21 October 2015       Download

The founder and chairman of Qalaa Holdings supports the Central Bank’s policies of gradually floating the Egyptian pound and called for the adoption of an integrated plan to improve the country’s energy security system

Egypt’s economy has seen significant improvements in the last period, mainly on the back of political stability and the government’s success in redressing its energy supply problems, said Ahmed Heikal, the founder and chairman of Qalaa Holdings, an African leader in infrastructure and industry.
Speaking at the recent Akhbar Al-Youm Economic Conference in Cairo, Heikal noted that improvements in streamlining energy supplies were made possible by raising prices on industrial projects, settling arrears with international energy companies and promoting upstream oil and gas exploration.
Heikal said the government’s efforts have culminated in the recent announcement of Italian energy company Eni’s discovery of the offshore Zohr natural gas field, which he described as a “game changer in the medium term that is likely to open the way for new discoveries in the Mediterranean, given the geology of the surrounding area.”
“Some of the challenges facing the Egyptian economy are a reflection of the challenging conditions and economic slowdown regionally and globally. Egyptian exports have been adversely affected, a fact that — among other factors — has exacerbated the foreign currency crisis and led to higher inflation due to diminishing inventory levels and rising costs of services,” he said.
The chairman of Qalaa Holdings also highlighted the challenges facing foreign direct investment in Egypt, most notably the government and central bank’s abstention from issuing foreign currency guarantees for independent energy projects — an abstention that he praised, arguing that hastily issued guarantees could have exacerbated the foreign currency crisis.
Heikal also voiced his support for the bank’s policy of allowing a gradual devaluation of the Egyptian pound against the US dollar. He said there are two different schools of thought when dealing with an exchange rate crisis: gradually devaluing the currency, or floating the currency and determining its value based on the market. However, the second option is problematic in Egypt’s context, he said, due to uncertainty over just how much the pound will devalue if left to the market, given the current backlog of demand stemming from stalled letters of credit, dividend distribution and the repatriation of foreign profits.
During the afternoon’s headline session on energy policy reform, Heikal spoke of the need to improve energy security by locking in supply and improving efficiency.
“A durable economic recovery demands that we stay the course on tough energy reforms that ensure industry and households alike have the energy they need to thrive, while taking into account the needs of the poor,” Heikal said. “To anchor the conversation: the rate at which Egypt, as an economy, converts energy into GDP is poor — nearly half the rate at which Turkey does the same.”
With a GDP of c. USD 285 billion, Egypt consumes c. 80 million tons of petroleum products annually, resulting in c. USD 3,560 in output for every ton of product consumed. Contrast that with Turkey, he said, which generates USD 800 billion in GDP by consuming about 120 million tons of product annually — or about USD 6,667 per ton of product consumed. That’s an 87% efficiency advantage in converting energy into GDP, he said.
“The question isn’t why Turkey is so much more efficient in harnessing this key natural resources — it’s why we’re so inefficient. And the answers are simple: our electricity-generation infrastructure is incredibly inefficient, as are our refineries. We take advantage of neither the Nile River nor of railways as means of shipping goods. We have, for decades, mis-priced energy for industry. The energy subsidy program has encouraged wasteful consumption while disproportionately benefitting the wealthy. We have under-invested in mass transport and do not insulate our buildings.”
Heikal concluded by emphasising the need for an integrated plan to rationalize energy consumption implemented over 15 to 20 years. “The question here is whether we have the will and determination to adopt more efficient practices to solve the demand side of the equation at the same time as we promote new exploration to address to supply side,” he said.
The energy sector is one of Qalaa Holdings’ core areas, with investments in energy distribution and electricity generation (TAQA Arabia) and oil refining (Egyptian Refining Company, the largest private-sector project currently under construction in Egypt), in addition to waste conversion and alternative fuel projects (Tawazon) and storage and trading petroleum products (Mashreq).