Egypt owing billions to foreign oil, gas companies

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A worker pumps fuel at a petrol station in Cairo on 16 January, 2012. Photo – Asmaa Waguih/Reuters

Egyptian oil ministry is in the midst of negotiating new payment deals with foreign oil companies, which are among the leading investors in the country, oil executives said on Thursday adding that the government is $6-7 billion behind in payments to the companies for oil and natural gas purchases made by the state-owned Egypt General Petroleum Corporation.

A New York Times report said the companies were told they will get paid within two months, but the money has not been transferred from the coffers yet.

“It’s a burden largely shared across all the oil companies,” Nick Dancer, country manager for Egypt at Dana Petroleum of Britain, said.

According to the company’s financial statement, Dana overdue debts reached 78%  by April. The British petroleum company said it is still discussing “different forms of repayment schedules” with the EGPC.

“While we don’t want to maintain this position long-term, we have every confidence that the EGPC will bring us back to normal,” Dancer said in an interview.

Foreign operators in Egypt, including Dana and BP of Britain, Eni of Italy and Repsol of Spain, jointly operate with the EGPC to explore oil and natural gas reserves in the country. The discoveries are then shared between the state and the company.

Hani Dahi, head of the EGPC, told state-run newspaper Al Ahram that the organisation had paid off $9 billion in such arrears to the foreign companies in the fiscal year that ended 30 June.

Foreign oil companies, despite all the problems, are lured by the growing domestic demand. Last month BP announced it will invest $11 billion in an Egyptian gas project which is expected to produce 40% of the country’s natural gas output when completed.

In February, the US oil producer Apache agreed to spend $1 billion developing Egyptian hydrocarbons over the next two years.

Egypt has become a net importer of oil over the past decade. Despite not being a net exporter, the government subsidises the oil and gas prices, with state’s energy bill hitting almost $16 billion a year, representing about a fifth of the government’s entire budget. The cost of imported petroleum products was $5 billion in the fiscal year ended in June.

Egypt’s financial supporters, including the International Monetary Fund, which is considering a $4.8 billion loan for the country, are calling for cuts in these subsidies.

Oil Minister Osama Kamal announced on Wednesday Egypt was holding off on reform of the state energy subsidy regime until it completed more studies and held a “social dialogue” on the issue. He admitted Cairo would continue facing a major economic problem until the subsidies, which represent about a quarter of state spending, are cut. “Every day we delay restructuring subsidies bleeds state resources,” he said, though he declined to say when the subsidy regime would be reformed.

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