Supplier investment: Private sector companies invited to import needed gas supply

Egypt’s downstream energy markets are tightly regulated in terms of the prices consumers pay for the commodities and the scope of private sector participation. Still, the state has long promised a loosening of controls and increased opportunities for investment. A major step toward that type of deregulation is now under way, due to the creation of a new market for downstream supply of natural gas.

Market Law

The new draft law working its way through the state’s system of approvals will create opportunity for commercial companies to import gas and distribute it to non-residential customers once it is approved. The change comes partially as a response to the current gas shortage in Egypt, encouraging private investment in the system in order to address the current situation and help the state keep up with the fast pace of rising demand. “There’s obviously an opening for a private market for gas and there are industrial consumers with the ability to pay,’’ said Johannes Finborud, managing director of the Egyptian operations of Engie, the French energy company formerly known as GDF Suez. Currently, only the Egyptian General Petroleum Corporation and Egyptian Natural Gas Holding (EGAS) have access to the country’s network of pipelines to import and distribute gas.

In addition to opening up that market, the law will also create a new independent regulator named the Gas Regulatory Authority (GRA). Amira Al Mazni, a former EGAS official, has already been named to head the authority when formally established. Relevant regulatory authority will then pass from EGAS to GRA. The system has drawn examples from similar reforms around the region, such as in Saudi Arabia. In 2002 that country established its Electricity & Co-Generation Regulatory Authority, delineating roles and responsibilities in a similar structure.

Details To Come

Although delayed, the process is moving forward and media reports in January 2017 stated that a draft law is expected within six months. Some details not yet decided upon in early 2017 included the transmission fee that private-sector gas businesses would pay to access the pipelines, whether they would be allowed to build their own pipelines, and if so, whether formal ownership would stay with government. Build-operate-transfer and concession type agreements are options, according to EGAS .

The GRA would be specifically responsible for activities such as licensing, supervision, consumer protection and tariff calculation. To start, there are expected to be four types of licences, Al Mazni said in a recent interview: one for transmission-system operators, one for distribution-network operators, one for gas suppliers and one for gas shippers. In the future, licences for storage and specifically for liquefied natural gas importing and distribution could be established. The regulator will also be responsible for vetting providers and setting a threshold for the eligible customer base. Residential consumers are unlikely to be impacted – it is more likely that this market will be geared towards commercial and large-scale buyers, and those outside the subsidised pricing regime for private households.

As of January 2016 the multi-agency team developing the new system had settled on an allowed-revenue methodology to set tariffs, Al Mazni said. In this system, the regulator would define a market participant’s adequate rate of return and consider the costs of the systems those companies use, such as capital and operating expenditure on the pipelines and compression stations. Those eager to participate in the market may have to select from several specific roles as well: importing gas may be off-limits to current domestic gas producers, for example. Shipping, distributing, transmission and supply could be considered separate functions performed by the same firm, but under a holding company structure where the entities involved maintain their own separate balance sheets to ensure pricing transparency at each step in the process.