Chinese commit to delayed Suez refinery
Thursday, Nov 09, 2017
A Chinese state contractor announced in late October that it had been awarded the main package on a planned refinery at the Suez port of Ain Sokhna. The project has been on the Egyptian government’s drawing board for more than a decade but has been stymied by political and financial problems.

The deal forms part of a wider strengthening of ties between Beijing and Cairo, reflected in financial aid extended to the latter last year and in a series of deals for China to invest in major projects in the North African country.

However, the most ambitious scheme at the Suez site – which Cairo has long aimed to turn into a downstream hub – for a private local company to develop the country’s largest petrochemicals plant continues to move with glacial slowness. Financial close is still pending and construction is not now predicted to commence until mid-2018.

SinoHydro, a subsidiary of Beijing-owned PowerChina, announced in a statement to the local Chinese press in October 24 the award of a 44-month contract for the design, procurement and construction of a 155,000 bpd refinery at Ain Sokhna, on the western shore of the Red Sea in the north of the Gulf of Suez. The value was put at US$2 billion.

The client was named as Sokhna Refinery & Petrochemicals – and the deal appears to constitute the resurrection of a project launched in 2005 by Kuwait and Saudi investors in joint venture with state-owned Egyptian General Petroleum Corp. (EGPC). This sought to develop a refinery at the port, but struggled to secure finance and was then derailed by political turmoil from 2011 onwards.

Germany’s Uhde was reported to have completed designs, and both Foster Wheeler, now part of the UK’s Amec, and France’s Technip were at one time reported to have been awarded engineering, procurement and construction (EPC) contracts for various elements – although these are assumed to have lapsed.

The greenfield refinery was to process heavy Egyptian crude into Euro 5-standard fuels for export – benefiting from the port’s strategic location at the southern end of the Suez Canal. Development of the area was reinvigorated by the government’s launch of the Suez Canal Economic Zone in 2014, a free zone and putative trade hub stretching along a corridor from Ain Sokhna to Port Said at the vital waterway’s northern end.

The SinoHydro award came during a period of intense economic contact between the two countries – and coincided with a three-day trade fair for Chinese investors in the Egyptian capital.

A Chinese state firm also signed a contract earlier in the month to build the central business district of President Abdel Fateh el-Sisi’s planned new administrative capital, 50 km east of Cairo – finalising a deal signed during a landmark first visit to the country by Chinese President Xi Jinping in early 2016.

Investments such as those at Ain Sokhna also cohere with Beijing’s ambitious high-profile ‘Belt and Road’ initiative to create land and sea infrastructure corridors for trade with the Middle East, Africa and Europe. Chinese industrial developer TEDA Group is already active at the Red Sea port and free zone.

China is Egypt’s largest trading partner, with goods and services worth close to US$11 billion in 2016, and Beijing stepped in December last year to help ease the government’s acute foreign exchange shortage through a US$2.6 billion, three-year currency swap arrangement.

The largest downstream energy project planned at Ain Sokhna is the estimated US$10 billion Tahrir Petrochemicals Complex under development by the local Carbon Holdings since late last decade. The scheme has suffered severe delays – with the EPC contracts originally awarded in 2010 – chiefly through an instability to secure the requisite finance, the bulk of which is expected to be covered by Italian, South Korean, UK and US export credit agencies.

Carbon Holdings CEO Basil el-Baz claimed in August that funding would be finalised and construction begun by June 2018.

Such targets have been stated and missed many times but some movement has been in evidence this year in the form of the award in April of a project management contract (PMC) to US-based Bechtel.

Meanwhile, investor confidence has grown since the government was granted a US$12 billion IMF budgetary support package a year ago and since the implementation of some of the economic reforms on which the deal was contingent.

On October 25, the cabinet approved the executive regulations for enactment of a new Investment Law passed by Parliament in May – designed to simplify the notoriously cumbersome business bureaucracy while incentivising investment in priority locations and sectors.

The proposed Tahrir complex would comprise a 1.5 million tpy naphtha cracker and units for production of linear high-density polyethylene, linear low-density polyethylene, propylene, polypropylene, butadiene and benzene. Most of its output is initially destined for exports but is later envisaged feeding the job-creating manufacturing industries that Cairo aims to encourage in the Suez zone.

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