Tamer AbuBakr – Chairman, Petroleum & Mining Chamber, Federation of Egyptian Industries (FEI)
Tamer AbuBakr speaks to us in his capacity as the Chairman of the Federation of Egyptian Industries’ Petroleum and Mining Chamber to provide some insight into the current state of the Egyptian oil and gas industry, his thoughts on the priorities Egypt should focus on based on his four decades of industry experience, and his final message encouraging investors to look to Egypt.
Mr. AbuBakr, we are meeting you in your capacity as the Chairman of the Petroleum and Mining Chamber by the Federation of Egyptian Industries. Can you tell us more about the activities of the chamber?
“We are entering an era where we will have more gas, and as a result, the government is looking at ways to maximize its value”
The chamber has two roles: firstly to act as a mediator between the private sector and the government to facilitate dialogue, and to prepare papers and provide expertise to the government. This is particularly relevant to smaller and local players, as the upstream sector is mainly dominated by large international players, which can access the government more easily. The downstream sector in Egypt has mainly smaller companies so we help them provide feedback to the government and resolve any issue.
We are in a rather unique position because the problems relating to the petroleum industry differ from those of other sectors. We find that the people in charge of the petroleum sector tend to be more understanding of the industry’s concerns and strive to solve problems quickly.
You have over 40 years of experience in the industry and have worked for companies like Egyptian General Petroleum Corporation (EGPC) and TAQA Gas. Can you give us an overview of where Egypt’s petroleum industry stand today?
Egypt’s oil and gas landscape is very dynamic today. In terms of upstream, we expect to increase both oil and gas production. The political instability did delay investment for a number of years, which was not helped by the debt we accumulated to our foreign partners. Now that the government is on track to resolving this, with the expectation that all debt will be repaid by the end of 2018, we are beginning to see increased interest in returning to Egypt. Additionally, the government also wants to focus on enhancing recovery from maturing fields. Most of the easy oil had been in the Red Sea and the Western Desert and we expect that new oil exploration and development will be more difficult. But there is still more oil left, which is exciting.
In terms of gas, naturally the Zohr gas discovery was a huge boon for our country. We are entering an era where we will have more gas, and as a result, the government is looking at ways to maximize its value. For instance, currently new laws are being negotiated in the Parliament on the deregulation of the gas market, so that foreign parties will be able to sell their gas directly to end users in the country and use the government’s pipeline network. A new regulatory authority body will be formed to oversee this – and the overall goal is to encourage investment in gas.
On the downstream side of things, the situation is a bit different. Egypt’s upstream sector has benefited from exposure to foreign companies and technology. We do have excellent technical people but the problem is with the vision. Everything has been owned by the government for half a century – and this is coming from my experience as the ex-vice-chairman of the Egyptian General Petroleum Company (EGPC) – so there was a reluctance to deregulate the downstream activities. But deregulation is beneficial for society because it fosters competition.
The other problem is that our downstream infrastructure – not just our refineries but our pipelines, ports and storage facilities – require upgrading. There has been no enhancement or modernization for about a decade, partly because there was no obvious need to. Our population was smaller, our import requirements were lower and our refineries secured about 80 percent of local needs. The current Prime Minister, H.E. Sherif Ismail, did lay out a plan to renew our infrastructure when he was Minister of Petroleum, but the problem then was securing the financing.
That said, this sector still needs to be managed by the government, because these sort of investments are long-term, not quick returns. The private sector may not necessarily be interested by them – and it is also a matter of national security. This sector will benefit especially from foreign investment because they will bring not just the financial capacity but the experience and technology.
Regardless, there have been some positive developments in this sector. The government has developed investment companies to add value to the products from the refineries in Alexandria, mainly lubricants, polyethylene and ethylene. The private sector is also showing some interest, for instance, like what Qalaa Holdings is doing in Mostorod for EGPC’s Cairo Oil Refinery Company (CORC), which is the biggest in Egypt and supplies 20 percent of current refining capacity.
As you said, and perhaps understandably, much of this modernization activity is championed by the government. What can the private sector do to complement the government’s initiatives?
What is important is that there are a lot of opportunities to invest in refineries and the downstream sector in Egypt. From a macro perspective, the pattern of oil movement globally is changing. Suez Canal used to be a transit point for crude arriving from the Arabian Gulf going to Europe, because Europe used to refine its own crude. Due to recent environmental regulations, they have had to shut down their own refineries and are now having to import refined products. Additionally, the downstream industry is generally not very profitable, following a four-year cycle where one year is profitable and the other three are not. As a result, we are also seeing a lot of gas oil going from east to west and a lot of naphtha going from Europe to the East, like Singapore, South Korea and China. The amount of petroleum products traffic through Suez Canal is increasing every year by 17 percent. Egypt is definitely well-placed to reap the benefits of these trends and to become a regional petroleum products hub.
Egypt’s geographical location and existing gas liquefaction facilities also motivate the idea of becoming a regional gas hub. The regional map of gas production is also changing. The oil fields in West Iraq have a lot of associated gas, which are currently under Kurdish control. When a peace settlement is reached, we expect to see a lot of development, which could very well pass through Egypt through the Arab pipeline. With Cyprus, too, we have a Memorandum of Understanding (MoU) with them to link both countries via a pipeline. This also means taking advantage of the two LNG facilities already existent in Egypt.
The caveat is that I believe even if our domestic gas supply increases in the next few years, our targeted economic development of 5 to 8 percent growth a year will mean that we will need to treble our industry capacity. Gas is still the cheapest source of energy both financially and environmentally, so I reckon that we will still be a net importer of gas in a few years. But in any case the overall conditions are very conducive to us becoming a big gas hub in the region.
In terms of the local private sector, I think they can do more in the areas of refineries (once it is deregulated), retail and distribution. As an example, I am on the board of TAQA Arabia, for instance, who started a retail company called TAQA Marketing, which concentrates on areas outside big cities. It is now doing well and we have more than 35 stations in Egypt.
Egypt has gone through a few turbulent years since 2011 with both domestic and international developments affecting its growth. What is the overall mood in Egypt in the industry?
To be very honest, the crash in oil prices was a blessing in disguise. It pushed us to implement reforms and changes that we should have done 10 years ago. I have said many times that the standard of living we have had in the past years is undeserved and our children are going to be paying for it .
I have two kids, so I always use this example: if you have a kid, and after they graduate from university, you begin to subsidize them, they will not be motivated to look for work! Compared to the rest of the African continent, Egypt is a very rich country and we have a talented workforce and abundant natural resources. We should have developed much better than we have. There is huge potential here.
The crisis forced us to be very honest with ourselves about the problems we were facing. The government subsidies were a very bad idea because they subsidized commodities. At one point they reached EGP 175 billion a year! Subsidizing commodities benefits the rich disproportionately and does not increase the welfare of the people.
What do you see as Egypt’s priorities in the next few years?
The first should be a realistic plan for Egypt’s education system. We are now trying to solve a problem of the past, but we now need to look to the future. Success comes from the people. One thing I want to point out is that we need to enhance the standards and qualifications at the high school level. Now many people want to graduate from university but that is not a solution for everything. For each engineer, we will need many technicians and farmers, for instance.
Secondly, as a country we need to begin to add value to our economy, which means exporting goods. The first, second and third priorities should be industry. The next can be service, and the fifth, agriculture. In industry, we have a lot of raw materials and a fantastic geographical location to export. We have the potential to be Europe’s backyard! Africa also holds many opportunities for us, especially in terms of building our export capacity and experience as we are already able to meet their standards right now. We can build our expertise and then break into Europe when we are ready.
What is your final message for executives and companies assessing Egypt as an investment location?
“My message to my fellow countrymen is that we need to work harder, because nobody will build Egypt except for the Egyptians.”
Investors have the right to be concerned about coming to Egypt but personally I do not see any reason to be worried. I believe foreign media have portrayed a very negative and inaccurate image of Egypt in the past few years that we were very surprised to see, as Egyptians.
There have definitely been challenges in Egypt in the past years. That said, I am Egyptian and I love this country and I fought for it in 1973. What I can say is that Egypt does not fall easily. We are a country with deep roots and a profound culture – but we need to work hard. The main issues in the past few decades have been security, transparency and work ethic. We are unfortunately known as the kings of bureaucracy. The culture needs to be changed. My message to my fellow countrymen is that we need to work harder, because nobody will build Egypt except for the Egyptians.