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| The headquarters of state-run Egyptian Natural Gas Holding Company in Cairo, Egypt, as photographed in 2012. PHOTO: KHALED ELFIQI/ EUROPEAN PRESS PHOTO AGENCY |
All companies with active Egas supply positions affected by payment delays, two suppliers say
LONDON—Egyptian state-owned natural gas company Egas has missed payment deadlines for liquefied natural gas, as the country struggles to build up foreign reserves after blows to its tourism industry over the past year.
Two suppliers to Egas have confirmed to The Wall Street Journal that all companies with active supply positions in Egypt have been affected by payment delays.
Egas didn’t respond to a request for a comment.
“The payment difficulties are affecting all parties,” a person from a European gas trading firm said, adding that his company was one of the unpaid parties.
Another person from an international oil company said that his firm is also waiting to be paid for LNG deliveries to Egypt.
The payment problems have been continuing for about three months, the people said. One boat has been diverted away from Egypt, the BP-controlled British Sapphire. People close to the matter said this was because of payment delays, but, they said, Egas has denied this.
BP declined to comment on the subject.
Egypt’s energy funds could be being affected by cash flow from the Gulf Cooperation Council countries, according to Olivier Jakob, an analyst at Switzerland-based Petromatrix.
“Egypt is basically financed by the GCC, so this was one of the things to watch for when oil prices dropped,” he said. “If GCC cash flow is affected, this could have implications for Egypt.”
Several options are being considered according to the suppliers to Egypt. Egypt may be discussing a fuel swap with Saudi Arabia, which would give Egypt credit for distillates and gasoline and free up cash that could be used to pay for natural gas.
One products trader said an oil products deal has already been sealed with Saudi Arabia. He said the kingdom had agreed to provide 70% of Egypt’s product needs from February for a period of three months.
No one at state-owned Saudi Arabian Oil Co., better known as Saudi Aramco, could be reached to comment on the subject.
One trader was also expecting the World Bank or the International Monetary Fund to implement a system to bail out or help Egypt with payments.
Chris Jarvis, the IMF mission chief for Egypt, said, “We are not in talks on a new program or a loan. So far, the authorities have not requested IMF financing, but we would be ready to consider such request when the authorities feel it is opportune. The Fund stands ready to help Egypt and its people.”
No one at the World Bank was immediately available for comment.
Parties are also considering suspending their contracts with Egypt altogether, but the process could be far from simple.
“Contracts vary and some may or may not have the right to terminate because of delayed payments,” a supplier to Egypt said.
The payment date for LNG is normally around 20 days after the cargo is delivered. Contractually, late payments may not provide a legal basis for stopping deliveries.
Egypt is considered a high-risk country to supply with LNG because of the associated credit risks with the country. But LNG market players have been participating in riskier positions because of oversupply in the market. The oversupply means there is a real need to offload volumes wherever possible.
Egypt’s reputation as a high-risk country had waned in the past year when it ramped up deliveries of LNG. The country even installed a second floating LNG terminal in September to boost the amount of gas it had access to.
But the country’s already troubled economy has since been pummeled by a number of incidents, such as the downing of a Russian airliner in the Sinai and several targeted attacks on tourists in the country.
Inflation in the country is in double figures and Egypt has struggled to build up foreign reserves partly because of the repeated blows to its tourism industry in the past year.
SOURCE
