$5.5bn debts owed to foreign companies by the end of November
The Egyptian government intends to pay debts owed to foreign partners in full within the coming six months, representing an amount worth $5.5bn according to a senior official with the Ministry of Petroleum.
A bid was offered by EGPC to lend $2bn to help Egypt pay debts owed to global oil and gas companies, which will be guaranteed through future sales of crude oil shipments over a period of five years.
The loan represents a step within the government’s commitment to pay 60% of total debt by the end of this year, according to the official.
Dues owed to foreign companies operating in the oil sector rise by approximately $300m per month, and as the government is unable to adhere to paying these amounts, the total has accumulated further.
The total value of foreign partners’ gas and crude oil obtained by the EGPC is worth approximately $1bn per month. Only crude produced in Ras Gharib has been exported because it is heavy and cannot be refined in Egyptian factories, according to Tarek El Molla, Chairman of the EGPC.
El Molla stated that the EGPC is committed to paying dues to foreign partners according to a schedule that will be agreed upon, adding that a solution to address the root of the problem could include increasing natural gas and petrol production.
El Molla stated that the arrangement of a loan for EGPC worth EGP 4bn was offered by local banks to pay a portion of debts owed to foreign partners in EGP last month.
Petroleum continues borrowing to pay debts to foreign partners
The government will borrow from the Egyptian General Petroleum Corporation (EGPC) to pay a portion of its debts to foreign partners as a finance ministry rule does not allow for debts to be paid out of the state treasury.
The EGPC will borrow by mortgaging a portion of Ras Gharib crude and naphthaexport revenues and pay monthly instalments to banks, which will reduce EGPC revenues and represent another burden on its budget according to Medhat Youssef, former vice chairman of the EGPC.
He said that the only solution was for the finance ministry to meet its obligations in terms of providing the financial allocations necessary for subsidising petroleum resources without dipping into EGPC funds. In this way, foreign partners will be paid back in full, Youssef said.
Foreign partners want the government to pay its debt in full in order to be able to continue investing in their areas of concession, Youssef explained. Last December, the Ministry of Petroleum paid approximately $1.5bn as a portion of debts owed to foreign partners operating in Egypt, $1.2bn of which took the form of foreign currency with the remaining $300m in EGP.
The government has resorted to borrowing as a result of a decline in central Bank reserves, Youssef said.
Foreign partners betting on increase in their investments to obtain dues owed in full
Foreign companies operating in the petroleum sector have linked increasing their investments to their obtaining debts owed by the Egyptian government in light of the state’s failure to meet deadlines for payment agreed upon in the past.
The Egyptian government’s only option is to pay dues owed to foreign partners in full in order for companies to increase their investments in the sector, which will lead to higher production rates for oil and gas, according to a representative from one of the foreign companies affected.
If the Ministry of Petroleum pays another estimated $1.5bn as promised by petroleum minister Sharif Ismail, the partners’ position on increasing investments in well development and exploration will not be permanently affected, but oil and gas production rates will remain as they are until debts are paid in full.
The official said that the company repeatedly negotiated with the ministry which has agreed to the scheduled payment dates, but did not adhere to the timeline in the end.
The Egyptian General Petroleum Corporation (EGPC) claims that bearing expenses associated with liquefied natural gas and other petroleum product imports will inflict significant damage to the EGPC’s financial situation. This will leave the EGPC unable to pay dues owed to foreign partners for the next four years, according to an EGPC official.
The petroleum ministry has given the EGPC responsibility for importing liquefied natural gas to power stations for the coming period so that it will be able to pay the value of the gas that will be imported from its internal revenues.
Fees associated with liquefied natural gas imports, which amount to approximately EGP 5bn, will be liquidated according to budget allocations and the petroleum product subsidy bill at the end of the fiscal year with the Ministry of Finance, the official said.
The reason behind the EGPC’s inability to pay dues to foreign partners regularly is a result of the body paying for imports out of its own revenues due to the finance ministry lacking the financial liquidity necessary to do so.
Schedule for foreign partner debt payment fails
The government has rendered the petroleum sector unable to pay debts owed to foreign partners for oil and gas obtained on a monthly basis.
The Egyptian General Petroleum Corporation (EGPC) has not adhered to paying in accordance with the timeline previously agreed upon with foreign partners for the remaining dues owed. This is because the EGPC currently bears expenses associated with importing petroleum supplies required by the country, an official with the petroleum ministry said.
The agreement stipulated that the EGPC pay the remainder of the debt from its own resources and that monthly instalments be paid through December 2017, the official said.
A new schedule will be prepared after loans are obtained from foreign and local banks and the petroleum ministry pays a large portion of the debts.
Petroleum agreements stipulate interest on debts owed by government to foreign partners
The debt crisis witnessed by the Ministry of Petroleum has worsened due to the petroleum sector bearing subsidy expenses as well as costs associated with importing liquefied natural gas from its own revenues. This has led to foreign partners continuing to reduce gas and oil production and slow oil well connection rates.
The fuel subsidy bill has increased annually due to the body’s inability to repay foreign partners, and finance ministry debts owed to the EGPC have reached more than EGP 100bn for subsidy price differences according to a senior ministry official.
Foreign oil sector partners have responded to the government’s failure to pay back debts on specified dates by delaying linking natural gas production projects according to the timeline specified by company plans which were agreed upon with the petroleum ministry.
The petroleum ministry paid $1.5bn to foreign partners last month which was supposed to be paid last June according to the government’s agreement with companies, but payment difficulties prevented this from happening, the official said.
Total gas production in Egypt amounts to 4.75bn cubic feet per day while natural production decline amounts to 100m cubic feet per month.
The petroleum agreement stipulates interest for debt owed to foreign partners if the government is late in making payments, and the interest rate differs for each agreement, according to the official.
The agreement also stipulates that foreign partners commit to supplying the investments required to carry out development and exploration in oil fields, but partners have reduced their investments in contravention of the agreement. This has resulted in gas and oil production declines which companies attribute to a lack of financial liquidity resulting from the government’s failure to pay dues in full.