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Abu Dhabi, UAEMonday 17 December 2018

Egypt’s energy crunch is next big test for El Sisi

'The impact of the electricity cuts ought to be something that concerns somebody in power because it could easily turn into something nasty,' warns HA Hellyer, a Middle East expert.
Mostafa Khaled, 20, studies by candlelight for his early morning exams during a power cut in Toukh, El Kalubia governorate, about 25-kilometres northeast of Cairo on May 26, 2013. Amr Abdallah Dalsh / Reuters
Mostafa Khaled, 20, studies by candlelight for his early morning exams during a power cut in Toukh, El Kalubia governorate, about 25-kilometres northeast of Cairo on May 26, 2013. Amr Abdallah Dalsh / Reuters

MAADI, EGYPT // Patrons of a cafe in this upscale district south of Cairo can afford to enjoy a luxury that many Egyptians only dream of amid worsening power outages: uninterrupted air conditioning.

Scorching summers combined with a nationwide energy crunch convinced the management at Beano’s to spend about Dh260,000 on a generator last year that allows patrons to comfortably sip macchiatos despite temperatures outside crossing 40°C.

Without it, the daily electricity cuts would halt the flow of chilled air and, in turn, customers, said the manager, Islam Hashem.

“This is our only solution,” he said. “But it’s an expensive one.”

For roughly half of Egypt’s 85 million people who live below or just above the poverty line, their options are to swelter through the outages and hope for a solution from their newly elected president, Abdel Fattah El Sisi or they could launch the sort of nationwide demonstrations that have toppled two presidents over the last three years.

Key to the solution is obtaining sufficient fuel supplies for Egypt’s power plants. With some estimates placing the country’s combined generating capacity at over 30,000 megawatts, they are quite capable of meeting the country’s peak-energy needs during the summer months of roughly 28,000 megawatts, if only they could find the natural gas to run them.

Locally produced gas is used to power most plants, but such production has fallen precipitously in recent years while the government struggles to find enough imports of the fuel to compensate. Mr El Sisi’s two predecessors, Hosni Mubarak and Mohammed Morsi, both failed to resolve the energy crisis, which experts say has been years in the making.

Mr Mubarak was forced from office after nationwide protests in early 2011, and Mr Morsi met a similar fate last July.

The outages first appeared in the summer of 2008, and by 2012 they were continuing into the winter months, feeding into the public anger that led to huge street demonstrations at the end of last June.

The prospect of another groundswell of protests likely weighs heavily on Mr El Sisi, despite winning last month’s election with more than 96 per cent of the votes cast.

Some say this strong show of support and backing from the armed forces gives the former military chief a strong mandate to tackle the country’s energy problems.

“The impact of the electricity cuts ought to be something that concerns somebody in power because it could easily turn into something nasty,” said HA Hellyer, a Middle East expert and non-resident fellow at the Washington-based Brookings Institution.

Egyptians appear ready to give Mr El Sisi the benefit of the doubt on the power issue, said Mr Hellyer. But he cautioned that “if the situation doesn’t improve fairly soon, then who knows, you might be looking at something next summer” in terms of public unrest.

But tackling the energy woes means wading into a virtual minefield.

There is the issue of how to end energy subsidies of US$17bn (Dh62bn) a year — consuming about a fifth of the country’s budget — without enraging a public that relies on them to make food and goods cheap, which is only possible if the price of the fuel used to produce them remains low.

Lifting the subsidies could free up cash to pay off debts to foreign energy firms, which Egypt’s state-backed oil company said last month had reached $5.9bn.

The government has struggled to pay back the money because of a weakening local currency and the cost of maintaining the energy subsidies. Foreign energy firms usually operate in joint ventures with local companies, providing them with investment in return for locally produced gas that they export to more lucrative international markets.

Most of Egypt’s electricity comes from natural gas, yet local production has been in steady decline over the years. Authorities, in turn, have begun forcing companies to divert gas intended for export to the local market to meet rising demand.

In January, BG Group, a British company, declared force majeure — a clause that excuses a party from meeting contractual obligations under certain circumstances — because of this measure that made it unable to meet the export commitments of its Egypt-produced liquefied natural gas (LNG).

Martijn Murphy, an analyst at the Edinburgh-based energy research and consulting firm Wood Mackenzie, said such restrictions and a lack of concrete plans to pay back debt may be scaring away crucial foreign investment in gas production. Combined with the country’s existing gasfields reaching maturity, this has contributed to a decline in local production to about five billion cubic feet per day from six billion before the 2011 uprising.

“It’s quite a drop-off in production and it’s at a time of increasing demand in the country, fuelled largely by these inefficient subsidies,” he said.

“But for gas producers, the likes of BG Group and others, the present circumstances have definitely slowed the investment process down because they’re less confident about the country’s investment climate.”

The UAE, Saudi Arabia and Kuwait have stepped in with billions of dollars of aid, including fuel oil that also can be used to run power plants, to prop up Cairo’s military-backed government.

That proved a crucial lifeline after Qatar suspended shipments of free petroleum aid to Egypt following Mr Morsi’s removal and the military’s crackdown on his Muslim Brotherhood organisation.

Mohamed Shoeib, former head of the Egyptian Natural Gas Holding Company, said such aid was important but not a long-term solution. He said Egypt “needs a comprehensive plan” that includes ways to dramatically reduce consumption, such as encouraging residential and commercial use of solar heating as well as energy-efficient light bulbs and appliances.

Justin Dargin, Middle East energy expert at Oxford University, cited campaigns in other countries that targeted air conditioners. That could go a long way in Egypt, where old-model air conditioners could be replaced with more efficient ones.

“There was a large increase in the use of air conditioners during the last decade of the Mubarak era,” he said, attributing this to relatively high economic growth that increased disposable income.

“That’s important for countries like Egypt. If you look at Thailand, it instituted a successful energy-efficiency programme in the 1990s that included the promotion of energy-efficient air conditioners that significantly reduced power demand.”

In April, Egypt’s trade, industry and investment ministry banned the import and production of air conditioners that can be set below 20°C. Authorities also have announced energy-awareness campaigns and power rationing at government institutions.

Officials also have raised the price of natural gas and secured a deal with a Norwegian firm for an offshore terminal to import LNG. Until now a gas exporter, the country lacks the LNG regasification facilities for import.

But that gas will not start flowing until after the summer, and the amounts of gas to be brought in from the Red Sea terminal also is not a long-term solution, experts say.

Officials at Egypt’s ministry of electricity and renewable energy declined to comment, saying non-Egyptian journalists had to receive special permission to conduct interviews with them.

For now, some Egyptians are looking for other ways to weather the outages.

Ali Essam, who runs a small hardware shop in Maadi, said customers had been buying fans with internal batteries. If the power shuts off, the batteries kick in for as long as four hours.

“You could definitely say there is a lot more interest in these fans this year,” said Mr Essam, who sells the units at $63 apiece.

But back at Beano’s cafe, the manger, Mr Hashem, said that only a generator could ensure that customers would remain cool during the outages.

“We have wealthy customers here, so we have to make sure the cafe is as comfortable as possible,” he said.

“But we’re fortunate because not everyone can do this.”

hnaylor@thenational.ae