EGYPT - The Egyptian Market & Expansion Plans.

Egypt's expanding population beyond 78m, particularly its swelling middle class, has led to a sharp increase in domestic demand for plastics. Some 1.5m tons/year (t/y) of polyethylene (PE), polyvinyl chloride (PVC), polystyrene (PS) and other plastics are consumed by the domestic market.

The Egyptian market for petrochemicals now is estimated to be worth about $5,000m/year, up from about $2,000m/y in 2005. Local supply meets less than a third of this. Most of the remainder is imported from countries with well-developed petrochemical industries such as Saudi Arabia, India and South Korea.

Given its abundance of gas feedstock, low cost base and proximity to the huge European and Turkish markets, Egypt has been forging ahead with a big expansion in petrochemical production capacity. One major reason for this in recent years was the fragmented nature of the local industry. Cairo in 2000 sought to remedy the situation by launching the 20-year PMP which should not only end Egypt's dependence on imports, but also turn the country into a global force for plastics production. The plan, prepared by ChemSystems of the UK (now part of the Nexant Group), aims to attract private/IOC participation in a programme to have 14 petrochemical complexes - comprising 24 projects, including three olefin complexes and some 50 production units - built by 2021. The government in 2000 said that, by the end of the plan, the 15m t/y of plastics should be worth to Egypt $7,000m/y in 2001 US dollars. It was said that the industry was to save Egypt about $3,000m/y in imports and earn about $4,000m/y in export income. The government expected about 10,000 jobs to be created by the programme.

Now, however, all the estimates have changed in view of the global developments. Apart from the rapidly rising costs, there are serious questions about the availability of feedstocks being produced locally. With so many demands being placed on Egypt's proven reserves of natural gas, many wonder if there will be enough feedstock available for the petrochemicals after meeting the needs of the domestic market and the gas export programme. The government had said in 2000 that one-third of Egypt's proven gas reserves should be kept for export, one-third for domestic consumption and one-third for the future generation. But in this the government is gambling on finding more gas.

Echem has a brief to encourage and support investors and to set up strategic alliances with local producers, offtakers and IOC shareholders. Projects are to be delivered by JVs between Echem and investors. In return for capital commitments, the government is offering incentives such as tax holidays, customs duty exemptions, up to 100% project ownership and repatriation of profits. Land has been reserved at six tax-free zones close to export facilities.

Echem's first task in 2000 was to split its investment plan into three, six-year phases. Phase-1, then estimated at $3,500m, was for of eight plants by 2008. Phase-2 was to see about $3,300m invested in 10 projects between 2009-15. Another $3,300m outlay was to be spent on nine projects for Phase-3, which was to run through 2016-22. But things have changed drastically in the past years. Beyond those already committed, no one in Cairo is able to tell which of Echem's projects will be executed and what the costs will be. Usama Kamal, Echem vice-chairman for planning and projects, in 2006 said costs for Phase-1 rose to $4,600m and that the eventual cost for the whole programme was to exceed $15,000m. Yet, the costs since then in Saudi Arabia, for example, have more than doubled. The different phases of the plan have proved to be a moveable feast.

There are no more rules, and the private sector (local and foreign) is in the front seat. If a developer comes along and wants to do a Phase-3 project now, Cairo would not think twice. The most penetrating criticism of the plan has been directed at the government's strategy to favour greenfield complexes over expansion of existing petrochemical infrastructure. The 225,000 t/y PE plant at Sidi Kerir could easily be expanded to 700,000 t/y by upgrading the two existing lines to produce 400,000 t/y and adding a new 300,000 t/y line. The operator of this plant, Sidi Kerir Petrochemicals Co. (Sidpec) which remains the only Egyptian producer of PE, has been a very profitable firm producing a high-quality item easily marketable in Europe; and yet it has been neglected. MEED in June 2007 quoted a foreign expert as saying. "The plant could be expanded to 700,000 t/y for a fraction of the cost of a new plant. So why is the government running after investors to build another one? Nobody can understand it".

Although Echem has established JVs for all eight of its Phase-1 projects, not everything has gone smoothly. The most advanced one, a plant to produce 100,000 t/y of linear alkyl benzene (LAB) near Alexandria, was in late 2005 valued at $350m. Now this is worth over $500m as it has been significantly delayed. The plant was initially set to start-up in mid-2006. Start-up in early 2006 was scheduled for end-2007. But now this is set for the first quarter of 2008. The delays are the result of a decision early in the project to place the engineering, procurement and construction (EPC) contract with a JV of Engineering for the Petroleum & Process Industries (Enppi) and Petrojet (PTJ), both affiliates of EGPC, without putting it out to open tender. The result was that the price came in above Echem's budget. Echem later tendered the job to bring the cost down. But it negotiated with only one group - LG Engineering & Construction of South Korea. Delays to this and the other projects were also caused by frequent changes to the key decision-makers at Echem.

The first of Phase-1's projects to come on stream was a $70m acrylic fibre complex, in which Aditya Birla Group of India is the foreign partner: first product was shipped in late 2005.

Phase-2 projects will include plants to produce styrene, polyester, latex and additional methane. One of advanced Phase-2 projects is $1,500m aromatics complex to produce 500,000 t/y of benzene and 500,000 t/y of xylene from naphtha sourced from Alexandria and Suez. This is now set of be on stream in 2011, instead of 2010.

In parallel with Echem's PMP, Egas has a master plan to raise production of natural gas to 7,000 MCF/day by fiscal 2009/10. Availability of feedstocks vital to Echem's sector was in 2005 set to rise from 1,400 tons/day of ethane to 8,000 t/d; 750 t/d of commercial propane to 4,355 t/d; and 3,200 t/d of butane to 3,450 t/d. Production of condensate was to remain stable at 90,000 b/d through to 2009/10.

Egyptian Petrochemical Trading Co. (EPET Trading) was set up in late 2006 by Echem to trade in Egyptian and foreign-produced petrochemicals and eventually own Red Sea and Mediterranean terminals. Echem took a small stake and the rest came from local and international investors. The funds were to be used to finance its equity stakes in Phase-1 and Phase-2 projects, including Echem's acquisition of Sidpec. Sidpec's complex outside Alexandria had been producing 300,000 t/y of ethylene and some LLDPE since 2000. Now Sidpec is to add to its capacity, with a butidene unit and expansion of the LLDPE plant. ABB Lummus Global was in late 2007 doing an ethane revamp study for Sidpec.

Agrium of Canada in late 2004 formed a JV with Echem - EAgrium - to have a 1.2m t/y ammonia/urea plant built at Damietta in a project then valued at $700m. But this was delayed, first pending a feedstock agreement and later because of financing problems. By June 2007, the project's cost had risen to $1,500m. In November 2007, it was said the project's engineering, procurement and construction (EPC) contract was being done by a partnership of Uhde of Germany and the local ENPPI and PTJ, with the start-up date set for the first quarter of 2010. But now it is said the project will take longer to complete.

Oriental Petrochemicals Co. (OPC), a private Egyptian firm, in partnership with Echem and Eurochem of Singapore, were in mid-2007 reported to be set to sign an MoU on development of a major petrochemical JV using leading-edge methane-to-olefins (MTO) technology. By then Echem had completed in-house pre-feasibility studies for a then estimated $1,700m PE plant to be built using the technology. Start-up of the 750,000-1m t/y complex was planned for 2011. Owned by UOP of the US, the technology would convert methane to ethylene and propylene. These olefins can then be processed to form PE and polypropylene (PP). They are the two main polyolefins which together account for more than 50% of the plastics consumed worldwide.

Egyptian Propylene & Polypropylene Co. (EPPC), 50:50 JV of OPC and Echem, has a 400,000 t/y propane dehydrogenation (PDH) and polypropylene (PP) project to be built near Port Said. The complex will feed a PP plant of the same capacity. Feedstock is to be supplied by Union Gas Derivative Co. (UGDC), a JV of BP Egypt and ENI of Italy.

South Asian Petrochemicals of India and Echem were in mid-2007 negotiating a JV to build a 310,000 t/y polyester plant at Damietta. The project, then valued at $100m, was to be part of Echem's Phase-2. South Asian Petrochemicals was to hold 70%, with the rest to be held by Echem, ENPPI and PTJ. A formal agreement was to be signed by end-2007.