Sources: Govt paid portion of dues to foreign gas companies in Egyptian pounds

The government paid over the past two months a portion of its dues to foreign gas companies in Egyptian pounds, according to three informed sources in the oil sector, including two former government officials and one from the private sector, who spoke to Mada Masr.

One source noted that the government has paid foreign companies’ dues in pounds on prior occasions, including over 10 years ago, amid the years of economic crisis that spanned the 2011 revolution.

The government also urged foreign gas companies during a November meeting to use the pound-denominated payments to cover their expenses inside Egypt, two of the sources said.

If the companies have surplus holdings in pounds, the government also promised to convert these into US dollars at the daily rate, promising to do the same if the companies have dollar-denominated expenses.

During the meeting, the government voiced frustration over foreign companies selling payments they received in Egyptian pounds to banks in order to acquire US dollars, a move opposed by central bank officials, the two sources said.

Amid a spiralling revenues crisis, Egypt’s arrears previously neared US$7 billion. An influx of dollars into state coffers from a multi-party bailout that saw $40 billion injected into Egypt’s economy earlier this year allowed the government to pay gas companies a portion of their dues before summer.

Yet the government failed to pay them any arrears in the third quarter of this year — except for limited payments during the final week — leaving total dues at $5.5 billion by the end of September, with 85 percent owed to Eni and BP, sources told Mada Masr at the time.

In August, the government reached a new agreement to settle outstanding arrears through monthly installments worth the equivalent of $400 million over the course of a year, starting in October. The deal also promised these companies priority access to future exploration tenders and preferential terms in new contracts as compensation for delayed payments.

Currently, total arrears, including both longstanding and newly accrued dues, stand at around $5 billion, the source in the private sector said.

Priority has been given to settling dues with Eni, the source added, which operates the Zohr megafield — Egypt’s main source of domestically produced gas — and has the largest share of dues.

Domestic gas production has dropped significantly over the past period and now stands at 4 to 4.3 billion cubic feet per day, compared to five billion cubic feet in the second quarter of this year, marking a seven-year low, the sources said. Production had previously peaked at 7 billion cubic feet per day in the second half of 2021.

As domestic output declines, Egypt’s natural gas imports from Israel totaled $1.8 billion by the end of August, compared to a total of $1.8 billion and $2.1 billion in the previous two years, respectively, according to the Central Agency for Public Mobilization and Statistics’ data on foreign trade.

Meanwhile, Egypt has re-entered the liquefied natural gas market as a buyer and is negotiating long-term contracts to secure shipments for the next three to four years, aiming to avoid the costly spot market purchases that were used to cover this year’s demand.