UPDATE 1-Egypt in talks to extend oil product supplies from Gulf

Tue Oct 1, 2013 1:58pm EDT

* Gulf states have already promised Egypt $12 bln in aid

* Egypt to pay 25-30 pct of $6.2 bln owed to oil firms soon

* Govt delays start of smart card system till next year

By Ehab Farouk

CAIRO, Oct 1 (Reuters) - Egypt is negotiating with Gulf countries to supply it with badly needed petroleum products into 2014, hoping to ease pressure during a volatile political transition to elections.

Public opinion has turned against the army-backed government's foes, the Muslim Brotherhood, but any shortages of basic commodities could also make the country's leaders unpopular.

Saudi Arabia, Kuwait and the United Arab Emirates have already agreed to supply Egypt with oil products until the end of December, and Egypt is now discussing further supplies, Oil Minister Sherif Ismail told a news conference on Tuesday.

"Egypt has informed the Gulf countries of the size of the fuel supplies it will need after December and the three Gulf countries are now studying these needs," Ismail said.

Foreign Minister Nabil Fahmy said at the United Nations on Saturday that the transitional phase of drafting a new constitution and electing a new parliament and president should end by next spring.

The three Gulf countries, which pledged to provide Egypt with $12 billion in aid after the army ousted Islamist president Mohamed Mursi on July 3, have been sending diesel, gasoline and fuel oil to Egypt since July, Ismail said.

Egypt has been struggling to meet soaring energy bills caused by the high subsidies it provides on fuel for its 85 million population. The subsidies have turned the country from a net energy exporter into a net importer over the last few years.

TIGHT FINANCES

The government, seeking to avoid public unrest, has delayed oil payments to foreign oil companies producing oil and gas on its territory. Some of the debts were accumulated even before the popular uprising that ousted Hosni Mubarak in early 2011.

Egypt will repay 25 to 30 percent of the $6.2 billion in its arrears to the oil companies in the near future, Ismail said.

The collapse of tourism and foreign investment since the uprising has deprived the country of two of its main sources of foreign currency.

Finance Minister Ahmed Galal said in an interview last month that Egypt wants to encourage foreign oil companies to increase exploration and production in exchange for a more rapid repayment of the money it owes them.

The government has been grappling to reduce the cost of its energy subsidies, which make up 20 percent of all state expenditure, without angering its citizens.

It hopes to implement a smart card system at the start of 2014 for fuel purchases by vehicle drivers, Ismail told the news conference.

This marks a new delay in the smart card system, which has been in the planning stage for at least a year. In July, the finance ministry had said it planned to phase in the card system gradually in July, August and September.

Analysts say the logistics of implementing of the smart cards is a political and bureaucratic minefield.

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