Egypt to import coal despite environmental concerns

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Résumé
Egypt appears likely to import coal for energy production, despite strong objections from the Ministry of Environmental Affairs.

CAIRO — Egypt’s public debate over coal is still smoldering, despite another Cabinet news release supporting its use for power generation. On April 2, a statement from the prime minister’s office announced that private companies could import coal, provided they behave themselves environmentally.

The Cabinet still has to vote on the matter and opponents are digging in for a fight, but this latest notice and the huge sums of money changing hands in the cement sector imply that the importation of coal is a likely outcome.

The Arabic-language newspaper Al Mal reported March 19 that South Valley Cement was in the final stages of signing a $172 million loan from CIB and the Arab African International Bank. Board member Ahmad al-Miqaty told the newspaper that half of the loan would be used to buy coal-grinding equipment from companies in France and Germany and that it would be ready for use by December.

Yet it’s still technically illegal in Egypt for businesses to import or use coal without a special permit from the Ministry of Environmental Affairs — an authorization not one cement company has obtained so far — and there’s confusion over if or when this situation will change.

Egyptians Against Coal spokesman Ahmed Droubi told Al-Monitor the Wednesday announcement was just a news release and that no decree had been voted on.

On March 9, Trade Minister Mounir Fakry Abdel Nour and Cabinet spokesmann Hany Salah said the government would allow coal importation by September under strict environmental regulations.

Immediately after the March 9 announcement, Environmental Affairs Minister Laila Iskandar said no such deal had been made, and what was actually under discussion was a plan for an “energy mix,” not coal importation. Iskandar is showing no signs of backing down from her strong anti-coal stance.

On the face of it, this makes South Valley Cement’s investment look speculative at best and at worst worthless, unless something changes. But other cement companies are also anticipating legislative changes.

Trading house Beltone Financial reported plans by Qena Cement, Kuwait’s Kharafi Group, ASEC Engineering and Assiut Cement to set up a coal-importation company at the Red Sea port of Safaga in anticipation of a government decision. Qena Cement has put $14 million into the project.

Suez Cement chairman Omar Mohanna said on the sidelines of its April 1 annual general meeting that one of its factories is ready to use coal and others are only months away. All are just waiting on a permit.

At South Valley Cement, spokesman Tamer Abdul-Rahman refused to answer questions. The board members, which include two of Egypt’s largest Saudi investors, Abdul Rahman Sharbatly and Fahad Shobokshi, were unavailable for comment.

This flurry of deals, some suggest, means the government is quietly saying behind the scenes that a change in the law is a certainty. A source in the energy sector who asked to remain anonymous said the banks involved in the South Valley Cement deal would not have lent the company a cent if they weren’t sure the government would change the law.

“CIB is not an idiot. … They’re not making that kind of mistake,” he told Al-Monitor.

Pharos Research analyst Youssef Tawfick told Al-Monitor the lack of permits or a legal mechanism to use coal was irrelevant, saying, “The government is on their side, except of course the minister of environmental affairs. Basically, maybe they have some insider information from the government that they’re going to work on that.”

Former Finance Minister Medhat Hassanein told Al-Monitor he had never come across a deal where a bank financed a transaction not supported by an existing law, but added, “Financial institutions may consider some deals that will be implemented when a law is passed to legalize their action.”

The cause of this conflict is a shortage of cheap natural gas. By June of last year, cement makers were lobbying hard to import around seven million tons of coal to replace diminishing gas supplies, slashed by the government of President Mohammed Morsi from early 2013.

Cement association head Medhat Stefanos told Al-Monitor that by the start of 2014, production had been cut in half across the sector. Last year, he had said the industry would need between 18 to 27 months to prepare the infrastructure.

The Morsi administration also bumped natural gas prices from $4 per million British thermal units (mmbtu) to today’s $6 per mmbtu, which is still well below the regional price of $13 mmbtu, making coal an attractive option. Miqaty said South Valley Cement could import coal for $5.2 per mmbtu — a 13% yearly saving of $441,900 — a figure confirmed to Al-Monitor by the energy sector source.

Yet converting to coal will cost South Valley Cement $86 million, and Stefanos said on average, it costs between $14 million to $16.5 million per production line, underlining just how badly the industry wants a cheap, reliable fuel source.

Companies and banks wouldn’t invest these sums if they weren’t sure of the outcome, but if the environment ministry is aware it’s lost the fight over coal, it's not yet admitting that publicly.

Iskandar says that not only does coal have high health costs, but Egypt will be forced into depending on imported fuel when the country has renewable resources aplenty at home. She’s under heavy pressure to back down.

Habiba Ramadan, an environmental issues researcher for the Egyptian Center for Social and Economic Studies, told Al-Monitor the debate was being played out in the media instead of in official statements, with no public consultation.

"A committee of businessmen, they are lobbying the ministries. Laila Iskandar told us … they are lobbying her office and the Ministry of Trade and Investment every day,” Ramadan said. “This decision should be made with a bigger scope of stakeholders.”

Ramadan also asked why a sector with such a bad track record for environmental protection should be trusted to apply the standards promised by Nour and Salah. The French company Lafarge is already being prosecuted for reckless environmental practices around coal. Lafarge began illegally importing coal last year, leaving an uncovered “mountain of coal” in an Alexandrian port surrounded by a densely populated residential area, according to Mada Masr.­­­­­­­

Titan Cement and Arabian Cement Co. are also being investigated by the ministry for building coal-grinding mills.

An energy plan is expected in the next “few months,” the ministry's technical advisor Samir el-Mowafi told Al-Monitor. If coal is included in this plan, the ministry would provide permits for its use after being supplied with an environmental assessment.

For now, coal and its twice-as-polluting cousin, petroleum coke, are banned in Egypt as energy fuels. But the amount of money being spent in anticipation of coal’s arrival in Egypt, in addition to friendly statements from the government, suggests the embargo is unlikely to last.

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Found in: fuel, environmental issues, environment, energy, electricity shortages, egypt economy

Rachel Williamson is a business journalist based in Egypt. She covers regional energy and development issues. On Twitter: @rwilliamson_

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