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Al-Ahram Weekly 29 July - 4 August 1999 Issue No. 440 
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Published in Cairo by AL-AHRAM established in 1875 |
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Al-Ahram Weekly 29 July - 4 August 1999 Issue No. 440
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| Published in Cairo by AL-AHRAM established in 1875 |
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Egypt Region International Economy Opinion Culture Profile Travel Living Sports Time Out Chronicles People Cartoons Letters Energising the south
By Muriel AllenItaly's Edison, an affiliate of the giant Montedison Group, and British Gas (BG) have been awarded a groundbreaking franchise by the Egyptian government to distribute, market and sell natural gas to southern Egypt. Their new joint venture, the Nile Valley Gas Company (NVGC), has already started work on the project to expand the country's gas network. Two Egyptian companies, Orascom and Mega (Middle East Gas & Energy Association), a financial firm, are partners in the business.
Natural gas will be the cornerstone of Egypt's energy policy in the next century. The government is committed to supplying clean burning gas to industries and homes in Upper Egypt because it believes the fuel will help transform the region into a magnet for new industry and new centres of population in the 21st century. The NVGC venture, which has been dubbed the Seti (Southern Egyptian Transmission Infrastructure) Project, is one of the most important new gas schemes in Egypt.
The national policy to shift from oil to gas has top priority for several reasons. It is environmentally sound, it will increase export earnings and will save the country "an enormous amount of hard currency," one gas specialist explained. It will free more of the country's dwindling crude oil supply for export, providing additional hard currency. Also, more savings will be realised by substituting gas for butane, which is widely used in Upper Egypt, industry sources said. The government currently uses large amounts of foreign exchange to import butane and subsidises its price in the local market. These very expensive policies are expected to end once the Upper Egypt gas network is completed.
Major gas discoveries have been made by Edison and British Gas in exploration concessions in Egypt's offshore Mediterranean. The government and the companies decided together to dedicate this gas to the domestic market. The state-owned Egyptian General Petroleum Corporation (EGPC) has divided the country into areas for gas distribution, and awarded concessions to several foreign companies to build the necessary new infrastructure, an EGPC official said.
Nile Valley Gas Company was awarded the concession for Upper Egypt which extends to the border with Sudan. The government asked it to handle pipeline construction, gas sales, billing of clients, collection of money and maintenance for a period of 25 years, an NVGC official said. Nile Valley will build the main gas transmission line to the south as well as the smaller distribution lines. The other companies with concessions have only distribution rights.
In the first phase of the mammoth project, NVGC took over a pipeline built by the government from Cairo to the new Kuraymat power station near Beni Suef. Phase two of the project will involve building a pipeline from Beni Suef to Assiut. The construction is expected to cost about $450 million and will be financed by NVGC shareholders. BG and Edison each have 37.5 per cent shares in NVGC. Orascom, one of Egypt's most successful businesses and a leader in the construction industry, has 20 per cent and Mega, five per cent. The partners will pay for the construction of the line in proportion to their shares, according to NVGC.
At its northern end, the Upper Egypt line will be linked to the Western Desert gas fields. When phase two is finished, the new extension of the gas grid will run from the 6th of October City, site of a thriving industrial zone, to Assiut, covering some 350 kilometres. In two years the company expects to have gas in Assiut, an NVGC executive said, requesting anonymity under company rules. The Upper Egypt pipeline will eventually extend the national gas pipeline network to Toshka if NVGC exercises its option in the franchise agreement with the government to continue beyond Assiut. The segment from Assiut to Qena would cover 260 km and that from Qena to Aswan 270 km.
The contract for construction of the pipeline from Sixth of October to Assiut is expected to be awarded in December, a NVGC spokesman said. Those bidding for the job include three US companies, Bechtel, Brown & Root, and Flour-Daniel as well as Technip of France, and Britain's Kvaerner.
While the new gas pipeline for southern Egypt will be owned and controlled by the government in the end, it is being constructed according to a Build-Transfer-Operate (BTO) system, according to NVGC. The ownership of the line from Sixth of October to Assiut will be transferred to EGPC in five years. Under the terms of the agreement, EGPC is required to pay back within five years the investment made by the foreign company. The concession company has the responsibility to collect the money for the gas it sells to customers and give it to EGPC. It receives a fee for this service.
Some in the oil and gas industry consider the government's arrangement with NVGC another step down the road to privatisation for Egypt's hydrocarbons sector.
"Egypt will have in a very short time a complete gas distribution network in the south operated by private companies, but the ownership will be in EGPC's hands," said a Nile Valley executive.
"All the franchise agreements between EGPC and foreign companies to build gas distribution networks are the same and specify the same fees for concessionaires. EGPC has been very fair," the executive added.
GasCo (the Egyptian National Gas Company), is the government company in charge of transmitting gas through Egypt's main gas pipeline grid. It will coordinate the supply of gas to the concessionaires building the new distribution networks. Ownership of the gas itself remains with GasCo.
"Currently, we're building the distribution network in Beni Suef, and we've connected the line to the Beni Suef Cement factory. It's already using gas and we're billing the company," an NVGC spokesman said. "We're laying pipe to reach the city's new houses on the east bank of the Nile where there is also a new industrial area. Before the end of this year, we hope to connect the older part of the city to the gas supply." Other clients in Beni Suef will be Misr Cement and additional new cement companies, all of which have asked for gas.
The Egyptian government wants to maximise the conversion of all kinds of big factories to gas. In Upper Egypt, the customers using the most gas will be power plants and sugar and cement factories. "One of Nile Valley's jobs is to encourage factories and other clients to convert to gas from oil since we're selling the gas. So far, it's been very easy because everyone seems convinced they should use gas," the company spokesman said.
Nile Valley is also responsible for an education campaign to convince local residents that natural gas is not dangerous. And in a related move, it is selecting and training local people, some in England and Italy, to do maintenance work for the new gas system.
Building such a huge line requires the expertise of companies with long experience in the gas field. Both BG and Edison are well known internationally for their work with gas. BG has been advising the Egyptian government on the development of its gas system for many years. Edison is the only private integrated company in the Italian energy sector, with a major focus on transmission, storage, distribution and marketing of natural gas.
