Energy companies pledge billions of dollars of Egypt investment

FT. Heba Saleh in Cairo

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Egypt and international companies announced plans for billions of dollars worth of investments in energy at an conference intended as a launch pad for the economy after four years of political and economic disarray.

The bulk of the announcements at the gathering at the Red Sea resort of Sharm el-Sheikh were in upstream natural gas production and power generation. Both sectors have been largely starved of investment in recent years leading to the country’s worst ever energy crisis.

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UK energy group BG said it would invest $4bn over two years and Italian group Eni said it had plans to invest $5bn over four to five years. BP had finalised an agreement to invest $12bn in its West Nile Delta concession. Production, due to start in 2017, is expected to meet a quarter of the country’s energy needs.

Masdar, an Abu Dhabi-based company, and Saudi Arabia’s ACWA Power signed memorandums of understanding with the Egyptian government to build power stations valued at $15bn.

Power generation capacity has failed to keep up with soaring demand in recent years, leading to frequent blackouts.

The crisis has been compounded by declining natural gas production which hit both power generation and industry.

The country is seeking to vary its energy mix by using coal to fuel power plants and energy intensive industry and aims to rely on renewables to supply 20 per cent of its needs by 2020.

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German industrial giant Siemens has signed $10.5bn in deals and memorandums of understanding to help expand the electricity network, which includes installing 2 gigawatts of wind power.

Billions of dollars in government arrears to international oil companies had also discouraged companies from investing. The government has in recent month reduced its debt to the companies from around $7bn to $3bn.

Egypt has also slashed energy subsidies by around a third in a bid to narrow the deficit and enhance its ability to pay energy suppliers. The decline in oil prices has softened the blow. Ministers said at the conference the cost of the subsidy in the budget had now almost halved to $10bn.

The visible support of Gulf monarchies, which on Friday pledged $12.5bn in investments and central bank deposits, has heartened Egyptian businesses looking to emerge from four difficult years.

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Ahmed Heikal, chairman of Qalaa Holdings, an Egyptian investment company, said the interest displayed by foreign companies would exert pressure on the government to press on with a promised programme of economic reforms some of which has already been implemented.

“I think they would be making a mistake if they don’t follow through,” he said. “I think they will follow through.”

The security situation in Egypt remains tense. Small but sometimes lethal bombings by presumed Islamist militants are increasingly targeting banks and telecoms companies.

On Saturday a bomb exploded in front of a branch of an international bank in the port city of Alexandria wounding four people.