented to help improve the regulatory framework.
In conclusion, oil and gas projects have different regulatory frameworks than projects in the renewable energy sector. This may not necessarily indicate any issues, but instead demonstrates the differences in the way in which regulatory frameworks are developed and implemented.