September 12, 2012 / 4:45 PM / 5 years ago

Egypt energy bill mounts, fuel shortages return

* Fuel disruption is latest evidence of supply strains

* Industry manager says payment delays may cap output

* Another says Egypt energy model unsustainable

* Foreign companies say still investing in Egypt

By Tom Pfeiffer and Emma Farge

CAIRO/GENEVA, Sept 12 (Reuters) - Egypt’s cash-strapped government owes foreign energy producers at least $3 billion, industry sources told Reuters, as cancelled oil import tenders and lengthening queues at petrol stations point to fresh strains on fuel supplies.

Economic turmoil since a popular uprising unseated Hosni Mubarak last year has stretched Egypt’s finances and inflated the premiums the state petroleum company pays for fuel.

Traders say the number of firms supplying fuel to the Arab world’s most populous country has shrunk and repeated shortages have angered motorists and disrupted industry and agriculture.

The government denies any major problem, says it honours its energy contracts and plans to rein in state energy spending by ensuring costly subsidies on fuel only target the needy.

But that reform is still mostly in the pipeline. Fuel traders remain reluctant to extend Egypt credit and figures advanced by industry executives for the amount owed by the state to foreign energy companies imply a severe payments crisis.

The bill owed to foreign producers in Egypt is “over $3 billion” said one oil executive, who declined to be named since it would jeopardize the firm’s future in Egypt.

“Small producers are really suffering since some of the larger ones are sometimes able to market their own oil. It’s vital for them to have dollars from the oil as working capital,” the executive said. “It’s got worse again recently. I think that investment could dry out and production could start to fall.”

A second industry executive put the state debt to oil and gas producers at $4-5 billion, accumulated over the past year. Another said the bill was for oil produced over the past nine to 12 months, but he believed some of the debt was paid in August.

State-run al-Ahram newspaper on Wednesday quoted Oil Minister Osama Kamal as saying the state oil company EGPC had had no financial problems and that the finance ministry had just sent it an additional $259 million to import petroleum products.

Officials at EGPC could not be reached for comment on Wednesday.

Egypt is a significant gas producer, with much of the output consumed locally, and a net importer of oil. Some crude is exported since it doesn’t always match the required grades for local refineries.

The economic crisis after the 2011 uprising sent state borrowing costs to historic highs and the government is now in talks for a $4.8 billion International Monetary Fund loan.

The state bill for petroleum product imports was $5 billion in the year ended in June. Energy subsidies jumped 40 percent to almost $16 billion, about a fifth of the entire budget.

“Production is lower than consumption and consumption is heavily subsidised, so it’s not a sustainable model,” said Nick Dancer, country manager for Egypt at Dana Petroleum.


A fourth executive said gas producer BG Group was among the companies exposed to the government’s debt.

In an email replying to questions from Reuters, BG said its board held a regular meeting in Egypt this week, “reflecting the country’s status as one of the group’s leading assets”.

As part of the visit, it said, BG Chairman Andrew Gould and its regional managing director Sami Iskander met Egypt’s Prime Minister Hisham Kandil. It did not say what was discussed.

The British company, which has invested more than $10 billion in Egypt over 23 years, said it agreed last year on a way to recover “all outstanding receivables” from the government and it was due to be fully repaid over three years.

“We remain committed to Egypt and are in the process of delivering or considering opportunities which will require a further multi-billion dollar investment,” it added.

The fourth industry source said Apache Corp was also owed money but that the Houston-based company’s size, strong local links -- and a threat to withdraw investment -- meant it got priority in payments.

Thomas Voytovich, vice president and general manager of Apache in Egypt, said he too had heard the government owed $4-5 billion to companies energy producing in Egypt but he had no way of verifying the figure.

He said the company’s receivables situation was “manageable and no different than in past years”.


The industry sources said oil producers were still investing in Egypt given the longer-term earnings potential, and were giving the government the benefit of the doubt on payments.

Egypt’s energy funding problems are showing through for now mostly at the pump. It had to cancel a tender to buy crude in July after receiving no bids, and scrapped parts of a gasoline import tender as prices offered were too high, traders said.

Another tender was announced last month for importing crude between September and December, oil traders said, adding that its outcome is still unclear.

“They had to reissue the tender on an LC (letter of credit basis) but they insisted on the national bank being used. That increases the cost for people so everyone just charges that in their price. I haven’t heard that this one has been awarded,” said one trader.

Queues of white minibuses and taxis snaked down streets in Cairo and highways out of the capital on Wednesday and one pump attendant said the lowest grade of diesel had been in short supply for three days.

“Here we go again, back to fuel shortages,” said one taxi driver.

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