Petroleum in the Age of the Islamists

Following President Morsy’s first presidential trip to the oil-rich kingdom of Saudi Arabia, many are wondering if Egypt’s ships will soon be sailing safer after veering for a long period into unchartered and dangerous waters. Both economic and political instability have strongly influenced the many sectors in the country. Placing the challenging and complex oil and gas sector under the spotlight reveals many questions as to how far Morsy’s four-year presidency can affect the sector and what challenges the return of the legally dissolved parliament could possibly present to Egypt’s oil and gas companies.

During the violence and political instability that accompanied the breakout of the Arab Spring, many foreign companies severely curtailed their operations in countries close to the eye of the tornado. In Tunisia, for instance, 153 foreign investment entities left the country during 2011. During the same period in Libya, Foreign Direct Investment (FDI) fell precipitously from close to US $4 billion to just several millions. In Egypt, meanwhile, FDI fell from US $1.6 billion in the third quarter of 2010 to US $440.1 million in the same period of 2011.

But with the green shoots of democracy emerging, foreign companies are set to return to these countries in pursuit of attractive — and relatively safe — investments. In Egypt, Morsy affirmed that he expected $200 billion in foreign investment to enter the country over an unspecified “coming period”.  It can also be foreseen that the long-term political and security spheres are heading to more positive grounds, with fewer existential risks to the government.  In a press statement published in July 2012, the German Ambassador to Cairo Michael Bock affirmed that “There are big projects on the way in the oil and gas sector”, a statement that might even indicate encouraging signs on the road ahead.

Egypt’s Petroleum Sector Under Morsy’s Presidency
Commenting on the possibly effects of Morsy’s victory on the oil and gas sector, Eng. Samir Sizo of Petrobel Company, the Port Fouad field Operations General Manager, asserts that oil and gas is quite a disciplined sector in which contracts have been signed and secured since a year and a half ago. “Operations planned for the year 2012/2013 have already kicked off about three weeks ago,’’ said Sizo, explaining that other sectors might be affected by the uncertainty accompanying Morsy’s new rule.  He described the oil and gas sector as a ‘productive and functional’ sphere that is not affiliated with religion. In Sizo’s estimation, the oil and gas division is not vulnerable to any changes occurring within the Ministry of Petroleum thanks to its precisely planned production and output. “All companies in the oil sector do have joint ventures with foreign companies. I can say that none of them will be affected during Morsy’s reign. Some companies have already secured concessions until the years 2030 and 2037. No money deposited can be refunded now,” Sizo explained.

Before the constitutional court had issued a verdict disbanding the Islamist-dominated parliament, Eng. Said Abdel Aziz Naguida, Head of the parliamentary Committee of Energy and Industry, had called upon members of his committee to revise all contracts signed with foreign investors in the oil and gas sector, stressing the importance of safeguarding Egypt’s interests in all agreements. Repeatedly, he has highlighted the fact that his committee never aims to hinder foreign investments or to place additional burdens on investors. Speaking to Egypt Oil and Gas newspaper, Naguida confirmed that Morsy’s presidential program emphasizes the importance of utilizing the resources distinguishing each governorate in order to attract investments. “Morsy’s program has covered the oil and gas sector when it asserts the significance of stretching investment opportunities in governorates on the Mediterranean and the Red Sea that are known for their rich resources of oil and gas,” he said.

As for his committee’s tasks within the parliament, Naguida, member of the Muslim Brotherhood’s Freedom and Justice Party, highlighted that the Committee of Energy and Industry oversees all terms and conditions that govern agreements between Egyptian companies and foreign investors in the oil and gas sector. “The first thing we tend to examine is how far the investor is fairly dealing with the Egyptian company. Prices are also another factor through which we decide to pass our approval on joint ventures or not,” he said. One of the most popular agreements that the committee has drawn to a close was that related to exporting natural gas to Israel. “The price was extremely unfair and this agreement was one of the landmark achievements of the post-revolution parliament,” Naguida said.

Responding to the many concerns surrounding the rising tide of political Islam in the country, the parliamentarian confirmed that the committee used to exert its utmost efforts to increase foreign investment in Egypt. “If any of the oil and gas companies have any concerns regarding Islamist parties who constituted a majority in the now legally dissolved parliament, I assure all of them that our utmost aim is to protect Egypt’s interest and benefit in all deals secured”. If the parliament is to be reinstated in its old form, Naguida said that the next step would be to request reports detailing all of the country’s oil and gas reserves from the Ministry of Petroleum, in order to start drafting investment opportunities to foreign investors.

Ahmed Al- Qattan, deputy of the parliamentarian Committee of Energy and Industry and a member of the Salafist Al-Nour party, agrees. He told Egypt Oil and Gas newspaper that during the six months in which the parliament operated, the committee managed to revise about five agreements in which terms and conditions were inequitable to the Egyptian side.  “In many cases you find that foreign investors step on the feet of the Egyptian company to maximize benefit to their own operations. This cannot be the case in Egypt’s oil and gas sector, that’s why we keep a close eye on what to approve and what to re-examine,” Al-Qattan said. After halting any of the deals, the committee renegotiates the corresponding terms and conditions with the foreign party with the aim of reaching a compromise. “It is not for our benefit to turn away any investor. But the problem is that many foreign companies are used to imposing their preconditions prior to any operations and that’s truly unjust to Egypt,” he said.

In the coming period, Al-Qattan said that if the committee were to reassume its powers, members would start examining all appeals presented from the companies under the Public Authority of Petroleum to fix agreements with foreign investors. We have about 111 appeals, 31 of them come from the oil and gas sector,” Al-Qattan stated. Recalling contracts sealed under the parliament of the ousted regime, the parliamentarian asserted than the current committee has inherited a plethora of cases that need to be revisited. “I will keep repeating it again and again, our mission is to encourage foreign investment but not at the expense of Egypt’s interest. We are a wealthy and blessed country, our role is to protect our resources and not to sell them for cheap,’’ Al-Qattan said.

Morsy’s Visit to Saudi: a Hope for Oil and Gas?
After the 25th of January revolution, the house of Saud offered $1 billion to Egypt’s Central Bank and another $500 million in general economic assistance. According to Al-Ahram online newspaper, the oil-rich kingdom has also allocated $250 million only for gas exports to Egypt, as Saudi ambassador to Egypt Ahmed Al-Qattan was quoted as saying by MENA. Morsy’s first presidential trip to Saudi Arabia raised hopes that potential partnerships in the oil and gas sector could probably come to light during Morsy’s coming four years in office.

Analyzing his visit, critics state that Morsy could have visited the kingdom’s successful oil and gas companies in order to pave the way for investments, or at least transfer their expertise to his homeland. One of the largest Saudi oil and gas companies, Saudi Aramco, could probably teach Egypt a great deal. Firstly, the wisely leveraged foreign investment-which is the American party in this case-can surely aid in transforming an industry and a country through the training and development of employees. The Saudi-American venture proves that each side can benefit from the other rather than exploiting each other. In Egypt, a rising tide of xenophobia and anti-Americanism caricatures foreign investors as no more than bloodsucking exploiters, which is not always the case. It might not be an easy pill for an Islamist president and parliament to swallow that such agreements can genuinely benefit both sides, as long as Egypt ideally leverages investments wisely and does not perceive its officials as thieves who deposit shady funds in Swiss bank accounts.

Morsy’s window overlooks a number of predicaments. But when it comes to the oil and gas sector, companies and contracts seem to be invulnerable to any probable changes in the coming period. It should be noted, however, that terms and conditions of future ventures will have to pass the strict examination of the parliamentary Committee of Energy and Industry before they can bloom-or wither-in Egypt’s oil and gas fields.

By Ethar Shalaby


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