The controversy that stretched from Damietta to Canadaand all levels of Egyptian politics, finally appears to be coming to an end
The seaside getaway of Ras El-Bar in Damietta is an unlikely place to find political controversy. Rows of apartments look out over the water, families stroll the corniche breathing in fresh sea air and children play in palm-lined streets devoid of traffic. But the rippling waters where Nile and Mediterranean meet hide deeper currents and the Canadian company Agrium has found itself caught in the undertow.
Ras El-Bar has been the center of a five-month media frenzy that only now appears to be drawing to a close. From the streets of Damietta to the People's Assembly, Cabinet and the President himself, no one has been left untouched as the competing agendas of international business, national and local politics and Egypt's first 'not in my back yard' movement play out on front pages and behind closed doors across the nation.
On June 19, Parliament recommended that the controversial site be moved, prompting celebrations amongst Damietta's residents and a promise by Agrium to pursue its losses. With Cabinet deliberating its final decision at press time, the relevant government ministries remaining tight-lipped and Agrium understandably media shy, Business Today Egypt tried to get to the bottom of the controversy.
Agrium is not EAgrium
Submerged by the constant references to the Damietta project as a Canadian operation is the fact that Egyptian Agrium Nitrogen Products Co. SAE (EAgrium), the company constructing the $1.2 billion (LE 6.4 billion) nitrogen facility, is in fact an Egyptian operation.
EAgrium is majority owned by the Canadian company Agrium Inc. (60%), with the remaining shares distributed between the Egyptian Petrochemicals Holding Company (ECHEM) and the Egyptian Natural Gas Holding Company (EGAS) which hold a combined 24% the Egyptian Natural Gas Company (GASCO, 9%) and the Arab Petroleum Investment Corporation (APICORP, 7%).
ECHEM, EGAS and GASCO are state-owned entities, falling under the remit of the Ministry of Petroleum. ECHEM is responsible for the management of Egypt's petrochemical industry, while EGAS is concerned with foreign investment in the natural gas sector, as well as playing a role in developing the petrochemical industry. GASCO operates Egypt's gas distribution network. APICORP on the other hand is an inter-governmental corporation, jointly owned by various Arab governments, in which Egypt holds a 3% stake.
Agrium describes itself as "a major retail supplier of agricultural products and services in North and South America, a leading global wholesale producer and marketer of all three major agricultural nutrients and the premier supplier of specialty fertilizers in North America." The Calgary-based company had revenues of $5.27 billion (LE 28.19 billion) in 2007, a net profit of $441 million (LE 2.34 billion) and is host to 6,618 employees.
Agrium globally produced 7.7 million tons of fertilizer, 4.9 million tons of nitrogen, 1.7 million tons of potash, and around one million tons of phosphate in 2007. These were produced at 12 different production facilities, mainly based in North America. This latter point debunks one of the more sensational claims made against the company that the Damietta facility was part of a plan to export high-polluting industries to developing countries.
As a condition of its ownership stake in EAgrium, Agrium was to be the exclusive distributor of the facilities production. The Damietta site was to consist of two ammonia plants capable of producing 1,200 tons per day (tpd) and two 1,925 tpd urea plants. Production from the facility was expected to reach 1.3 million tons of urea and 100,000 tons of ammonia annually.
Construction of the production facilities, which was scheduled to commence at the beginning of this year, ground to a halt on April 21, as the government put the project on hold as a result of mounting public pressure from Damietta's residents.
Not in my Back Yard
For the leader of an anti-corporate movement, Nasser El Emmary looks a lot like a businessman. Dressed in a crisp pin-striped suit and lavender tie, mobile phone never far from reach, El-Emmary catches his breath in the meeting room of Damietta's Doctor's Syndicate, having just returned from a televised interview at the governor's offices, stragglers from the June 17 Anti-Agrium protest that he helped organize dispersing from the street outside.
El-Emmary describes himself as "a concerned citizen" and coordinator of the Anti-Agrium Committee that was created to manage public opposition to EAgrium under the slogan "for the future and health of our children." Signs of broad public support for the movement are everywhere huge banners strung up on buildings along the Damietta corniche announcing to the world that the company is not wanted.
Previously mayor of Damietta and ex-president of the NDP Youth Committee, El-Emmary is a key political figure in the governorate with close ties to Governor Fathi al-Baradei (who declined comment for this story). But that is not to say El-Emmary's intentions are insincere. He speaks proudly of the development that has taken place in Damietta over recent years, greeting everyone he encounters fishermen, police, doormen and waiters by name and with a strong handshake.
"The problem came to our attention on February 20, 2008, in the wake of the public announcement that the Agrium project had started to build the road connecting Ras El-Bar with the petrochemicals industry complex," begins El-Emmary. "After reviewing the local environmental laws, we found that the project was in violation of almost all of these laws. We believed that this piece of land was supposed to play host to a touristic housing complex of 6,320 units under the name Rehab City. We started investigating the project from a legal and environmental point of view and reached the conclusion that establishing the factory in this location and it producing petrochemicals was a danger to existing resources and the Ras El-Bar community."
The Anti-Agrium movement is based on two pillars. The first is a general fear in the community over the potentially polluting nature of the facility, while the second is a desire to see the land used for tourism, rather than industrial development.
"We have nothing against Agrium in particular," says El-Emmary. "We just want the correct investment, in the correct place, in accordance with the governorate investment strategy. Ras El-Bar is the only beach that 200,000 individuals visit throughout the year. It is quite cheap, in addition to being the only way Damiettan residents can relax. We don't want to destroy it, or the plantations on the island with a petrochemical complex."
Trouble with the Neighbors
Ras El-Bar is a thin peninsula, edged on one side by the Damietta branch of the Nile and on the other by the Mediterranean Sea. Close to the peninsula's tip, where the Nile and sea meet, is the residential zone of Ras El-Bar, a popular seaside getaway. Five kilometers away is Damietta Port and the adjacent industrial zone. Separated from this zone by a narrow manmade channel is the site that has raised so much controversy.
There is not much to look at a road and some temporary buildings for construction workers. In fact, stretching from the canal all the way to the distant residential zone there is nothing at all an unused wasteland. And while the EAgrium site, located next to a long sandy beach, certainly could be used for tourism projects, there is one small factor detracting from its tourism potential: It is only a stones throw away from an existing fertilizer factory.
This fact puts paid to arguments for the area's tourism potential. Even more so the environmental claims made against the facility. EAgrium's neighbor, the Misr Oil Processing Company's ammonia plant, was in fact constructed by the same company Uhde Engineering Egypt, a subsidiary of German Thyssen Krupp Technologies using the exact same technology as that contracted for the construction of the EAgrium plant.
The EAgrium plant would be the sixth such facility constructed by the German firm in Egypt. The company built Helwan Fertilizer Company's ammonia plant in Helwan, the Egyptian Fertilizer Company's Ain Sokhna plant, which has identical capacity to the EAgrium facility, and facilities for Abu Qir Fertilizer and Alexandria Fertilizers Company in Abu Qir.
In a May 29, 2007, press release announcing the EAgrium project, the company's biggest in its 80 year history, Uhde s "The ammonia plants will be based on Uhde's proprietary ammonia process while the urea plants will use Netherlands-based Stamicarbon's process. All selected processes are particularly environment-friendly and comply with the stringent Egyptian and European standards."
The fact that the technology used in countries from North America to Australia meets Egyptian standards was confirmed by the findings of a parliamentary fact-finding committee in its report to parliament last month. This committee also disabused the Anti-Agrium movement's claims that the land had been allocated to EAgrium without the proper permissions, a finding with which El-Emmary disagrees.
"To build a building, an approval must be made by the relevant authority. Agrium did not present a request to the New Community Development Authority or the Urban Community Body," claims El-Emmary.
El-Emmary also points to a range of technicalities that he claims the company has not fulfilled. "The law says that for any project whose value is more that LE 400,000 they must buy an insurance policy and provide a list of all those who are working on the project, [] in addition to producing a building permit with which you can commence construction," he says. To this list he adds water usage: "They said that they want [water] from the Nile and then will dump it in the sea. According to the law, the place from which a company takes water has to be the same place that it goes to at the end."
Agendas at Play
The EAgrium dispute is, at its heart, a dispute over land use. The Anti-Agrium movement argues that the land was provided for less than its true value to the company: "The land price is LE 3,000 per meter and Agrium took it from the holding company for petrochemicals at a fraction of the price. They took it for LE 40 per meter," claims El-Emmary.
The real dispute, however, is not about the land's price, but is instead a dispute between the government and governorate over the course of development in Damietta, with the latter believing the land should be used for tourism.
The land though, is zoned for industrial use. Before its sale to EAgrium, it was held by the Ministry of Petroleum's Egyptian Petrochemical Holding Company for use in petrochemical projects, a fact recognized by a recent Cabinet ruling. And while locals may argue that the land was sold undervalue, the Ministry took a 33% equity stake in the EAgrium project through EGAS, ECHEM and GASCO.
In a dispute in which Agrium has found itself inadvertently stuck in the middle, the company has also become a scapegoat for nationalist politicians already up in arms at gas exports to Israel who have used the media circus to score points by demonizing the company. Despite claims ranging from imperialism to corruption, the agenda of the Canadian company is clearly just business.
"It's a business decision, it's a private sector company, it has shareholders in the stockmarket," says Fayez Ezeldin, Chairman of the Canadian Chamber of Commerce. "They started the project in 2002 in Damietta, because there is gas there, which is the raw material to manufacture the ammonia. Also they need water for cooling purposes," he says, adding that the locations proximity to the Damietta port was another factor in the company's decision.
The fact that it has found itself embroiled in such controversy is more an indication of political naivety and a lack of, or unsuccessful attempt at, community consultation before beginning the project, than any underhand intentions. "It's a media war, let's put it that way, and Agrium didn't make the message clear from the beginning," says Ezeldin, who has himself weathered the media storm.
On the flipside of the coin, while the Anti-Agrium Committee is quite clear that it does not want a fertilizer project in Ras El-Bar, this objective is somewhat confused by the movement's various competing arguments environmental, developmental and nationalist.
This is perhaps only natural for what is Egypt's first anti-corporate popular movement and a positive sign for democracy. When the movement is enmeshed in local politics and led by key political players, however, it does beg the question as to whether there are other agenda's driving the movement.
"There are some people that would like to have this land. That's what my feeling is," speculates Ezeldin. "I don't have any documentation for this, but when I talk to people and even when I tell them it's safe, they say 'ok it's safe, but we don't need it.' So you understand it's not something to do with 'our children, or our future,'" he says. "They spent over LE 3 million until now, putting banners, putting ads in the newspaper. Someone has to pay for that. I asked 'who pays for it?' [ They] said, our children pay, our community pays, which I think is a big lie, because I don't think any children paid anything to put up these banners. [] Someone is behind it. Who this is, I don't know, I don't like to commit myself to anybody, but there is someone who is trying to push Agrium out. It's not even that, they are trying to push Agrium out of everywhere," he claims.
In response to questions about who is behind the popular movement, El-Emmary is quick to promote its community-based nature. "Who is behind the resistance? Every citizen via syndicated political parties," he says. "We have a centralized committee which hosts representatives from the various entities involved in the opposition. We meet on almost a daily basis and agree to disseminate certain pieces of information regarding where and when a protest will be staged. There are also sub-committees which host experts. Each is involved with a certain aspect of struggle, for example a sub-committee for environmental affairs, one for legality and approvals, one for civilian coordination," he says. "Each entity is charged with producing a certain number [of signs], so they do it using their syndicate or political party office budgets. But personal movement and expenses are all from our pockets. We don't have a budget, but the chamber of commerce was able to collect LE 360,000 to spend on the movement, and it was in charge of producing the signs you see."
Regardless of whether the movement is being driven by a few key individuals or truly represents the people of Damietta, the interesting question is why the government has not stepped in to quell a political movement that could have significant fallout on foreign investment.
Foreign Fallout
The day after Parliament's decision Agrium released the following statement: "Agrium will be aggressively pursuing full recovery of its costs, equity contribution and future lost profits." The company estimates that it had invested $165 million (LE 883 million) in the project as of May 2, with a total equity commitment of $280 million (LE 1.5 billion). Adding to this lost profits and ongoing finance costs, the figure the company is likely to seek in compensation from the Egyptian government jumps past $500 million (LE 2.7 billion).
"They are going for arbitration and they are going to ask for over $560 million [LE 3 billion]," says Ezeldin.
Beyond compensation costs, the government faces the loss of its 33% equity stake in EAgrium, an estimated 2,500 jobs the project would have produced, as well as suffering from a major step back in ECHEM's $10 billion (LE 53.5 billion), 20-year plan for the petrochemicals industry.
More than this though, the fallout from the loss of a project equivalent to 10% of Egypt's foreign direct investment remains to be felt.
"I have a project that is over $150 million [LE 800 million] to be made here in Egypt and because of [the Agrium situation] only, this project is now on hold. Plus I know personally another three projects that are on hold as well from different companies because they don't know what's going on," says Ezeldin. "You see, because Agrium didn't make any mistakes, they made all the studies, they got all the approvals and after all that they [the government] say no. It doesn't make sense.
"Everybody is looking at how the government will solve this problem, because it can happen to anybody. A company like that with this magnitude it's not a small project, and the government cannot solve it. How are you going to solve a small project?" he asks.
"[Egypt has] competition coming from Arab countries, coming from China, coming from India, coming from everywhere. So it has to be an advantage to come and invest in Egypt. When you tell them come and invest and everything's done, you have the approval, and at the end you say I'm sorry [...] this effects everybody."
Prime Minister Ahmed Nazif has offered Agrium two options a buyout of the company's interest in EAgrium and/or a transfer of the company's interest to another facility options Agrium is unlikely to take.
While this could be seen as a victory for democracy, the type of democracy that steamrolls valid business projects in the name of populism is something that Egypt should be wary of, particularly when the fallout may scare off investors that may play an important role in Egypt's economic future.
By Andrew Schurgott additional reporting by Tamer Hafez
© Business Today Egypt 2008
