The scramble for Egypt's oil
Wed, 23/01/2013 - 21:56

In the Qattamiya Heights Club House, amid the manicured green lawns and the golf course, multinational executives and government officials debated last week agreements that will determine whether billions of dollars end up in private coffers or become public revenues. Changes to a single contract could make a difference of more than US$5 billion — more than Egypt’s annual spending on health.

The round table, titled “The Future of Oil & Gas Agreements in Egypt,” gives insight into behind-the-scenes negotiations. The arrogance in the room was palpable, as was the frustration at not getting the desired public recognition. Country managers from major companies grumbled, “People don’t understand how difficult life is for us as oil companies ... All they see is the billions we make — not our efforts for the country.” After all, “The oil sector was the only industry to have kept operating through the revolution, despite labor issues.”

The oil managers feel they’ve been patient: “We still have many problems, including labor problems. Since the revolution, people say that Egyptians are becoming different — now they are fighting for their rights. Who pays for this? The companies.” Workers and local communities might be forgiven for not enjoying being reduced to “problems” and “challenges.”

Amid the canapes, the principal argument focused on demands by the multinationals for “severe surgical operations in the system;” the “system” being the agreements governing fossil fuel extraction in Egypt and their implementation. Pressure is being applied for reduced oversight and participation by the Egyptian state (“greater flexibility”), and ultimately for a shift away from Production Sharing Agreements, or PSAs, which are the primary form of oil contracts in Egypt.

In the words of the private oilmen (for they were all men): “We need to completely deregulate the system, and open the markets.”

Currently, most of Egypt’s oil and gas concessions are run by joint ventures between private oil companies and Egyptian state oil companies (EGPC, EGAS and Ganope). PSAs are notoriously complex, but in summary, royalties are paid to the Egyptian state, the private company recovers its investments and the remaining profit oil is shared. This means that while British Petroleum and Shell run the oil operations, Egyptian state oil companies participate in decision making and sign off on spending.

Now the private companies want a shift to a tax/royalty scheme — especially for drilling deep beneath the Mediterranean and the Western Desert. This would transfer further power to the multinationals, and reduce oversight and accountability while making excessive profiteering easier. Tax/royalty schemes are a throwback to the colonial period and considered inappropriate in the region.

Egypt is already seen as having the worst contracts in the region. Yet oil companies like Total are threatening to focus their investment elsewhere if they don’t receive “more incentives to invest in Egypt.” But you can only take oil out of the ground once. So it’s generally a bad idea to sign 20-year contracts while a country is desperate and in a weak negotiating position — not least, contracts that won’t deliver any oil or revenues for six years anyhow.

Given the widespread corruption and anger at the Egyptian state bureaucracy, public sympathy for the state oil companies might be limited. Yet these are the people’s resources.

Handing over control to BP, Shell and Apache would leave them subjugated to the tyranny of the market and an even more distant, corporate bureaucracy. You can kick officials and politicians out during a revolution. Companies can also be evicted too, but then they come after you in arbitration tribunals and billion-dollar court cases.

The trend in Egypt’s oil sector is toward deregulation, less public control and greater corporate profiteering. This is dangerous.

These contracts direct billions of dollars of revenues, and are ultimately questions of sovereignty and independence. The struggle for local control over fossil fuels was part and parcel of decolonization in the region.

Egypt should avoid rushing into reworked contracts. Achieving anything close to a fair deal relies on vigorous public debate and a democracy where people benefit from the revenues and resources. Discussions in which the people remain a “problem” or a “challenge” remain stuck in a pre-revolutionary time-warp.

Hence the real lesson from last week’s clubhouse roundtable isn’t in the details of terms discussed, but who is in the room and where the room is. Decisions on managing Egypt’s fossil fuels should not be made behind closed doors by a select few. Breaking away from the repression of the past and achieving bread, freedom and social justice in Egypt requires both social transformation and energy transformation.

Moreover, debates around oil contracts need to break out of the fiscal box.

You can’t decide what to do with oil reserves without broaching subjects like the right to energy, environmental justice for local communities and how Egypt will deal with climate change. These are questions of power that will necessarily oppose the interests of small elites to those of the majority of Egyptians. These are questions that shouldn’t be settled in Qattamiya Heights — or in BP or EGPC’s headquarters.

Mika Minio-Paluello is an oil and gas expert. He works as community support campaigner for Platform London.

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