Egypt’s refinery expansion progresses, as economic indicators improve
Thursday, Sep 21, 2017
The long-planned project to upgrade the state-owned refinery at Assiut in Upper Egypt finally moved into the execution phase in early September following the award of the main contract last month.

In common with other similarly delayed schemes across the country, the aim is to produce a wider range of cleaner, high-value products to feed the fast-growing domestic market.

A major programme of downstream investment outlined by Cairo earlier in the decade has subsequently been stymied by economic and fiscal difficulties. However, further signs of gradual improvement in the latter were evident this month in foreign reserves hitting a new post-revolution high and in accelerating quarterly GDP growth.

Local contracting mainstay Engineering for the Petroleum & Process Industries (ENPPI) was awarded the engineering, procurement and construction (EPC) contract in late August by government-owned Assiut Oil Refining Co. (ASORC) on the project to add a 660,000 tpy naphtha-processing complex at the Assiut refinery. The 32-month deal is worth an estimated US$200 million.

ASORC, located 400 km south of Cairo, is a subsidiary of state-owned Egyptian General Petroleum Corp. (EGPC).

ENPPI – which worked on both the original 2.5 million tpy ASORC facility and on a 2 million tpy expansion at the turn of the century – led a consortium also comprising the local Orascom Construction and the UK’s Amec Foster Wheeler. They beat a similarly high-calibre second-placed partnership of UK-based TechnipFMC with the local Petrojet.

On September 6, Australia’s WorleyParsons – which was selected for the project management consultancy (PMC) contract in March last year – announced that the four-year job had moved into the second phase – entailing supervision of the EPC work. The first phase had encompassed tender preparation and bid evaluation.

France’s Axens was selected as technology supplier in mid-2015 for the new complex, which will comprise a naphtha-hydrotreating unit, a continuous catalytic reforming unit and a C5/C6 isomerisation unit – and is geared chiefly towards enabling the production of higher-octane gasoline for the local market.

A wider upgrade of the 30-year-old facility, costing an estimated US$1.5 billion, also encompasses the addition of a delayed coker unit, for which the US Bechtel was selected as technology provider last year.

Jeddah-based Islamic Development Bank extended a US$198 million loan in 2014 to part-finance the naphtha complex project, which nonetheless continued to move slowly – in common with other major projects aimed at easing a growing domestic fuel shortage and thus reducing the fiscal burden of imports.

Construction has yet to begin on a planned upgrade and expansion of the MIDOR refinery, majority-owned by EGPC, in Alexandria – despite the award of the EPC contract to Technip in mid-2015 and an accompanying pledge by Italian export credit agency SACE to consider providing financial support.

The estimated US$1.6 billion project calls for a 60,000 bpd increase in capacity to 160,000 bpd and the installation of new units based on technology supplied by the US’ UOP to expand the production of middle distillates, mainly diesel, meeting Euro-5 standards.

Completion is due by year-end on the far larger Mostorod refinery project being carried out by local privately owned Qalaa Holdings adjacent to the government’s 145,000 bpd refinery near Cairo. EPC contracts on the estimated US$3.7 billion plant, which is due to include 2.3 million tpy of Euro-5 diesel capacity, were awarded a decade ago.

The government announced plans earlier 2014 to invest billions of dollars in expanding refining and petrochemicals capacity but was subsequently forced to focus on more immediate energy sector needs owing to the prolonged oil price downturn and weak investor confidence resulting from the economic and fiscal crisis.

However, signs of improvement under the tutelage of the IMF have begun proliferating. Since November, exchange rate liberalisation and the extension of a US$12 billion, three-year budgetary support package by the Washington-based institution – in turn generating the investor confidence that enabled Cairo to return to international bond markets to borrow a further US$7 billion this year – have alleviated an acute foreign exchange (FX) shortage.

FX reserves have more than doubled to their highest levels since the revolution of January 2011 – and on September 6, the Central Bank of Egypt announced another increase during August to US$36.1 billion.

However, the relatively small monthly rise – of US$107 million, compared with a leap of more than US$4.5 billion in July – implied that Cairo had begun drawing down reserves to meet short-term budgetary needs.

Meanwhile, economic data released in late August for the fourth quarter – running from March to June – of the 2016-17 financial year also painted a brightening picture: GDP growth surged to 4.9%, according to a report from the Finance Ministry, compared with 2.3% in the corresponding period the previous year.

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