Corruption in Egyptian Extractives Industry

Several corruption cases have marred the Egyptian oil and gas industry over the years, according to the Business Anti-Corruption Portal.

=Within the Ministry of Petroleum= An Egyptian court sentenced former oil minister Sameh Fahmy to 15 years in prison in June 2012 for corruption and squandering public funds, according to Reuters. The court found Fahmy to be involved in a scheme which sold gas at preferential rates to Israel and other countries, costing Egypt billions of dollars in lost revenue. At the time of Fahmy's sentencing, ten other petroleum ministry officials also received jail terms of between three and 10 years and fines totalling 2.5 billion Egyptian pounds (US$412.47 million).

Daily News Egypt reported in March 2013 that Fahmy's case would return to court after the Court of Cassation ordered the retrial for both Sameh Fahmy and Mubarak-era business tycoon Hussein Salem in the Egypt-Israel gas case. Salem and Fahmy submitted appeals against their original convictions.

Salem, a founding shareholder of East Mediterranean Gas Company (EMG) which supplied Israel with gas from June 2008, was accused of collaborating with EMG to profiteer from gas deals with Israel. Salem was described by ex-justice minister Abdel-Aziz El-Guindi, according to Ahram Online, as the man who holds "the keys to corruption in Egypt."

The EMG Contract
Under the 20-year contract signed in 2005 between the Israeli-Egyptian EMG and the state of Israel, up to 1.7 billion cubic metres a year of Egyptian gas was to be delivered by pipeline to southern Israel at a maximum price for the first 15 years of US$1.25 per million British thermal units (btu). However, by the time the gas started flowing in 2008, international prices were at least three times higher. The direct cost of exporting the gas had risen to an estimated US$2.56 per million btu. In early 2009, an Egyptian court ordered the exports halted, but it was overruled by a higher court.

In 2010, EMG signed a new contract valued at US$19 billion, boosting the exports to 6 million cubic meters a year or about 40 per cent of Israel's total gas demand. Dissatisfaction over the terms of the controversial Israeli deal has led to multiple bombings of the natural gas pipeline to Israel and Jordan.

=Within EGPC and other oil and gas companies= The Egyptian General Petroleum Corporation (EGPC) was hit by a bribery and information leak case in 2007, according to Egypt Oil & Gas, where six EGPC officials were convicted on charges of disclosing secret information to clients and giving them special advantages in EGPC bids in return for money and gifts. Several other oil and gas companies have been involved in corruption cases. For example Petrogas was investigated for importing defect gas valves, and Al-Nasr Petroleum Company and Petroleum Marine Service Company both saw top officials charged with being paid LE 2 million in bribes by companies as kickbacks for information on pricing lists in bids or the acquisition of contracts.

=In the fuel subsidy scheme= A report released in March 2012 by Global Partners & Associates identified fuel subsidies as a significant source of corruption in Egypt. Almost US$16 billion in subsidies go to fuel, which, according to the report, provides ample opportunities for corruption. But a lack of accurate data and audit systems makes an estimation of the true scale of corruption in this area difficult.

=Revenue Transparency in the Hydrocarbon Sector= Revenue transparency in the Egyptian hydrocarbon sector is limited. National contracts with international oil companies (IOCs) are managed by the state hydrocarbon ministry and licenses also require legislative ratification before they can be approved. Despite these measures, there is no requirement to publicize details of contracts while they are moving through the approval process. Contracts with IOCs are reached through open bidding as well as negotiated deals, the latter providing more opportunities for corruption.

A report published jointly by Transparency International and the Revenue Watch Institute notes that, of the major IOCs operating in Egypt, including BP, BG, Eni, INPEX, KPC, Lukoil and Petronas, none provide country-specific information on payments to governments for oil- and gas-related activities. This is in contrast to firms listed in the U.S., which are now required by law to disclose such information.

=References=