The latest gas discoveries in Egypt have lured major petrochemical investors to take advantage of the abundance of the feedstock, where the proven gas reserves of the country exceed 67 trillion cubic feet; despite the recent statement by the Trade and Industry Minister Rachid Mohamed Rachid who revealed that the Egyptian economy may contract during one or two quarters of 2009.
During the last Gulf’s Petrochemical Chemical Association (GPCA) forum, held in Dubai last December, The vice-Chairman and chief executive officer, Mohamed Al-Mady, said that petrochemical producers in the region are looking for new investment opportunities, and specifically he named Egypt, Algeria, China and India.
Egypt possesses all the basic ingredients for a flourishing petrochemicals industry, including an ideal location for access to major markets and a cheap well-educated workforce.
Egypt’s petrochemical industry is growing at a ten-fold pace, having increased from $328 million in 2004 to a projected $3 billion in 2009, said a local analyst from Prime Securities.
The current Egyptian petrochemical industry consists of 16 joint venture companies operating inland and three companies operating in free zone areas, according to the Egyptian investment portal.
According to research note by the Egyptian research company ‘Prime Securities’, Egypt consumes approximately 300,000 tonnes of polypropylene annually, and annual growth is about 6% . Usage is about 58% for fibre, 19% for films, 19% for injection molding, 1% for blow molding, and 3% for ‘others’.
According to the Egyptian Investment Portal, currently polyethylene production represents the largest share of Egypt’s petrochemical output, representing 45.5% – mainly from Sidi Kreir Petrochemical company (Sidipec), which remains the only Egyptian producer of polyethylene.
European markets are the main destination for the Egyptian products with 67.2%, with Belgium being the largest single destination for products in Europe, accounting for 24% of all exports, followed by Italy, Turkey, and Morocco.
Asian markets represent 20.5%, Africa 12% and less than 0.5% goes to North and South America, according to recent Egyptian trade map statistic.
Master Plan
The country has had a petrochemical and fertilizer industry for many years, but recently the government has set out plans to boost the industry with a master plan. In 2002, the Egyptian Petrochemicals Holding Company (ECHEM) drew up a three phase petrochemicals master plan to attract more than US$10 billion of investment by 2022, in order to set up eight petrochemical plants in each stage.
The plan will be continuously updated to reflect changing conditions in these local and international markets, and to ensure flexibility in the planning and execution of investment projects.
The master plan will be executed in three phases at an estimated overall cost of $10 billion. It is projected that the first phase will cost $3.8 billion, which was scheduled for completion in 2008.Â
Phase two runs from 2009-2015, and phase three from 2016-2022. Almost 30 million square meters of land in seven different areas have been earmarked for petrochemicals projects in Alexandria, Beheira, Kafr El Sheikh, Dakahlia, Damietta, Ismalia and Suez. These areas satisfy the criteria sought by investors in terms of size, shape, terrain, infrastructure, access to roads, utilities, local labor, as well as proximity to the coast.
Currently, four projects are in progress and are expected to produce 2.6 billion tonnes of petrochemicals in 2008 and 2009. Another two projects to produce polypropylene and polystyrene are under negotiations and are expected to cost $800 million.
Investment Hurdles
But the recent developments in the Egyptian petrochemical scene projected a bad impression about the capacity of the government to accomplish its master plan, starting from the vote of the Egyptian parliament last June to relocate the US$1.4 billion Egyptian Agrium Nitrogen Products Company fertilizer(EAgrium ) plant (with capacities of 1.3 million tonnes per annum (tpa) of urea and 100,000 tpa of ammonia) from Damietta due to health and safety concerns – although official reports have suggested such concerns are without foundation.
Construction was halted in April 2008, with the plant 42% complete and $500mn already invested. The foreign partner in the complex, Canada-based Agrium, agreed in August 2008 to sell EAgrium to the Misr Oil Processing Company (Mopco), which is expanding urea production capacity, in exchange for a 26% equity interest in the combined entity. EAgrium will become a wholly owned subsidiary of Mopco and the shareholders of EAgrium will become shareholders in Mopco. The deal closed in the third quarter of 2008.
The deal helped rescue Agrium’s investments, but may not be enough to allay investor fears, as it is accompanied by a raft of measures passed by the government that are undermining the country’s investment climate, including wage hikes, cutting fuel subsidies for energy-intensive industries and imposing a 20% tax on companies in free zones.
The deterioration in the investment climate has been underlined by the decision of the Egypt Kuwaiti Holding Company to abandon its plans for a US$2.2bn petrochemicals complex at Ain al-Sokhna, and prompted Kuwait’s Al-Saqr Group to put pressure on the government to ensure financial incentives for a US$2.2bn Sokhna Refining Petrochemical Company (SRPC) refinery in Ain al-Sokhna, in which it has a 15% direct stake.
In another development, in July 2008, India’s South Asian Petrochemical (SAPL), India’s second largest manufacturer of Polyethylene Terephthalate (PET), indicated that it was preparing to abandon its proposed 70:30 polyethylene terephthalate (PET) joint venture (JV) – Egyptian Indian Polyester Company – with its Egyptian partners if the pending approvals were not received by the end of 2008. India’s Reliance Industries Ltd (RIL) is also threatening to delay its plan to invest US$10bn in refinery, petrochemicals and plastics facilities in Egypt due to increased feedstock prices. RIL had announced in August 2008 that it had chosen Alexandria as the location for the project, but an increase in energy prices has pushed up project costs and threatened the financial viability of the complex.
Talks of mega projects is widespread in the country, but the real progress is more difficult to find, especially as there is no clear picture on gas supply, or of government support for the Industry.
In the Middle Eastern Petrochemicals Business Environment Rankings matrix, Egypt is ranked ninth with 46.1 points, down 0.9 points since the previous quarter due to recent developments, according to Business Monitor International (BMI). The country is 2.0 points behind Turkey, 7.7 points ahead of Algeria and 8.4 points behind the regional average of 55.4 points. Egypt’s score has slipped due to deterioration in the country’s market risk relating to government policy, specifically the imposition of tax on companies operating in free zones.
SIDI KRIER
Sidi Krier Petrochemical Company (Sidpec) remains the sole Egyptian producer of polyethylene in the country; It became operational in September 2000, located at Alexandria Port at the Mediterranean.
The company currently produces 300,000 tonnes of Ethylene a year and 225,000 tonnes of linear low-density Polyethylene and high-density Polyethylene, using Ethylene as a feedstock. Polyethylene and Ethylene account for 86% and 10.3% of total sales, respectively.
SIDPEC competes in the export markets, and their range of products under the Egyptene trade name includes Polyethylene for film, blow, injection and rotomoulding applications.
The company is currently planning to increase both its ethylene and polyethylene capacities by 460,000 tonnes and 300,000 tonnes respectively, with an investment cost of $595 million and to start operation by 2011. However, the company has not yet received a formal agreement from GASCO on the provision for the expansion inputs of the ethane/ propane mixture. In addition, two smaller projects with an investment cost of US$100 million producing polyethylene pipes and Butadiene will start operating by 2010.
Investment fears and bureaucracy may hold the industry back, but feedstock strength and a capable workforce could see Egypt developing into a major downstream player.
