One of the eye-catching appointments in the new Egyptian government formed by Prime Minister Hisham Qandil at the start of August was that of Osama Kamal as petroleum minister.

With a background in petrochemicals rather than upstream oil and gas production, Kamal will undoubtedly bring a fresh perspective to Egypt’s troubled oil and gas sector, for better or worse. He is also expected to promote expansion in Egypt’s petrochemicals sector.

Amid the country’s political turmoil, the projects market has slowed down, but it has not shuddered to a halt. Indicative of the confidence of investors in the country’s long-term potential was the completion of a $2.6bn debt package to finance the construction of a refinery at Mostorod in northern Cairo. The Egyptian Refinery Company (ERC), a private venture launched by Cairo-based private equity firm Citadel Capital, will process fuel oil from the existing state-owned refinery nearby and produce high-quality diesel and other light products, mainly for the local market.

Echem petrochemical schemes

Most of the major projects in the petrochemicals sector have tended to include the state-owned Egyptian Petrochemical Holding Company (Echem) as the anchor investor. Echem was, until recently, headed by Kamal.

One notable exception is Tahrir Petrochemicals, a private venture that will be looking to mobilise a level of debt finance similar to that raised by ERC. The two projects have many critical differences, but ERC’s success despite the difficult political environment provides an encouraging precedent.

Kamal has been involved with Echem since its launch in 2002, as part of a plan by the former oil minister, Sameh Fahmy, to extract the maximum value from Egypt’s rapidly growing natural gas production. Echem commissioned a masterplan with a target of increasing production to 15 million tonnes a year (t/y) over 20 years, in three phases. The aim was to develop 14 petrochemical clusters comprising 24 projects. The programme has so far added about 3.5 million t/y in operating capacity or projects underway. Although the first-phase investment budget of $3.5bn was exceeded by almost 80 per cent, the value of Echem’s products was also higher than originally envisaged.

Feedstock issues have complicated two other projects that Carbon Holdings plans to carry out in Sokhna

Kamal gave an early indication of his abiding interest in petrochemicals two weeks into his tenure as oil minister. On 16 August, he presided with Qandil over a loan signing ceremony for one of Echem’s largest ongoing projects, the construction of an ethylene and derivatives plant in Alexandria. The scheme is being carried out by the Ethylene & Derivatives Company (Ethydco), whose major shareholders are Echem and Sidi Krier Petrochemical Company (Sidpec), the operator of Egypt’s first ethylene/polyethylene plant, which started up in 2000. The Egyptian Natural Gas Company (Gasco), which operates a nearby plant that treats ethane-rich gas from the Western Desert, has 11 per cent ownership and the remaining equity is held by Egyptian public sector banks. Gasco will supply ethane feedstock to the plant.

Ethydco selected Lummus of the US for the licences for the ethylene and butadiene technology, and Germany’s Linde will provide the polyethylene licence. The plant will produce 460,000 t/y of ethylene, 400,000 t/y of polyethylene, 20,000 t/y of butadiene and 20,000 t/y of polybutadiene. The $600m contract to build the ethylene and butadiene units was signed in March 2012 with Japan’s Toyo Engineering Corporation (which also built Sidpec’s ethylene plant) and the local Engineering for the Petroleum & Process Industries (Enppi).

The loan agreement signed in August was for a total of $1.25bn, covering both the ethylene/butadiene contract and the polyethylene/polybutadiene elements of the project, for which contracts have yet to be awarded. The arranging group of local banks comprises National Bank of Egypt, Banque Misr, Commercial International Bank, Banque du Caire and Arab International Bank.

The three state-owned banks in the group –NBE, Banque Misr and Banque du Caire – earlier provided a bridge loan to enable work to start on the Toyo/Enppi contract. Of the total loan, $750m will be denominated in foreign currency and the remainder in Egyptian pounds. The size of the loan suggests that the eventual cost of the project is likely to be about $2bn, assuming a 65:35 debt equity split, compared with an initial estimate of $1.3bn.

Moving forward with petrochemical projects

Echem will also be looking to gain traction with several other projects. These include a plant for processing methanol to produce dimethyl-ether (DME), which can be used as a substitute for or supplement to liquefied petroleum gas (LPG). Egypt imports about half of its requirement of LPG. China’s XinAo and Canada’s Methanex Corporation each hold 20 per cent of the venture, with Echem, Enppi, Petrojet and the Midor Refinery Company holding 15 per cent each. Bids are scheduled to be invited for the main packages in late-2012.

Originally planned to be built in Alexandria,  the project’s new site is adjacent to a $1bn methanol plant built in Damietta by E-Methanex, a venture 60 per cent owned by Methanex, with most of the remaining equity held by Echem and other petroleum sector companies. It commenced operations in January 2011 with a capacity of 1.3 million t/y.

The company decided in November 2011 to close the plant because of concerns about staff security as Egypt’s political crisis worsened. However, production resumed after three weeks and has continued uninterrupted. Damietta has earned a reputation as a trouble spot for the petrochemicals and fertiliser industry following a series of disruptions to an ammonia/urea plant that was originally to have been built by a venture majority owned by Canada’s Agrium.

Damietta delays in Egypt

The Canadian firm first encountered problems in 2007 when a group of local business people objected to the project on environmental grounds. The government at that time devised a solution by effecting a merger with a nearby fertiliser project, being carried out by Misr Oil Refining Company (Mopco), which is 30.6 per cent owned by Echem. Protests flared again after the early 2011 revolution, amid claims that Mopco/Agrium was causing pollution. After becoming minister, Kamal presided over a negotiated settlement, allowing operations to resume at the existing plant, but not envisaging a resumption of the two-unit expansion.

Another project that faced difficulties in Damietta is Egyptian-Indian Polyester. India’s South Asian Petrochemical has a 70 per cent stake in this project, which will produce 420,000 t/y of polyethylene terephthalate (PET) resins. It was originally planned to be located in Damietta but faced local opposition, as well as problems over its tax status. It is now being built in the Northwest Gulf of Suez industrial area, near Sokhna, and is scheduled to come on stream in 2013.

Outside the scope of Echem, a group of private investors is planning to build a large complex in the Sokhna area under the name Tahrir Petrochemicals. The main driver of the project is Egyptian Carbon Holdings. Tahrir will be based on a naphtha cracker producing 1.3 million t/y of ethylene, which will be processed to make 1.35 million t/y of polyethylene, 600,000 t/y of propylene, 210,000 t/y of butadiene and 420,000 t/y of benzene. US-based Shaw Group (recently taken over by France’s Technip) was originally contracted to provide the technology for the cracker. Tahrir is now understood to have reassigned Shaw’s work to Linde, in light of the Technip takeover, which was concluded at the end of August. This reconfiguration is likely to delay progress.

Univane (Dow Chemical and ExxonMobil) will provide licences for other elements of the Tahrir project. Foster Wheeler is the programme management contractor. Tahrir has lined up an alliance of Shaw, UK-based Petrofac and South Korea’s SK Engineering & Construction to be the EPC contractor. It has put in applications to the Export-Import Bank of the US and to South Korean export credit agencies for finance. The scheme is expected to cost $3.75bn.

By deciding on a naphtha cracker, Tahrir will not have to negotiate feedstock supply terms with the petroleum ministry and its affiliates. It plans to purchase the naphtha from Astra, a Netherlands-based trading firm. Tahrir has lined up Houston-based Vinmar International and Switzerland-based Transammonia as offtakers for the plant’s output.

Sourcing feedstock in Egypt

Feedstock issues have complicated two other projects that Carbon Holdings plans to carry out in Sokhna, a methanol and an ammonia plant, both of which would need to secure natural gas supplies from the national grid.

For projects that rely on local sources of feedstock, a close relationship with Echem and other affiliates of the petroleum ministry is essential. Prior to the emergence of Carbon Holdings, the only petrochemical project initiated by the private sector was Oriental Petrochemicals Company (OPC), launched in the 1990s by Mohammed Farid Khamis, the chairman of Oriental Weavers Group, Egypt’s leading producer of carpets.

OPC built a polypropylene plant and then sought to proceed with a propylene unit to provide feedstock for the first plant. With the creation of Echem, the private group came under pressure to include the project in the new holding company’s masterplan, leading to delays in implementation. The plant, built in Port Said, finally started up in 2010, under the name of Egyptian Propylene & Polypropylene Company.

OPC has faced difficulties with liquidity and feedstock supplies. In September, Cairo-based Beltone Financial reported that Carbon Holdings had submitted a bid to acquire the venture for £E200m ($33m).