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Egypt Refining And Petrochemical Projects Make Progress On Financing
After seeing some delays as a result of the political upheaval which began last year with the ousting of long-time president Husni Mubarak, Egypt’s planned refining and petrochemical projects are now making progress. Being implemented to meet growing local demand and add value to the country’s oil and gas production, each is taking a slightly different route on its financing. However, given the constraints being suffered by international banks, by and large they are getting most support from either institutional lenders and export credit agencies (ECAs), or local banks.
The Egyptian Refinery Company (ERC) is expecting to finalize the financing of its $3.7bn Musturud refinery project north of Cairo by the end of this month, MEES understands. As reported by MEES in February, Qatar Petroleum International (QPI) is taking a major stake in the project (MEES, 6 February). This is in excess of $400mn, MEES further understands.
Also, Qatar National Bank (QNB), Qatar’s largest lender, is contributing to the project’s debt by replacing one of the international banks initially signing up for the deal. Two banks have dropped out from the original line up, but aside from this development, the financing is carrying the same margins and financiers that it had when the deal to provide $2.6bn of debt was originally signed in August 2010. The final line up is expected to be revealed at financial close. The project had been held up by equity changes in the ownership and was further delayed by the revolution that toppled the Mubarak regime in February last year – presidential elections are due to take place this week.
Engineering, procurement and construction (EPC) contractors Mitsui and South Korea’s GS Engineering will get the green light when the project achieves financial close. The refinery will process around 5mn tons/year of heavy fuel oil to yield 4mn t/y of products including 2.3mn t/y of Euro V diesel. While there were concerns that it would be scuppered by political upheaval in Egypt, the authorities have acknowledged it is vital because it will help alleviate the country’s growing products shortage and thus help it tackle the budget deficit by reducing imports.
Also helping to keep it on track was support on the debt side from institutional lenders the European Investment Bank (EIB) and African Development Bank, and three export credit agencies (ECAs) which comprise the Japanese Bank for International Cooperation (JBIC), Nippon Export and Investment Insurance, and South Korea’s Kexim. Of the $3.7bn total cost, $2.6bn is coming from senior and subordinated debt, with $1.1bn from equity and the International Finance Corporation (IFC) investing $100mn alongside the refinery’s owners. QPI is taking 25% of a fund that holds 85% of ERC. State-run Egyptian General Petroleum Corporation holds the remaining 10%. Cairo-based private equity firm Citadel leads investors that are financing ERC through its 10% ownership of the fund.
ECAs To Help Fund EHC’s Olefins Project
Egyptian Hydrocarbon Corporation (EHC) is also expecting to use ECAs to help fund its olefins complex, which will include Egypt’s first naphtha cracker in addition to petrochemicals units producing polypropylene. The Export-Import Bank of the US (Exim) is planning to provide up to $1bn for the project, which along with two other projects (methanol and ammonia) planned for construction at the site will cost around $5bn. EHC, an affiliate of Carbon Holdings, signed an agreement to receive a $298mn loan from local banks Commercial International Bank (CIB), Banque Misr and Ahli United Bank last year to set up its 370,000 t/y mining grade ammonium nitrate project.
Like Musturud, the $454mn Ain Sukhna based project suffered setbacks in shoring up the equity side of the deal, but it was able to press ahead when new investors agreed to participate in July. They comprise Egypt Kuwait Holdings, Yemen’s Hayel Saeed Anam Group, the Saudi Economic Development Company and Cairo-based Tri Ocean Energy (MEES, 12 September 2011). EHC announced last year it has started developing a second project at the site, which will double production to 740,000 t/y (MEES, 14 November 2011).
Local Banks Step Up For Ethydco
Local banks will be providing $1.25bn in funding for the Egyptian Ethylene and Derivatives Company’s (Ethydco) petrochemical complex in Alexandria. They comprise National Bank of Egypt (NBE), Banque Misr, CIB, Banque du Caire and Arab International Bank. This underwriting group of banks is in the process of receiving approval from their credit committees and they expect to sign an agreement to provide the loan in June, MEES understands. The loan would then be syndicated to a wider group of local banks. International banks are constrained by their need to offload assets in order to comply with the tightening Basel III bank regulations, and are unlikely to feature on the deal, said local experts.
The project is being set up in two phases. The first, to produce 460,000 t/y of ethylene and 20,000 t/y of butadiene, is being constructed by Toyo Engineering Corporation. Toyo, which announced in March its contract was worth $600mn, has already started work at the site. An EPC tender for the second phase of production – polyethylene – is expected to be awarded in the next six months. In addition to providing project loans NBE and Banque Misr are also taking an equity stake in Ethydco alongside the other owners, which comprise state-run companies Egyptian Petrochemicals Holding (Echem) and the Egyptian Natural Gas Company (Gasco), along with Sidi Kerir Petrochemicals (SIDPEC).
French oil major Total is also looking to set up a petrochemical complex in Egypt. Local sources suggested that a Suez-based propylene and polypropylene project, which could cost as much as $6bn, is in the feasibility stage. Conflicting reports about the project have emerged in the local media. Member of parliament 'Abbas 'Abd al-'Aziz, who also sits on the economic committee, said that Total had stopped negotiations with the authorities due to the uncertain political situation. However, other officials have maintained that discussions are continuing for the project. It could provide up to 10,000 jobs and it has already received a land allocation from Suez local authorities. When contacted by MEES, Total refused to comment.
The fate of the Misr Oil Processing Company’s (MOPCO’s) operations, not to mention its $1.8bn expansion project, remains unclear. Protests forced the company to suspend production at its Damietta fertilizer plant last year and also stop construction on the expansion. The project is aimed at hiking the company’s capacity from the current 675,000 t/y of urea and 80,000 t/y of ammonia to 1.95mn t/y of urea and 150,000 t/y of ammonia (MEES, 21 November 2011). Canadian fertilizer giant Agrium, which owns a 26% equity stake in MOPCO, said on release of its 1Q12 results this month that the plant remains shut. MOPCO continues to hold discussions with the government and there are “promising signs progress is being made on this front,” said the company, noting that it is “cautiously optimistic it will be able to restart in the near future.”
Outside the energy sphere the outlook is mixed. Egypt’s ambitious public-private partnership program (PPP) is needed to improve the country’s creaking infrastructure. But it was slowed by the political crisis. And this year a wastewater project (named 6th
October) was cancelled due to higher than foreseen treatment costs. However, the Abu Rawash wastewater project is still scheduled to go ahead, and a hospital PPP was recently awarded to Bareeq Capital, an Egyptian private equity company that includes some Saudi investors. “If you’re looking at the growth potential for Egypt it’s very important to build up the infrastructure. The need is there for sure. It’s just a matter of stability. Once the dust settles things can move forward again,” commented one local banker. © Copyright MEES 2012.
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