Saturday,21 October, 2017
Current issue | Issue 1237, (12 - 18 March 2015 )
Saturday,21 October, 2017
Issue 1237, (12 - 18 March 2015 )

Ahram Weekly

‘Energy crisis was expected’

With the energy sector a conference priority, Maye Kabil spoke with Khaled Abu Bakr, head of TAQA Arabia, about the challenge of meeting Egypt’s demand for power

Chart 1
Chart 1
Al-Ahram Weekly

Egypt is looking to the private sector to provide badly needed investment in the energy sector. The country is witnessing its worst energy crisis in decades, with rising consumption and declining production.

“The energy sector needs $50 billion of investments over the next five years,” said Khaled Abu Bakr, chairman of TAQA Arabia, the energy arm of QALAA Holdings. These resources are needed in oil and gas production, refineries, petrochemical industries, traditional power stations and renewable energy.

Most of these projects will be handled by the private sector, with the government planning to promote some of the projects at the conference.

Out of this targeted sum, agreements worth $21 billion in exploration and development of gas and oil fields are expected soon, said Abu Bakr, adding that some of these were recently signed.

The Ministry of Petroleum and Mineral Resources is expected to put forward a petrochemical project with an estimated cost of $2 billion. In addition, there is the renovation of some old refineries that are no longer able to perform at full capacity. The renovation will cost $3.6 billion.

New power plants need to be built to fill the growing gap between electricity production and consumption, which requires another $15 billion in investment, according to Abu Bakr’s estimates.

Clean energy projects are also on the table. The New and Renewable Energy Authority has $3 billion to $4 billion projects in solar and wind energy.

The remaining $5 billion will be used by the government for power transmission and distribution networks.

“All these investments are essential because economic growth in the country is led by construction, manufacturing and agriculture sectors, all of which depend on energy,” Abu Bakr said.

In a country of 90 million people, the demand for energy has grown nine per cent over the last decade. Now, after the slowdown in economic activities, the demand is expected to grow at around five per cent.

Although the energy shortage was expected, both the government and the public seem to have been taken by surprise. “It all started with poor planning between 2005 and 2010, when the economy was growing fast but energy production was not matching the same pace,” explained Abu Bakr, adding that the fact that the government considered unproven reserves as actual expected production was misleading.

After the January 2011 Revolution, political instability and the ailing economy limited the government’s ability to meet its financial obligations to foreign companies, with debts up to mid-2013 estimated at $6 billion. Foreign companies were thus reluctant to continue their exploration activities, which affected the supply of gas.

As production levels fell, natural gas production met only 27 per cent of the total needs in 2014. Gas alone covers 49 per cent of all fuels used in Egypt, while oil derivatives contributes 47 per cent.

Faced by limited production, the government reduced its deliveries to the industrial sector, directing most of the available energy to electricity generation. Dozens of factories had to work at lower capacity because they did not receive enough gas supplies, Abu Bakr said.

All these developments gave a bad impression to investors. “How am I supposed to ask them to come and invest in Egypt if I don’t have enough energy for them?” he asked.

However, with the government’s decisions in July 2014 to slash energy subsidies, increase electricity tariffs and stick to debt repayment plans, oil and gas exploration deals, and development — previously delayed by political upheaval — were once again put on the table.

In January, Egypt signed 15 new exploration deals and amended two others. Last week, British oil company BP finalised the West Nile Delta concession deal, through which it will inject around $12 billion.

“Egypt is trying to make use of the downturn in international oil prices to liberalise its energy market,” said Abu Bakr, allowing goods and services to be traded at the market price, not at fixed subsidised prices, as was the case for decades.

“Liberalising the market is better for both the investor and the government. The decline in global prices is helping countries in transition because the free prices of goods will not be much higher than the local ones, and this can make the transition quicker and safer.”

Abu Bakr is not worried about repeated terrorist attacks in Egypt. “Investors attending the conference are not coming from much different places in the world — they have seen a lot in their countries. Terrorist attacks will not stop them because they see the potential of the Egyptian economy, and the reforms the country adopted recently are encouraging them.”

Meanwhile, he added, there are certain moves that the government needs to take to make investment in the sector easier, like finalising the electricity law that has been in the drawer for six years.

Investors need guarantees and clarifications, and this is what the government should provide in the conference, in Abu Bakr’s opinion. “They don’t need tax reductions or exemptions, for example, but clear and stable taxation polices that can attract long-term investors who the country needs.”

The shortage of supplies made it necessary for Egypt to import gas. “We used to have a surplus in gas and we could export. Now we have a shortage and we need to import. No problem. Japan imports most of its energy. But it is a problem when we need to import but don’t have liquidity or a suitable mechanism to accomplish that,” the TAQA Arabia chairman said.

Egypt now needs to import 33 per cent of its energy, according to Abu Bakr. “Such a job is usually conducted by the government, but it is a big burden on already exhausted public finances,” he added, asserting that the private sector should play a bigger role in importing its energy needs.

The government intends to authorise the private sector to import its needs of energy through its own channels. Though announced several times over the last few years, the step has not yet been taken.

Abu Bakr said the delay is due to concerns regarding the effect on subsidised energy products in the local market. “The government is on its way to overcoming this obstacle through smart cards and other tools to make it possible for factories to import by themselves.


 

IN COOPERATION with the European Bank for Reconstruction and Development, the government has drawn up a strategy for energy up to 2035. Although the strategy has not yet been made public, its four main objectives were discussed with experts in the field.

The objectives are:

Reforming governmental institutions so that companies owned by the state in this field concentrate on production.

Creating an energy regulatory authority to begin operation within a year and a half. This authority will be responsible for setting energy priorities, supervising pricing and deciding what to subsidise.

Encouraging the private sector to invest in energy infrastructure.

Liberalising the energy market while taking into account the needs of low-income people.

 

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