Egyptian downstream financings progress
Thursday, Jun 07, 2018
Two major downstream projects in the northern Suez governorate made progress on raising finance in late May – lack of which has long hindered development of the sector.

A government-led scheme to upgrade an ageing refinery near the city of Suez received a concessionary loan – in reflection of the project’s goal of producing cleaner, higher-grade fuels.

Meanwhile, the private-sector developer of a long-delayed, multi-billion dollar project to create the country’s largest petrochemicals complex at Ain Sokhna approached international banks for finance while planning a share sale through the local bourse.

The London-based European Bank for Reconstruction & Development (EBRD) on May 23 announced the extension of a US$200 million loan to fund the upgrade of the state-owned Suez Oil Processing Co. (SOPC) refinery, located at the mouth of the Suez Canal near Suez.

The facility currently processes heavy oil from nearby oilfields into around 68,000 bpd of products, including gasoline, LPG, kerosene, fuel oil, diesel, sulphur, asphalt and coke. A refinery has existed at the site since the early 1920s, with SOPC created by the government in 1962 to own two adjacent plants.

A previous phase of ongoing modernisation was completed in 2016 by local contracting stalwart ENPPI. The EBRD-financed scheme calls for a revamp of the existing coker unit and the installation of a new hydrotreater to enable the production of increased quantities of middle distillates compliant with Euro 5 fuel specifications. The procurement and installation of a new vapour recovery unit would also be covered.

The SOPC project forms a minor part of a wider drive by Cairo to increase and upgrade local refining capacity, which also encompasses expansions of the Assiut Oil Refining Co. (AORC) complex in Upper Egypt and of the Middle East Oil Refinery (MIDOR) plant in Alexandria – both owned, like SOPC, by state conglomerate Egyptian General Petroleum Corp. (EGPC).

Such schemes were delayed by the extended period of political and economic turmoil following the 2011 revolution but have made financing and contracting progress over the past three years as tentative stability and recovery have taken hold.

Private-sector refining projects have similarly struggled to raise funds – which was challenging even before the uprising, by dint of an unfriendly investment climate and lack of a project financing track record in the sector.

The largest scheme under way is the estimated US$4.2 billion Mostorod refinery under development near the existing state-owned Cairo Oil Refining Co. (CORC) plant, to the north of the capital, by the local Qalaa Holdings through its subsidiary, Egyptian Refining Co. (ERC).

The main engineering, procurement and construction (EPC) contracts were awarded in 2007 but lack of funding caused long delays in starting work. EGPC owns a minority stake and will guarantee offtake under a 25-year agreement.

ERC managing director Mohamed Saad claimed during a press conference in March that test runs would start in the third quarter, with full commercial operations scheduled for start-up by early 2019. Planned capacity is 145,000 bpd, mainly of light and middle distillates and aimed at substantially reducing the country’s fuel import bill.

In common with oil and gas producers across the Middle East, petrochemicals sector development is a priority for Cairo in order to add value to upstream output and create much-needed local jobs. However, with investors and financiers deterred by the same factors as have stymied the refining projects, a government-led programme to expand the sector has moved slowly owing to a lack of funds.

The largest private-sector scheme on the table has suffered a similar fate – the estimated US$10.3 billion Tahrir Petrochemicals Complex at the Suez port of Ain Sokhna planned by the local Carbon Holdings since late last decade has yet to begin construction.

Agreement with the various export credit agencies (ECAs) approached to support the scheme – including France’s Euler Hermes, Seoul’s Korea Export-Import Bank, Italy’s SACE, UK Export Finance and US Export-Import Bank – had been repeatedly claimed for several years by the developer to be imminent, without concrete commitments having been signed.

An environmental and social impact assessment was registered as having been delivered to various prospective financiers in April 2017. However, syndication was launched to commercial banks in late May of a tranche reportedly being covered by the French and UK agencies, with financial close ambitiously being targeted in the fourth quarter. Societe Generale is the financial adviser.

The local EFG Hermes is also said to have been selected to manage a planned initial public offering (IPO) on the local bourse to raise further funds for the project. The US government’s Overseas Private Investment Corp. (OPIC) approved a US$400 million loan in 2015.

The proposed plant will comprise a 1.5 million tpy naphtha cracker and units producing 1.35 million tpy of petrochemicals products, including linear high-density polyethylene, linear low-density polyethylene, propylene, polypropylene (PP), butadiene and benzene.

A consortium of Germany’s Linde and South Korea’s SK Engineering & Construction was selected in 2013 for the US$3.6 billion main EPC contract – covering the cracker and PE unit – while the offsites and utilities package went to a team of the Netherlands’ Archirodon and Italy’s Maire Tecnimont.

The overall project also includes a brownfield expansion of the nearby 180,000 tpy PP plant owned by Oriental Petrochemical, which Carbon Holdings acquired in 2013.

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