Center for Strategic Assessment and forecasts

Autonomous non-profit organization

Home / Politics and Geopolitics / The future of Russia and the world: estimates and projections / Articles
Energy diplomacy of the Arab Republic of Egypt
Material posted: Publication date: 17-01-2020
The rapidly growing electricity demand associated with demographic processes, the progress of urbanization, as well as with the use of inefficient technologies create a dangerous situation for the Egyptian economy.

Cairo needs to boost energy production, but in the period from 2011 to 2014 electricity production in Egypt declined or remained unchanged[1]. Examples of the deterioration of the situation in the energy sector may be the fact that in recent years there has been closure of steel mills in Egypt due to increased energy prices[2], were also introduced electricity for religious institutions[3].

Only in 2015 the situation began to improve. Primarily, this is due to the procurement of liquefied natural gas (LNG), and with the conclusion of contracts for the supply of gas to Israel via pipeline. Minor contributions were made by the program of development of renewable energy, in particular, the construction of solar power plant in Sahl Hasheesh.

Limiting the range of issues that are of particular importance for Cairo in the energy sector is to provide: the same level of electricity generated by the Aswan dam, the supply of gas to Israel, the development of "green" and nuclear energy.

Aswan, located on the Nile is crucial for the Egyptian economy. So, the Aswan dam, producing a total of 10 billion kWh per year[4]. The total energy of the Nile are estimated at 50 GWh per year. The country produced about 118 billion kWh per year. Although the share of hydropower in Egypt is only 10%[5], it supplies energy sensitive southern regions of the country. It is therefore not difficult to assume that if the given thread is blocked, it will create big problems in the energy sector of Egypt.

The main threat to hydropower Ares associated with the construction of the Renaissance dam in Ethiopia. According to various estimates, the drain of the Nile when you run this dam will be reduced to third. Thus, agriculture of Egypt would be irreparably damaged.

During construction of the dam in Ethiopia the policy of Cairo to Addis Ababa several times radically changed. If Mohamed Morsi promised to "bomb" the dam[6], that El-Sisi has somewhat toned down his rhetoric, trying to delay the startup of the dam and, thus, to reduce the damage to the Egyptian economy.

Since the beginning of 2018 Cairo is trying to negotiate with Addis Ababa and Khartoum. So, in may of 2018 held trilateral talks Cairo, Addis Ababa and Khartoum. The parties agreed on the establishment of a special Fund for infrastructure development in the three countries, as well as an independent research group composed of 15 people – five representatives from each state to discuss possible scenarios for the launch of the Renaissance dam and started filling the reservoirs[7]. Cairo and Addis Ababa signed a Declaration in which the parties undertake to use the water of the Nile into account the interests of the other party.

January 29, 2018, on the sidelines of the African summit held talks on the issue of the construction of the Renaissance dam. During the meeting Egyptian President Abdel Fattah Al-Sisi, Sudanese President Omar Hassan al-Bashir and Prime Minister of Ethiopia, Hailemariam Desalegn agreed deadlines final resolution of all disputes by a dam in Ethiopia. The Prime Minister of Ethiopia also noted that the dam on the Blue Nile "was never meant to harm any country, but only to satisfy vital needs in electricity and development of the region"[8]. And on 4 and 5 April 2018 the parties in terms of resolving the crisis of the distribution of the Nile waters discussed security issues, agreeing that Egypt will stop sponsoring Muslim Oromo (an ethnic group in Ethiopia who oppose the construction of the dam), and Ethiopia in turn will cease to shelter on its territory "sympathetic" to the movement "Muslim brotherhood".

But the negotiations 2018, according to the Ethiopian dam interesting to others. In the organization of several meetings between the representatives of Ethiopia, Sudan and Egypt, was attended by mediators from the United States. If the Obama administration believed this crisis is purely regional, with the arrival of Mike Pompeo for the post of foreign Minister of the United States Cairo managed to convince the American side to intervene in the resolution of this crisis[9] (similar requests from the Egyptian side did Moscow and tel Aviv). Most likely it is the desire of Egypt to give this issue an international character that is not ready the other parties (Sudan and Ethiopia). Unfortunately, replicated by the Egyptian (and Arab in General) media information that during the forum, the Africa-Russia Cairo is going to discuss the problem of the distribution of the Nile waters, has not found its confirmation. Accordingly, the entire 2019 talks on the dam "Renaissance" at a high level was conducted.

However, from 14 to 16 January 2020 in Washington, talks were held between the parties to the conflict (Ethiopia, Sudan and Egypt). The parties managed to reach a preliminary agreement and agree on the meeting on January 28-29 to finalize the document. In the preliminary agreement, the parties agreed to cooperate in the process of filling the reservoir of the dam "Renaissance"[10]. The tentative agreement consists of 6 items:

  1. Filling the reservoir of the Renaissance dam will be gradual, given the hydrological conditions of the Blue Nile and the potential impact on existing downstream of the reservoir.
  2. The reservoir filling will occur during the rainy season, usually from July to August, and, on the basis of conditions may be extended until September.
  3. During the first phase the reservoir will be filled to the level of 595 meters above sea level, which will start production of electricity in advance, subject to taking appropriate measures to prevent drought in Egypt and Sudan.
  4. Subsequent stages of filling the reservoir will be carried out in the framework of the mechanism, which the parties agree in the future and which will determine the spillway, based on hydrological conditions of the Blue Nile and the condition of the dam, taking into account the interests of Ethiopia, providing electricity generation and execution of appropriate measures to mitigate the effects of drought in Egypt and Sudan.
  5. Operation of the Renaissance dam will occur in the framework of the mechanism, which will determine the spillway, based on hydrological conditions of the Blue Nile and the condition that will produce electricity and mitigating the effects of a long drought period for Sudan and Egypt.
  6. An effective mechanism for coordination and dispute resolution[11].

This agreement is a breakthrough for the sides, since the first side will officially confirm the specific numbers of how should be filled the reservoir. Moreover, Egypt, Sudan and Ethiopia shared the process of filling the reservoir in stages, and that also indicates the elaboration of the agreement. It is important to note the role of the United States, whose experts conducted additional studies to determine the optimum for all parties of the values of speed and filling level of the spillway, the amount of produced energy. In this case, all the negotiators, including the U.S., came to reaching an agreement quite deliberately, without creating additional illusions. A source in the diplomatic circles of the United States stressed that Washington understands the nature of the problem and its complexity[12]. This understanding allowed us to achieve such success.

If you touch the oil sector, it is important to note that Saudi Arabia has used its position of energy supplier to exert political pressure on Cairo, which forced the leadership of the Arab Republic to join the blockade of Qatar and to be considered for a part in the project of the United States "middle East NATO"[13] (although now Egypt declares the non-participation). It is with the political pressure is connected with the fact that Egypt was considering the possibility of alternative oil supplies, particularly those of the UAE, wishing to oppose Saudi Arabia. The possibility of oil exports from Iraq and Iran, partly through the oil pipeline between Iran-Iraq-Syria to circumvent sanctions imposed on Tehran[14]. Iraqi officials deny information on the possibility of using this pipeline, indicating that the Iraqi segment is used to full capacity. Thus, there is only the option of oil supplies by sea as supply with the assistance of the overpass Iran-Iraq-Syria seen is unlikely., it requires refurbishment and modernization, and the prospect of increased sanctions from Washington may completely paralyse the trade of Iranian oil.

Interesting situation for Egypt develops in the gas sector. A gas occupies a special place in the energy sector of Egypt. With natural gas supplies is connected with the fact that Cairo was able to get out of the energy crisis, so the country's leadership is vital to increase the supply of "blue fuel". Until 2014, Egypt was a gas exporter, but now the situation has changed. A large part of the power plants in Egypt runs on gas. Inefficient technologies used at the enterprises and in the households of ordinary Egyptians, doing all the government's attempts to reduce power consumption in vain. That is why Egypt is forced to buy liquefied natural gas from Russia, Oman and France. The three countries have signed contracts to supply the Egyptian market 43-45 parties liquefied gas in 138-156 thousand cubic meters each. In total, Egypt expects to receive about 100 batches of gas. Most likely, the remaining batch of gas will be provided by Qatar.

Not to mention the Treaty of Egypt and Israel on the supply of Israeli gas fields Leviathan and Tamar. While gas supplies will be divided equally between these two fields.
January 15, 2020 Israel launched natural gas supplies in Egypt. This agreement is for 15 years, and it is important not only for the economy but also indicates the political changes in the region. Cairo was the first who signed a peace Treaty with Israel in 1979, and now Egypt became the first Arab country to sign a contract with Israel to supply natural gas[15]. Noble Energy Inc. and Delek Drilling-LP plan to deliver 85 billion cubic meters of gas to Egyptian company Dolphinus Holdings Ltd. This figure is one of those 64 billion cubic meters of gas, which was discussed in 2017.

The parties consider this agreement as a first step in the development of not only economic but also political relations. In particular, the Israeli leadership hopes that Cairo will be able to become the conductor of the interests of tel Aviv at Arab arena, that may help in solving the Arab-Israeli conflict. Informal outline of the US and Israel, called "the deal of the Millennium", provides that Egypt will transfer part of its territory in the Sinai to a future Palestinian state "in exchange for Israeli territory, economic guarantees or guarantees of security." It's possible gas supplies to the Israeli leadership are considered as part of this plan.

Nuclear energy is one of the most important areas for cooperation between Russia and Egypt. While Egypt is one of the few real opportunities of overcoming energy crisis in the context of limited resources and political pressure from energy suppliers. However, according to statements of some experts in the energy sector to overcome the energy crisis, Egypt will need five plants of the same power which is now being built in the area Matruh. This station is a strategic project of Rosatom, as his development took a huge amount of time and effort. A preliminary agreement was signed on 19 November 2015. In accordance with the contracts, Rosatom will supply nuclear fuel throughout the life cycle of the plant. The company will conduct staff training and will provide the Egyptian partners, the support for the first 10 years since the launch of the station[16]. This project has a huge impact on the Egyptian economy, as it includes a huge number of local companies. Your interest was shown about one hundred private Egyptian companies, including Orascom, Arab Contractors, Petrojet, Shaker Consulting Group, Hamza & Partners and others. The data the company had the opportunity to register on the website of the Ministry of energy and renewable resources as suppliers. The special Committee will evaluate all applications, and some companies will be signed government contracts[17]. The company that won the tender, will participate in the construction of nuclear power plants: to produce chips, to organize construction work, to provide special equipment.

Russia has also provided Egypt a loan in the amount of $ 25 billion. U.S. to build power plants. While paying the "body" of the loan will not begin until 2029[18]. Rosatom plans to start construction in 2020, in April, the parties had agreed upon the construction site for the NPP, which was checked by IAEA experts. The first unit of the plant is planned to be built in 2026[19].

For the Russian nuclear industry the fact of the construction of a nuclear power plant in Egypt is a good opportunity to reiterate its ability to execute global contracts in competitive markets. Russia is still distinguished by its integrated approach, providing solutions not only for construction of nuclear power plants, and for personnel training, laying power lines, as well as the disposal of nuclear waste. For the Egyptian side the fact that the construction of the power plant also has positive aspects: reduced dependence on hydrocarbon imports by countries wishing to influence the policy of Cairo, in the construction of the participation of the Egyptian companies and creates new jobs (20 thousand jobs will be created during the construction phase and 4 thousand during NPP operation).

Cairo is also engaged in the development of solar energy. The country is particularly rich in resources of solar energy in the Gulf El Zeit. In 2015, the Prime Minister inaugurated a factory for the production of finished solar panels. Egypt for its solar power plant in Sahl Hasheesh buys not ready for solar panels in China, and only a few elements. On the one hand, the opening of the plant and cooperation with China may indicate the seriousness of the Egyptian government. Moreover, given the specificity of the Egyptian economy, the Egyptian army has invested in the projects of "green" energy for about $ 13 billion. USA. This project can be seen as an opportunity for formal, rather than real diversification of the energy produced.

Special attention pays to the Cairo foreign investment in the energy sector. Bloomberg reported that Cairo intends to purchase from Siemens a 30% stake in the project (the German company has now in Egypt, the construction of a network of power plants), and the remaining 70% to offer to foreign companies and private investors[20]. For 6 investors, who wished to remain anonymous, expressed their willingness to participate in the project. Economist Abdel Khaliq Farouk in an interview with Al-Monitor said that the sale of 70% of its assets in new power plants are tantamount to privatization[21]. Accordingly, the sale of important assets raises concerns that the problem with electricity prices is not resolved, as the main task of any investor of the project – the profit. In this case the decision of such sharp social problems as the reduction in the cost of electricity and the increase of its generation, perhaps, will not be executed.

In General it can be noted that the situation in the sphere of energy supply and power generation improves. 11 Dec 2019 President of Egypt Abdel Fattah al-Sisi during his speech at the Aswan forum for sustainable peace and development (The Aswan Forum for Sustainable Peace and Development) has even said that Egypt is ready to export 20% of the excess energy in African countries[22]. Most likely this statement is bravado on the background of the construction of the Renaissance dam, a project that involves the construction of transmission lines to neighbouring countries for export of excess electricity. You must understand that in the current environment, Cairo has no obvious excess of energy, as the prices are quite high. Because of this, in the last few years had closed plants in the country. Moreover, it is unlikely that the leadership of the country would sell its stake in Siemens project, if not for the need for foreign investment for the construction of additional capacity.

Of course, Egypt could become a staging area for future export of energy, for example, gas or oil. For example, if Israel decides to sell gas not only to Egypt, or will be implemented the project of Iran's modernization of the oil pipeline through Iraq. However, such initiatives cannot be regarded as plans in the short or medium term.

In the Egyptian energy sector there is a large field of opportunities for foreign companies. Cairo is attractive for foreign investment, especially in the energy sector, as a growing need in it, including as a result of the demographic boom. But the days when Egypt itself was the exporter of power resources, most likely permanently gone. Even with the development of gas fields of Sohr sees only the prospect of short-term refusal to import gas. Despite the fact that production at the field in 2018, has allowed Cairo to stop exporting natural gas in 2019 still exports resumed, which proves that only one field is not able to cover the country's needs in natural gas.

Accordingly, the problems of Egypt in the energy sector are resolved gradually, on a complete rejection of the imported energy may not count. The energy sector is developing too slowly to outrun their own needs. Despite the export potential of the country in the past now Egypt is a net importer of energy, and quite promising, since the consumption of energy, and thus energy imports, the country will only grow.

Michael Pankov

 

[1] Official website of the International energy Agency [website] URL: https://www.iea.org/countries/egypt (date accessed: 12.01.2020)

[2] Noskov, A. Y. On the problems of the steel industry of Egypt [Electronic resource] / Institute of the Middle East [website] URL: http://www.iimes.ru/?p=34266 (date accessed: 13.01.2020)

[3] Mark Novodachne. Churches and mosques will now pay their electricity [Electronic resource] / Modern Egypt [website] URL: http://ru.egyptian.today/economics/1309-47-35-20.html (date accessed: 14.01.2020)

[4] Official website of the Ministry of water resources of Egypt [website] URL: www.mwri.gov.eg/project/highdam.aspx (date accessed: 12.01.2020)

[5] Stephanie Wormser. The reform of the energy sector of Egypt. Right in the transition. 2016. S. 24-31

[6] Kelly, Michael, Robert Johnson. STRATFOR: Egypt Is Prepared To Bomb All Of Ethiopia''s Nile Dams [Electronic resource] / Business Insider [website] URL: https://www.businessinsider.com/hacked-stratfor-emails-egypt-could-take-military-action-to-protect-its-stake-in-the-nile-2012-10 (date accessed: 15.01.2020)

[7] A. A. Bystrov About the talks with Egypt, Sudan and Ethiopia on the dam "Renaissance" [Electronic resource] / the Institute of Middle East [website] URL: http://www.iimes.ru/?p=44956 (date accessed: 15.01.2020)

[8] Head of Egypt, Ethiopia and Sudan held talks on the dam on the Nile [Electronic resource] / Regnum [website] URL: https://regnum.ru/news/2373618.html (date accessed: 10.01.2020)

[9] Zaki Muhammad. Egypt managed to convince the US to intervene in the conflict [Electronic resource] / Alarab [website] URL: https://alarab.co.uk/مصر-تنجح-في-إقناع-الولايات-المتحدة-بالتدخل-في-أزمة-سد-النهضة (date accessed: 09.01.2020)

[10] a five-party agreement concluded in Washington DC paves the way for resolving the issue of the Renaissance dam [Electronic resource] / Al-Jazeera [website] URL: https://www.aljazeera.net/news/politics/2020/1/16/اتفاق-خماسي-بواشنطن-يمهد-لحل-أزمة-سد-النهضة (date accessed: 10.01.2020)

[11] The Dam "Renaissance". Details of the application of Egypt, Ethiopia and Sudan: the finishing touches to achieve the final agreement on January 28 [Electronic resource] / CNN. Arabic. [website] - URL:https://arabic.cnn.com/middle-east/article/2020/01/16/joint-statement-egypt-ethiopia-sudan-united-states-and-world-bank (date accessed: 15.01.2020)

[12] a five-party agreement concluded in Washington DC paves the way for resolving the issue of the Renaissance dam [Electronic resource] // Al-Jazeera [website] URL: https://www.aljazeera.net/news/politics/2020/1/16/اتفاق-خماسي-بواشنطن-يمهد-لحل-أزمة-سد-النهضة (date accessed: 10.01.2020)

[13] the Lascaris F. I. On the resumption of Saudi oil shipments to Egypt [Electronic resource] / Institute of the Middle East [website] URL: http://www.iimes.ru/?p=33348 (date accessed: 13.01.2020)

[14] Tehran reactivates oil pipeline project reaching Syria [Electronic resource] / Middle East Monitor [website] URL: https://www.middleeastmonitor.com/20190828-tehran-reactivates-oil-pipeline-project-reaching-syria/ (accessed: 08.01.2020)

[15] Israel starts exporting natural gas to Egypt in diplomatic milestone [Electronic resource] / DW [website] URL: https://www.dw.com/en/israel-starts-exporting-natural-gas-to-egypt-in-diplomatic-milestone/a-52010531 (date accessed: 13.01.2020)

[16] Official website of the company "Rosatom" [website] URL: https://www.rosatom.ru/production/design/stroyashchiesya-aes/ (accessed: 10.01.2020)

[17] 100 Egyptian companies nominated to participate in Dabaa plant works [Electronic resource] / Daily News Egypt [website] URL: https://dailynewsegypt.com/2018/04/02/100-egyptian-companies-nominated-participate-dabaa-plant-works/ (accessed: 14.01.2020)

[18] "Rosatom" is prepared to dispute with Egypt over the construction of nuclear power plants over $30 billion [Electronic resource] / RBC [website] URL: https://www.rbc.ru/business/22/10/2018/5bc9ff2d9a7947769ef820dc (date accessed: 11.01.2020)

[19] In Egypt officially approved site for the construction of nuclear power plants [Electronic resource] / RBC [website] URL: https://ria.ru/20190408/1552485969.html (date accessed: 12.01.2020)

[20] Egypt's New Wealth Fund Eyes Stake in Siemens-Built Power Plants [Electronic resource] / Bloomberg, [website] URL: https://www.bloomberg.com/news/articles/2019-11-11/egypt-s-new-wealth-fund-eyes-stake-in-siemens-built-power-plants?srnd=premium-middle-east (date accessed: 15.01.2020)

[21]Egypt to offer foreign investors a large share in power plants [Electronic resource] / Al-Monitor [website] URL: https://www.al-monitor.com/pulse/originals/2019/11/egypt-sovereign-wealth-fund-partnership-foreign-investors.html (date accessed: 15.01.2020)

[22] Sisi: Egypt ready to export 20% of the electricity in the African country for half the cost [Electronic resource] / Jareeda Al-Mal [website] URL: https://almalnews.com/السيسي-مصر-مستعدة-لنقل-20-من-الكهرباء-لأ/ (accessed: 13.01.2020)


RELATED MATERIALS: Politics and Geopolitics
Возрастное ограничение