Interview: Tarek El Molla
How important are Egypt’s fuel subsidy reforms?
TAREK EL MOLLA: Egypt’s energy sustainability depends to a great extent on the management of local demand and the implementation of new subsidy reductions.
As part of its major economic reform plan, the government has embarked on a comprehensive energy subsidy initiative to be implemented over five to six years. The first step was taken in July 2014 and has resulted in reasonable savings on energy subsidies. Despite the cost increases resulting from this, energy prices in Egypt remain well below international prices.
The drastic drop in international oil prices is also in Egypt’s favour in terms of decreasing the fuel subsidy bill, which was estimated at around LE73.9bn ($10.1bn) for the financial year 2014/15. With the oil price decline, subsidies are expected to fall to around LE61.7bn ($8.4bn). The government will allocate part of the savings to boost social spending on health and education services to help mitigate the impact of the subsidy reductions on the poor.
With arrears currently being addressed, when do you expect the debt to be fully retired?
EL MOLLA: The government is keen on developing a solid relationship with its partners by paying the rest of the arrears owed to international oil companies (IOCs) that have accumulated over past years. This should help encourage foreign partners to continue investing in exploration and development activities that are essential to increasing domestic production.
It is worth mentioning that we have taken concrete measures, and we have succeeded in reducing the IOCs’ accumulated arrears from $6.3bn in December 2013 to $2.7bn by the end of October 2015. We aim to pay off the rest of the dues in a timely manner to keep foreign investor confidence in the Egyptian economy as well as accelerate the development of discovered fields, therefore boosting exploration and development investments, and increasing production.
What scope is there to further develop both midstream and downstream activities in Egypt?
EL MOLLA: Egypt already has eight refineries distributed across Cairo, Tanta, Alexandria, Suez and Assiut. The government aims to achieve full economic exploitation of the refineries’ designed capacity – 38m tonnes per year – within the framework of the ministry’s strategy to provide for growing local market requirements for petroleum products, particularly those that are being imported partially to fill the gap between domestic production and consumption, such as gas, oil and liquefied petroleum gas (LPG).
In addition, there is 6.7m tonnes of available spare capacity and 4.8m tonnes of unavailable capacity as a result of aging units and bottlenecks. As such, we are currently working on removing these bottlenecks through programmes aimed at the development of refineries; rehabilitation; and the addition of new on-site technologically sophisticated units.
The development plan for Egyptian refineries includes the implementation of a new group of projects, with total investments of $7.3bn, in refineries at Alexandria, Suez, Assiut and Mostorod, aimed at increasing the production capacity of petroleum derivatives to meet the growing needs of the local market and serve our development goals. The most important of these is the Midor expansion at Alexandria, with estimated investments of $1.4bn that will increase production capacity by 60%.
There are a number of midstream projects in the pipeline. Currently, we are developing the infrastructure of pipeline networks to transport crude and petroleum products as well as upgrade and expand systems in Upper Egypt and nationwide, a scheme that has reflected positively on the distribution of fuel supplies to consumers and, in particular, to power plants. We are also working on a number of projects to increase the storage capacity of LPG to face any contingency factors in the domestic market supply.
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