EGYPT - The Economic Perspective ForEgypt.

While promising continued economic growth in their country in the coming months, the decision makers in Cairo are worried the global perspective is not encouraging and that the combination of a slow-down in the world's economy and dangerously rising inflation will affect Egypt in fiscal 2008/09

which will begin on July 1. The shift of wealth from the US and Europe to China and the other emerging economies (EEs) and resource-rich nations, like Russia, is rapid but dangerously tied to potentially explosive unrest in the Greater Middle East (see news4-TerrorPakUS-Jan21-08 & ood-IraqBinLadenSaudiOilJan21-08). Already the global inflationary cycle has affected plans to expand Egypt's refining and petrochemicals sectors (see down3EgyptPetchJan14-08).

As they press ahead with economic reforms, the decision makers risk leaving Egypt's most vulnerable people by the wayside. If it is to put an end to growing worker discontent, the government must fulfill its promises of greater socio-economic inclusion. In 2007, the government recognised that while the economy had been performing well, the vast majority of the population had not felt the benefits. It has said that wealth distribution is now a priority.

In September, workers at several factories went on strike to protest over low wages and unpaid share of profits. The government did not resort to force - a tactic it has often used to quell protests - and instead moved quickly to placate the workers. A violent response could have resulted in the industrial action spreading. Political inclusion will also prove challenging. In April Egypt will hold local council elections, postponed since 2006. The postponement was seen as a way for the government to prevent the Muslim Brotherhood (MB) from gaining strength.

In the 2005 parliamentary elections, the ruling National Democratic Party (NDP) lost 93 seats in the People's Assembly as the MB gained 71. The 2008 council elections are likely to cause some controversy - there will almost certainly be allegations of vote-rigging by the government.

Presidential succession is a hot issue which will continue to weigh on the minds of government and opposition members alike. At the NDP's ninth annual conference in November, President Husni Mubarak's son Gamal strengthened his position in the party, making him eligible for presidential election in 2011. The government says it is not concerned with succession for now. But with persistent speculation about the president's health becoming a distraction, it is an issue Cairo cannot ignore (see gmt4-EgyptWhoJan21-08).

Sameh Fahmi: Made Petroleum Minister on Oct. 9, 1999, Fahmi is relatively young and has the energy needed by the Mubarak regime to implement Egypt's integrated petroleum strategy to 2020. He was one of the experts behind the previous strategy for natural gas to 2017.

Immediately as he became minister, Fahmi got the government to endorse plans to export gas in LNG form and by pipeline. In January 2000, he submitted to President Mubarak a new programme to 2020 which was much bolder and focused on natural gas exports (see Oil & Gas Market Trends No. 3). He was the technocrats who convinced Mubarak to take a great leap forward in quickly diversifying Egypt's economy, with the shift to natural gas being one of the drivers.

On Oct. 5, 1999, as he took the oath of office for a fourth six-year term in the presidency of the republic, Mubarak pledged that he would "personally supervise a great project...to get Egypt to join the group of medium-income countries". He promised the results will be felt by all the Egyptians before the end of his fourth term in September 2005. On Sept. 7, 2005, Mubarak won a fifth term in Egypt's first experiment with contested multi-candidate presidential elections as he got 88.57% on a turn out of 23% of the registered voters. In one of his victory speeches, Mubarak promised that 4.5m new jobs would be created by 2011. But Egypt's population is rising rapidly, now exceeding 78m, and the demand for new jobs has increased in a big way since 2005 (see down1-EgyptEnrBaseJan1-08).

Fahmi got the Egyptian Natural Gas Holding Co. (Egas) to be established in August 2001, with Muhammad Tawila appointed as its chairman. The Egyptian Petrochemicals Holding Co. (Echem) was created in 2002 and really took off in 2003 with a long list of new projects (see down3-EgyptPetchJan14-08). Ganope was established in the first half of 2003. All are functioning in parallel with EGPC, under the supervision of the Petroleum Ministry.

Egypt, still exporting crude oil and petroleum products, is not a member of OPEC. But it has an observer status and, as such, Fahmi attends most OPEC meetings. At the opening joint session of OPEC's 146th Extraordinary Ministerial Meeting, held in Abu Dhabi on Dec. 5, 2007, and attended by several non-OPEC ministers, Fahmi stressed the urgency of greater investments in the downstream sector which, he said, was the key element of security and market stability for the petroleum products supply chain.

Fahmi told the conference that, in view of the international trend to raise refining capacities, Cairo was studying a number of mega-refineries to cover local and export needs in order to utilise Egypt's strategic location, reliable infrastructure, and proximity to world energy resources. He discussed with OPEC and non-OPEC ministers developments and challenges in the world's energy market. The other observers at that conference were the petroleum of energy ministers of Russia, Mexico, Kazakhstan, Oman, Syria and Sudan.

Fahmi's ministry is looking to follow the example of Algeria and Libya by enticing international oil companies (IOCs) into deep-water oil and gas drilling. Fahmi is also co-ordinating with the Egyptian Mineral Resources Authority (EMRA) in studies on oil shale deposits in the country. Under a contract which EMRA awarded in late 2006 to a Canadian consortium led by Centurion Energy Int'l, a Calgary-based E&P firm then acquired by Dana Gas, to do a detailed feasibility study into these deposits and make recommendations on how best they can be extracted.

Centurion, now the operating arm for most of the Egyptian E&P assets of Dana Gas which is part of the private and Sharjah-based Crescent Petroleum Co., has since focused on earlier studies made by the EMRA with the help of the University of Berlin. Those studies had put Egypt's oil shale reserves at about 5,700m barrels of oil equivalent (BOE), with around 4,500m BOE in the Red Sea and 1,200m BOE in the Upper Egypt region of Abu Tartour, in the south. Oil shale development now has become viable in view of the rise in world crude oil prices - with WTI having jumped above $100/b on Jan. 3, though it has since fallen below $90/b due to economic slow down in the US - and will go a long way towards diversification of Egypt's economy.

Despite rapidly rising project costs, meanwhile, Fahmi remains firmly behind Egypt's Petrochemical Master Plan (PMP) to 2020, adopted in late 2000, to raise the country's capacity to produce petrochemicals to 15m t/y for the local market and for export, with new ventures to involve both the private sector and state companies of strategic importance (see down3EgyptPetchJan14-08). Fahmi says rising project costs should not deter Echem from pursuing the PMP's objectives as prices of petrochemicals have also risen sharply since 2002.

Fahmi is confident that Egypt's cost advantages remain strong relative to those of petrochemical producers in Europe, the US and areas outside the Middle East and North Africa (MENA). One of these advantages is Egypt's low-cost human resources. The other is its relatively cheap natural gas - apart from the country's proximity to major markets for petrochemicals (apart from Egypt itself) in Europe, Africa and the Greater Middle East.

In mid-2007, Fahmi put Egypt's proven reserves of natural gas at more than 72.3 TCF and said another 30 TCF would be proven in 2008/09. He has since said he was putting considerable faith in Egypt's unproven reserves, which are estimated at about 100 TCF, with a number of gas discoveries made in 2006 and 2007 yet to be proven officially. Gas has been identified as the key to meeting the country's industrial feedstock requirements, as well as rising demand for electricity.

In 2008, Fahmi and Echem will seek a strategic partner for an aromatics complex, for which feasibility studies are under way. Among other PMP projects, construction will continue on a polystyrene plant and tenders will be issued for a technology provider for a styrene unit, both to be built in Alexandria. In addition, with Egypt being one of the fastest-growing markets for fertilisers in the MENA, Fahmi is pushing local producers to expand their capacity. Among these are Misr Oil Processing Co (MOPCo) and Egypt Basic Industries Corp (EBIC). These firms are due to bring on stream new plants which will boost production of ammonia by 1m t/y and the output of urea by 700,000 t/y in 2008 (see down3EgyptPetchJan14-08).

Fahmi is a chemical engineer brought to the cabinet by the then Prime Minister, Dr. Atef Obeid. Born in Cairo on August 14, 1949, Fahmi graduated in June 1973 with a degree in chemical engineering from the Engineering Faculty of Cairo University. He then joined EGPC.

From January to end-1988, he pursued higher studies in national strategy and was a fellow at the Higher Nasser Military Academy. That widened his horizons. His twin brother Hady had also joined EGPC in 1973. Hady eventually became in charge of the Egyptian General Petroleum Authority (EGPA).

At EGPC from late 1973, Sameh and Hady were promoted quickly because of their dedication and efficiency. In November 1985, Sameh became in charge of EGPC's programme investments. From November 1987 he worked as an expert in EGPC projects' economic feasibility studies.

In November 1988, Sameh Fahmi became director-general for planning at EGPC, after proving clear thinking and far-sightedness. In 1990-91, he took part in a report to EGPC's board of directors on production and distribution of natural gas in Egypt.

In May 1993, Fahmi was promoted to a board member and EGPC vice chairman for planning and projects - succeeding Hazem Hammad, who then became under-secretary at the Petroleum Ministry (In early April 1996 Hammad was made chairman of the Sumed crude oil pipeline venture).

From 1992 to 1995, Fahmi took part in various strategic tasks at specialised national councils at the presidency of the republic and participated in a report on a strategy for Egypt's oil and gas utilisation to the year 2020. In 1993-94, he participated in a report on investment plans for Egypt's oil refining industry, working in co-operation with the Canadian International Development Agency.

At the same time, Fahmi was among the top EGPC and Petroleum Ministry experts preparing the integrated natural gas upstream/downstream strategy and Master Plan to 2017. The emphasis then was to speed up Egypt's shift from oil to natural gas for domestic energy and industrial feedstocks. But Fahmi was among the first Egyptian experts to warn in 1994 that heavily subsidised gas prices for domestic consumption would soon become a major burden on the state.

In 1994-95, Fahmi took part with World Bank representatives in a joint report assessing Egypt's oil refineries and plans to modernise and expand them. In the period between 1993 and January 1997 he was also a member of the executive committee for a proposed crude oil pipeline to be built from Tobruk (Libya) to Sidi Kerir. From 1994 he became a member of the board of EGPC's magazine. From 1992 to 1997, he was a board member of Egyptian Valves Co. (Evaco).

From 1993 to 1997, Fahmi was a board member of Petroleum Projects & Technical Investments Co. (Petrojet), of the General Authority for Measurement Unification, of the Energy Planning Unit, of the general and permanent committees at the Ministries of Petroleum and Electricity, of the General Investment Authority, of the World Energy Council, and of other institutions. His twin brother Hady was also climbing the EGPC ladder.

In January 1997, Sameh Fahmi was made CEO and vice chairman of the Midor oil refining venture at a free zone near Alexandria. In 1997 he became a board member of the Petroleum and Mining Chamber and of the Federation of Egyptian Industries. In August 1998, he became a board member of Alexandria Co. for Petroleum Maintenance (PetroMaint).

On Oct. 9, 1999, then Prime Minister Obeid chose Sameh Fahmi for the post of petroleum minister as Dr. Hamdi al-Banbi was due to retire. At Midor, Fahmi was succeeded by Eng. Maher Abaza, who from 1982 until then was minister of electricity and energy.

After becoming petroleum minister, Fahmi ordered a review of several major projects. He reappraised the financing options for the $550m Suez hydrocracker project carried out by MOPCo. MOPCo is a diversified private enterprise in which EGPC has a stake (see down2EgyptRefJan7-08 & down3EgyptPetchJan14-08).

Fahmi is a frequent keynote speakers at major conferences held to promote Egypt's petroleum or petrochemicals sectors. He addressed the 2nd Egyptian Petrochemicals Conference held in Cairo on Jan. 10-11, 2005. He outlined his ministry's short-, medium- and long-term strategies at a major conference held on May 12, 2005, by the Alexandria Chamber of Commerce. He has been the keynote speaker at such conferences in Egypt and abroad since then.

Hahmi has been encouraging private Egyptian companies to invest in the upstream/downstream oil and gas and petrochemicals industries. Private Egyptian E&P ventures now include Egypt Saam Co., owned by businessman Sami al-Ashram, which has a West Delta block; and Forum Exploration, grouping consultants turned entrepreneurs chaired by Wafiq al-Guindi, which has a block in the Gulf of Suez. These companies get the same incentives and profit splits as IOCs. The most prominent among the tycoons playing a key role in the petroleum sector is Hussein Salem, a powerful ally of President Mubarak who once served as chief of the intelligence and now has a business empire including al-Sharq Gas Co.

Al-Sharq buys natural gas from Egas and sells it to Jordan and soon to Syria as well. From Syria the pipeline will run to Turkey. Thus al-Sharq is spearheading the Arab Gas Pipeline (AGP) project which will be supplying gas all the way to Eastern and Central Europe through Syria and Turkey, with a spur line to supply Lebanon (see gmt3EgyptGasExptJan14-08). It is said that it was thanks to Salem's recommendation and support that the Fahmi twins were promoted, with emphasis on Sameh becoming a minister.

Fahmi is an enthusiastic promoter of gas export projects, notably including the two LNG export ventures which are expanding. It was mainly thanks to special executive powers Fahmi has given to the various departments at his ministry, EGPC and Egas that the two LNG ventures' trains came on stream ahead of schedule (see the profiles of Segas and ELNG in Oil and Gas Market Trends No. 3).

Fahmi has been particularly eager to get Egyptian gas to reach several countries through the AGP system. He visited Turkey, Jordan, Syria, Lebanon, Cyprus and some of the European countries which will be purchasing Egyptian gas. In July 2005 he visited Nicosia and signed a memorandum of understanding (MoU) for the export of Egyptian LNG to the island. The MoU and subsequent agreements also covered joint efforts to explore for oil and gas in the island's territorial waters. Fahmi has offered similar co-operation to Lebanon, Syria and Turkey.

On June 30, 2005, Fahmi and Israel's National Infrastructure Minister Benjamin Ben Eliezer signed a long-delayed agreement for the sale of 1.7 BCM/year of Egyptian gas for a period of 15 years starting from October 2006. It was then understood that the gas will be pumped through a marine pipeline to be built. For this a $2.5 bn JV deal was to be signed by Israeli Electric and East Mediterranean Gas. EMG is a consortium of EGPC and the Israeli company Merhav.

Merhav was originally to be a main partner in the Midor refining venture in Alexandria. But Merhav had to sell its stake and leave the Egyptian venture due deteriorating relations between Israel and Egypt as a result of Likud's advent to power in the Jewish state. So far no progress about EMG's project has been reported and the fate of the June 30, 2005, agreement is not clear.

For its part, however, British Gas (BGI) has cancelled a project to sell to Israel natural gas which the UK major is developing off the Gaza Strip. That was because of disagreement over the price of gas and Israel's long hesitation about importing gas from sources like the Palestinians and Egypt. BGI's operation off the Gaza Strip is under the jurisdiction of the Ramallah-based Palestinian National Authority (PNA), while the Strip has been under the control of the Islamist group Hamas since June 14, 2007. BGI has decided to sell the gas to Egypt for processing into LNG by the BGI-led consortium called ELNG (see gmt3EgyptGasExptJan14-08).

Working within the government's privatisation policy, the Petroleum Ministry has supervised the sale of most EGPC gasoline/diesel retail stations in Egypt to private franchise holders in the past 15 years. By 1995, about 95% of these stations had been handed over to the private sector, with foreign companies like Shell and ExxonMobil having become involved in a big way. The motor fuels and lubricants retailers now include a unit of Oilinvest of Libya.

The Petroleum Ministry has also facilitated the transfer of LPG retailing units to the private sector. Through Gasco, a unit of Egas, the ministry has helped speed up the creation of private franchises to market natural gas and CNG in various parts of Egypt (see down1-EgyptEnrBaseJan1-08).

Fahmi hosted OPEC's ministerial meeting in Cairo on Dec. 28, 2001, as the organisation decided to cut production by 1.5m b/d after Russia, Norway, Mexico, Oman and Angola pledged to reduce their output by 462,500 b/d. But Egypt, which used to be a key non-OPEC backer of the organisation's price defence strategy, refused to cut its oil output because its production had been declining since the mid-1990s.

Egypt is no longer as eager for high oil prices as it was in recent years because it has become an oil importer. Even though its earnings from high gas export prices have risen, Cairo is apprehensive about this subject because its economy depends on gas utilisation to a great extent; and the use of natural gas locally is to keep growing rapidly, while domestic prices of fuels (from oil and gas) and electric power rose considerably in late 2007 in an effort to cut the energy subsidy (see DT Nos. 1-3).

Hani Soliman, The key executive under the minister, Soliman is a deputy petroleum minister for natural gas and officially his ranking is first under-secretary. He is a prominent engineer. Previously he was the Egas vice chairman for operations, and before that he was the deputy head of Gasco which used to be chaired by Muhammad Tawila, who now is retired.

Soliman's position at the petroleum ministry has become more important than that of the first under-secretary for oil. This is not only because Egypt now was producing more gas than oil but also because of the gas-based downstream businesses which now are more extensive than those based on crude oil.

The Gas Department at the petroleum ministry overseas Egas, the latter's unit Gasco and all gas-related businesses in Egypt. The department has been particularly keen on the prospects gas-rich offshore areas west of Alexandria in the Mediterranean, which have been under-explored, and in the Nile Delta. Eng. Soliman in April 2006 was quoted as saying: "Our feeling is that the [nat. gas] reserves in the Mediterranean Sea and in West Delta Deep Marine (WDDM) are huge". Egas has since allocated a number of E&P blocks in these areas and offered them to IOCs.

Abdul-Aleem Taha: A long-serving executive in the petroleum sector, Taha became chairman of EGPC in the autumn of 2006, succeeding Eng. Ibrahim Saleh who had been head of the company since August 2001, when he succeeded Muhammad Tawila who was then elected chairman of the newly-formed Egas. Until then 2006, Taha used to be a deputy chairman of EGPC (see background in omt4EgyptWhoJan23-06).

Like his predecessor Saleh, Taha is a prominent petroleum engineer. Another prominent figure in EGPC is Hani Nasser, the company's deputy chairman for E&P.