Document of The World Bank FOR OFFICIAL USE ONLY FII I I1PV Report No. 2435-EGT STAFF APPRAISAL REPORT GULF OF SUEZ GAS PROJECT EGYPT May 30, 1979 Petroleum Projects Division Energy, Water and Telecommunications Projects This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS LE 1.0 = US$1.44 LE 0.69 = US$1.00 LE 1,000,000 = US$1,440,000 WEIGHTS AND MEASURES 1 Metric Ton (mt) = 1,000 Kilograms (kg) 1 Metric Ton (mt) = 2,204 Pounds (lb) 1 Metric (m) = 3.28 Feet 1 Kilometer (km) 3 0.62 Miles 1 Cubic Meter (m3) = 35.3 Cubic Feet (cft) 1 Barrel (BBL) = 0.159 Cubic Meter 1 Metric ton of Oil (API 30) = 7.19 Barrels 1 kilocalorie (kc) = 3.97 British Thermal Units (BTU) I Ton Oil Equivalent (Toe) = 10 Million Kilocalories (39.7 Million BTU) Mcf/d = Thousand Cubic Feet per Day MMcf = Million Cubic Feet BPD = Barrels per Day MW = Megawatt (1,000 Kilowatt) PRINCIPAL ABBREVIATIONS AND ACRONYMS USED ARE - Arab Republic of Egypt EGPC - Egyptian General Petroleum Corporation GUPCO - Gulf of Suez Petroleum Company PPCO - Petroleum Pipeline Company SOPCO - Suez Oil Processing Company WEPCO - Western Desert Company PETROBEL - Belayim Petroleum Company LPG - Liquefied Petroleum Gas NGL - Natural Gas Liquids API - American Petroleum Institute COPE - Cie. Orientals des Petrole D'Egypt GPC - General Petroleum Company FISCAL YEAR January 1 - December 31 This report has been prepared by V. Nayyar, H. Schober and I. Zurayk of the Energy, Water, Telecommunciations and Department. FOR OFFICIAL USE ONLY EGYPT1 GULF OF SUEZ GAS PROJECT STAFF APPRAISAL REPORT TABLE OF CONTENTS Page No. I. THE ENEGY SECTOR ...... ............................... . 1 Introduction ....... .................................. 1 Energy Balance .................................................. 1 Sources of Energy .. . . ............. ... ...... . ....... . 2 Pattern of Energy Use ............. . 6 Energy Sector Planning ........ . . ........ .............. . . . . 6 II. OIL AND GAS SECTOR ....... ...................... ........ . 7 Background ................................. ............ 7 Oil and Gas Bearing Structures ....................... 7 Exploration Policy ..................... .............. . 8 Exploration Agreements ................................ 9 Production Sharing Agreements ..... . .................... 9 Exploration Plan ...... ................ ......... ....... 9 Current and Anticipated Level of Oil Production . . .............. 10 Refining, Transportation and Marketing ................ 11 Refining Capacity ................. 11 Transportation and Marketing ..... ..................... 12 Consumption Pattern ............. ....... ........... 13 Prices and Fiscal Contribution of the Sector ...... . ..... ................................. 15 Natural Gas ............ . ..... .......................... 16 Proposed Investment in Petroleum Sector .. ............. 18 Issues and Recommendations ........................... 20 III. THE BENEFICIARY ............................................ 22 History ...... .. 0.....0.. . ...00..... 22 Statutory Functions ....... ............................ 22 Capital Structure .. ................................... 23 Organization and Management . . . ........................ 23 Functional Structure . . . . ......................... . 24 Accounts and Audit .................................... 25 Insurance . ........................................... 26 IV. THE PROJECT ............................................... 26 Objective of the Project .............................. 26 Gas Supplies and Reserves ............ .. ............... 27 Status of Project Preparation ........... .. ............ 29 Description of the Project ............ .. .............. 29 Implementation ........................................ 32 This document has a restricted distribution and. may be used by recipients only in the performance of their omcial duties. Its contents may not otherwise be disclosed without World Bank authorization. TABLE OF CONTENTS (Continued) Page No. Project Cost ......................................... 33 Project Financing Plan ............................... 34 Market ............................................... 35 Procurement .......................................... 35 Allocation and Disbursement of the Bank Loan .......... 36 Project Risks ........................................ 36 Training ............................................. 37 Ecology and Safety ................................... 37 Schedule and Reporting ............................... 37 V. FINANCIAL ASPECTS ......................................... 38 Introduction .......................................... 38 EGPC's Past Financial Performance and Present Situation .......................................... 38 Income ............................................... 38 Exports .............................................. 38 Domestic Sales ....................................... 38 Appropriation of Surplus and Financing Investment .... 40 Financial Practices .................................. 41 EGPC's Future Financial Prospects .................... 42 Project Cost and Benefit ............................. 42 VI. ECONOMIC ANALYSIS ......................................... 44 Project Justification ................................ 44 Rates of Return and Sensitivity Analysis .... ......... 45 VII. RECOMMENDATIONS ........................................... 46 ANNEXES 1.01 Existing Steam and Gas Turbine Power Units 1.02 Steam and Gas Turbine Units under Contract 3.01 EGPC Organization Structure 3.02 Functional Structure of Oil Industry 4.01 Estimate of Gas Availability from the Gulf of Suez 4.02 Estimated Schedule of Disbursement 4.03 Summary of Project Costs 4.04 Gas Processing and Transmission Master Schedule 5.01 EGPC and Sector Accounts (4 pages) 5.02 Statements of Income (6 pages) 5.03 Notes and Assumptions on Financial Statements 6.01 Project Economic Analysis (2 pages) Maps IBRD 14056 - Gulf of Suez Area IBRD 14294 - Egypt's Pipeline Network I. ENERGY SECTOR Introduction 1.01 Energy prospects in Egypt have improved significantly over the last decade. With the commissioning of the Aswan High Dam, Egypt harnessed most of its hydroelectric potential. Successive increases in oil production have made Egypt, in turn, self-sufficient and an exporter of oil. Currently, Egypt is viewing oil as a major source of foreign exchange earnings during the eighties. Gas finds have further strengthened the energy base and increased the export possibilities of oil. In 1977, petroleum provided 70% of Egypt's commercial energy and its exports accounted for 25% of the foreign trade earnings. Cur- rent economic and industrial plans assume the continued availability of this resource. 1.02 Whereas Egypt is currently a net exporter of energy, it is not endowed with a particularly plenteous energy base. Hydropower, which in Egypt is synonymous with the River Nile, has been harnessed to the extent of 80%. Coal deposits in marginal quantities exist but are not presently considered economic to mine. Solar energy, though available in abundance, must await a series of technological breakthroughs before it can be considered for exten- sive application. Hydrocarbons appear to be the only primary source which can sustain Egypt's incremental demand for energy. While Egypt can view the current level of oil production with satisfaction, its known endowment in oil is not too high, being only about 0.4% of the world resources. Its major oil fields are likely to peak in early eighties. With burgeoning demand for hydrocarbons on the one hand and the prospects of reduced productivity from existing oil fields on the other, Egypt would need to redouble its exploratory efforts in case it hopes to maintain its present status as exporter of energy over the next decade. It would in addition require to increase the economy's absorptive capacity for nonassociated gas and devise ways and means for uti- lizing associated gas currently being flared. Energy Balance 1.03 The main sources of primary commercial energy in Egypt are hydro- power and petroleum. While coal deposits have been discovered in the Western Desert and the Sinai Peninsula, they are not currently being extracted. As in other developing economies, non-commercial fuels in the form of crop residue and animal waste, are in extensive use but no data is available in regard to its magnitude. A recent study estimates energy produced by non-commercial fuels at around 5 million tons of oil equivalent, which would be about one- third of the total commercial energy used. On the basis of energy consumption, production of oil and generation of hydropower, an attempt has been made in the table below to estimate Egypt's energy balance (commercial) in terms of oil equivalent for 1977: - 2 - ENERGY BALANCE 1977 (thousands tons oil equivalent) Production Consumption Crude Oil /a 20,900\, Coal /b 800 Hydroelectricity 2,600 Refinery Losses 500 Natural Gas 440 Petroleum Products 8,800 Hydroelectricity /c 2,600 Total Availability 23,940 Natural Gas /d 440 Total Domestic 13,140 Consumption Exports (Net of Imports) Ie Coal (800) Crude Oil /f 9,800 Petroleum Products 1,800 Total Exports 10,800 Sources of Energy The major existing and potential sources of primary energy are indicated below: (a) Oil and Gas 1.04 Hydrocarbons are a predominant source of commercial energy in Egypt. While production of oil in Egypt commenced in 1913, it was not until after 1968 that oil production exceeded 10 million tons. In 1978, against an estimated domestic consumption of about 10 million tons, the production level was around 500,000 barrels a day (25 million tons per annum) and the recoverable reserves are estimated at around 2.5 billion barrels (350 mil- lion tons). Associated with production of oil, gas to the extent of 100 mil- lion cubic feet a day (MMcf/d) is expected to be produced in 1979, which, but for a nominal oil field use, would be flared. Four non-associated gas fields /a Consisting of Egypt's share of production of 15.7 million tons and foreign partners share of 5.2 million tons. /b Estimated. Used largely to meet metallurgical requirements. /c Conversion factor 1000 KWH = 0.286 tons of oil (assuming 30% efficiency). /d 40,000 tons of gas purchased from partners. /e Includes stock change. If Consists of 4.6 million tons (net) of exports by Egypt and 5.2 million tons of exports by foreign partners. - :3 - have been discovered which cumulatively have recoverable reserves of 3.5 trillion cubic feet. Egypt is currentLy planning to use associated gas and develop nonassociated gas which, when iEully exploited, would annually replace liquid hydrocarbons to the extent of 4 million tons. (b) Electric Power 1.05 Electricity was first introduced in Egypt in 1895. Up until the 1950's, electric facilities were confined to major population centers. Power was generated through isolated diesel and oil fired generators and the total generating capacity available in 1952 was only around 100 MW. While genera- tion facilities increased thereafter, no national or regional grid existed; and for several years after the first generating capability had been created at Aswan, it operated as an isolated station supplying power to Upper Egypt and the fertilizer unit at Kima. 1.06 The first major power station in Egypt was set up at Aswan Dam. This Dam, which is located at the first cataract of the River Nile, was built in 1902, and raised successively in 1912 and 1933. The original purpose of the Dam was to provide flood control and irrigation and it was only in 1960/61 that it was equipped with power generating capabilities. The initial installed capacity of this hydro station was 345 MW. Between 1960 and 1970, the Aswan High Dam was completed seven miles upstream of the Aswan Dam. This Dam is equipped with 12 Francis type 175 MW hydraulic turbines giving it a total nameplate rating of 2100 MW. The operational capabilities of both the Aswan Dams is severely constrained by conflicting irrigation needs and transmission system reliability. As such, the dependable generating capacity of both these plants is currently being assessed at 1566 MW, capable of generating annually, 9 billion kWh. The untapped power potential of the River Nile consists of a 60 meter drop from Aswan to Cairo and from which 350 MW could possibly be realized with the extension of the Aswan High Dam and by adding generating facilities in three existing barrages at Nag Hammadi, Esna and Assiut. The other possible sites are in the nature of pumped storage schemes on the high plateaus; but they would only become viable if operated in conjunc- tion with nuclear plants. The Qattara depression is the only other hydropower possibility. It would, however, involve canalizing water from the Mediter- ranean Sea to the depression (which extends 135 meters below sea level) and using the 60 meters descent to generate power. Estimated power capability of this project would be 640 MW during the first 12 years and 340 MW thereafter. However, construction of the proposed canal would require massive excavation (equal to about 40 times the volume required for the Aswan High Dam), and it is doubtful if this project could be viewed as a serious possibility over the next 20 years. 1.07 Whereas hydro capacity exists exclusively in Upper Egypt, most of the thermal power facilities have been established near the major load centers in Lower Egypt. These are in the form of steam power stations and gas turbine units having a dependable generating capacity of 919 MW and 236 MW respec- tively (Annex 1.01). In 1977, total gross generation was of the order of 13.5 billion kWh, of which two-thirds was through the hydro system. The hydropower - 4 - in Upper Egypt and the thermal power in Lower Egypt are interconnected by 500 kv lines running from the High Dam to Cairo over a distance of 788 kms. This is integrated into a unified power system through 230,132, 66 and 33 kv trans- mission lines and a distribution network of 11 kv lines functioning on a systems frequency of 50 H2. 1.08 The energy needs of Egypt are projected to rise rapidly and, in 1984, the net generation is expected to be about 29 billion kwh with a system requirement of about 4,600 MW. In addition to the existing reliable capacity of 2,721 MW, an additional 1,925 MW of steam units and 411 MW more of gas turbine units are under contract and are expected to be in operation by 1983 (Annex 1.02). These units would be just adequate to meet the anticipated require- ments up to 1984, beyond which shortages are anticipated. The Egyptian Electricity Authority (EEA) is accordingly considering in terms of adding a 1,500 MW fossil fuel capability between 1983 and 1986 and commissioning four nuclear power plants having a combined capacity of 1,800 MW between 1987 and 1990. The addition of generating capacity in this magnitude along with the necessary transmission and distribution facilities would call for substantial investment, which for the period 1978-86 is estimated at about $10 billion. (c) Oil Shale and Coal 1.09 Oil shale deposits have been located in the Sinai Peninsula and around the Gulf of Suez. These deposits are only 10 to 15 feet in thickness and although a systematic survey has been undertaken, no estimates of reserve have been made. The available data indicates that shale is of poor quality having low hydrocarbon content and, as such, is not being considered as a possible energy resource. Coal deposits have been discovered in the Western Desert and in the Maghara anticline of the Sinai Peninsula. Total reserves are estimated at around 100 million tons of which only the Maghara deposits are considered recoverable to the extent of 35 million tons. However, these reserves are considered too small to be used for power generation. Further- -more, as this coal is not considered to be of coking quality, it would need to be blended with imported coal up to 75% before it can be utilized for metal- lurgical purposes. The other coal deposits have either not been characterized or are too poor to warrant economic exploitation. (d) Nuclear Fuel 1.10 No uranium or thorium is currently being produced in Egypt. Exten- sive areas have, however, been covered by airborne surveys for radio activity and more than 7,000 anomalies have been identified. However, prospecting and ground radiometric work has been conducted on only 50 anomalies in the Qatrani, El Erediya, Missikat and Atshan areas. No discovery has been made on the basis of this survey. Geological conditions, however, appear favor- able to the finding of uranium deposits but the matching of anomalies in the geologically favorable areas would need to be undertaken. Even if pros- pecting activities are accelerated, it appears doubtful if Egypt would be in a position to mine and extract nuclear fuel during the eighties. -5- (e) Solar Energy 1.11 Egypt has a vast potential for solar energy. Direct daily solar intensity is 350 calories/square centimeter in winter and about 710 calories/ centimeter square in summer. In relation to the sunniest region in the United States (Albuqilvrque), northern Egypt receives 12.5% more of direct solar in- solation and southern Egypt 70% more. Clouds and sand storms are the main causes of obstruction to direct solar insolation but their adverse effect does not exceed 4%. (f) Geothermal and Wind Energy 1.12 Only limited information is available in regard to the existence of geothermal energy as only a few geochetmical and heat flow measurements have been made in Egypt. There is no evidence to indicate the existence of high temperatures (greater than 200 C) vapor dominated system. Only a few water wells and natural springs yielding water at temperatures between the range of 40 to 60 degrees centigrade have been discovered. However, the possibility of discovering geothermal sources having a temperature of about 150 degrees centigrade are considered good. These low and intermediate temperature geo- thermal waters, cannot be used for generating power though they could con- ceivably be deployed for meeting the domestic and commercial requirements. Only two areas of Egypt, namely the Mersa Matruth region in the Mediterranean Sea and the Horghada region in the Red Sea, have recorded average wind speed high enough (around 20 km/hr) to warrant further investigation for the devel- opment of wind power generation. (g) Non-Commercial Energy 1.13 Currently no data base exisits for quantifying the extent of non- commercial energy use in Egypt. It is, however, apparent that this form of energy constitutes a significant proportion of the total energy use, specially in the rural areas. Egypt, however, is not too well endowed in biomass. Only 2.7% of its territory is under permanesnt or seasonal crops, the rest being desert or areas covered with dry or extremely arid vegetation. There is only a nominal area under forests and, therefore, crop residues and animal wastes are the main sources of non-commercial energy. According to a recent esti- mate, this form of energy currently caters to one-third of Egypt's total energy requirements. As in other developing countries, the level of util- ization of animal and vegetable wastes is very high though the end use effi- ciency is low; and typically of the order of 10% to 15%. While the use of non-commercial fuel is likely to increase over time, its relative share is anticipated to decline rapidly. Rural households are gradually replacing non-commercial fuels with kerosene, LPG and electric power and this trend is likely to strengthen over the next twenty years; more so, as the major source of non-commercial fuels will continue to be crop residues and is not likely to keep pace with the rising rural demand. Considerable potential, however, exists for upgrading the end use efficiency through the adoption of improved appliances. -6- Pattern of Energy Use 1.14 Estimates in regard to current end use of petroleum products, natural gas and electric power, and the pattern as is likely to emerge in 1985, is given in the following table. The major shift in end use consumption relates to increased quantities of oil and natural gas being diverted for power gene- ration. With rapidly rising demand for power, specially by the industrial sector, and on account of limited hydro potential, Egypt would need to rely largely on oil for power generation. Petroleum products Natural Gas Electricity 1000 Tons 1000 Tons Million kwh 1975 % 1985 % 9.975 % 1985 % 1975 % 1985 % Industry & Commerce 2,650 36 3,500 18 37 100 1,375 46 4,822 58.2 18,114 64 Agriculture 350 47 850 4 666 8.0 893 3.2 Transport 1,560 21 4,700 24 Nominal - Nominal - Electricity 1,130 15.3 5,800 30 1,600 53 - - - - Domestic 1,300 17.5 3,000 15.5 25 1 1,976 23.8 8,006 28.2 others 398 5.5 1,650 8.5 _ _ _ 830 10 18 4.6 7.388 100.0 19,500 100.0 37 100 3,000 100 8,294 100.0 28,31 100.0 Energy Sector Planning 1.15 A joint assessment of Egypt's energy resources and planning was conducted during March-July 1978 by a US team of experts under the management of US Department of Energy in collaboration with Egyptian management and tech- nical officials. The binational team assessed Egypt's energy resources to the year 2000 and the energy demand and supply options which are now or will be available to Egypt by that time. A report setting out several major observa- tions that can be drawn from the assessment was distributed in December 1978. Major issues are the gaps and inconsistencies present in Egypt's current energy and related planning and the lack of an adequate planning data base. In addition, the report points out the need to strengthen Egypt's current ability to expand its energy supply capacity and Egypt's needs for continuing assistance in establishing a comprehensive energy planning capability and in preparing and implementing these plans effectively. To firm up these efforts, the Bank has agreed with the Government in the context of the proposed Shoubrak El Kheima Power project which is scheduled for consideration by the Executive Directors on June 19, 1979 to establish not later than December 31, 1979 an Inter-Ministerial Coordinating Committee on Energy to follow up on the work initiated by the Egypt/United States joint energy assessment team. Specific tasks to be assigned to the Committee would be: (a) take the lead responsibility and authority for integrated energy planning activities in Egypt; (b) promote the active participation of the agencies that are responsible for planning in various sectors of the economy; (c) coordinate the involvement of economic, finance and budget agencies in the energy planning activity; and (d) establish a structured process for policy level reviews of the final product of the energy planning activities. The new Committee would supersede and expand the functions assigned to the Ministerial Committee on Energy created under Prime Minister Decision No. 252 of October 26, 1974. II. OIL AND GAS SECTOR Background 2.01 Oil seepage was noted as early as the Roman times in the Gulf- of Suez. Though the first well was drilled in 1886, oil exploration was not taken up on a systematic basis till the turn of the century. The first oil field was discovered in 1908. So far, 39 commercially exploitable oil and gas fields have been discovered in Egypt having recoverable reserves of 530 million tonnes of oil and 3.5 trillion cubic feet (cft) of gas. As most of the Egyptian oil fields have been producing over a considerable time, the remaining recoverable oil reserves as of the present are estimated at 350 million tonnes. Oil and Gas Bearing Structures 2.02 The main oil and gas bearing zones in Egypt are: (a) Gulf of Suez: This, 320 km arm of the Red Sea between the Eastern Desert and Sinai Peninsula comprising of about 20,000 sq. km has been most extensively explored and has yielded the most prolific results. Geologically, it is believed that Miocene shales transgressed over the pre- Miocene faults to form oil reservoirs. More than 300 exploratory wells have been drilled in this area (including about 80 which are either offshore or on islands) resulting in the delineation of 28 oil fields. Currently, more than 90% of Egypt's oil is produced from the Gulf of Suez. (b) Western Desert: This prospective zone covers an area of 650,000 sq.0km and extends from the Mediterranean coast to latitude 25 N and its eastern boundary is bounded by the Nile Delta. It has been extensively surveyed and more than 200 exploratory wells have been drilled. The success ratio attending this extensive exploration has been low and so far only 7 commercial discoveries of oil and/or natural gas have been made. Oil has been discovered in limestone and Cretaceous reservoirs and the recoverable results estab- lished so far, are 30 million tons of oil. In addition, gas fields, cumulatively having reserves of more than 1.6 trillion cft have been discovered at Abu Gharadig and Abu Qir. Despite limited success, hope of making a major strike still persists as giant fields have been discovered in similar structures in the neighboring countries. (c) Nile Delta: Geologically, the Nile Delta forms a part of the upper tertiary basin of the Miocene and Pliocene structures, covers an area of about 50,000 sq km and so far 50 explora- tory wells have been drilled. No oil has been discovered though four gas fields have been found of which only one, Abu Madhi, is considered commercially exploitable. The pos- sibility of making further gas discoveries in the Nile Delta is assessed as high by the Egyptian General Petroleum Cor- poration (EGPC). Mobil and Esso, through a production shar- ing agreement, are currently engaged in exploratory drilling in the offshore areas of the Delta. Exploratory drilling has also been undertaken in the Red Sea and in the Nile Basin but with no success to date. Exploration Policy .2.03 For exploration, development and production of oil, Egypt has consistently followed an 'open-door policy' and almost all exploration and production work undertaken within the country has been through foreign oil companies. 1/ Prior to 1938, exploration and production of oil was exclu- sively with the Anglo-Egyptian Oil Company, an affiliate of British Petroleum and Shell. Immediately after the World War, Esso, Caltex and subsequently Ente Nazionale Idrocarburi (ENI), Philips Petroleum and Amoco were granted 'Concessions' to explore the Western Desert and the Gulf of Suez. However, as of 1973, the Government of Egypt has made a conscious effort to invite foreign companies and since then 53 exploration and production agreements have been entered into for an area covering about 160,000 sq km (Annex 2.01). 1/ The only exception is the General Petroleum Corporation (GPC) - a fully-owned subsidiary of EGPC, which was formed, after the Anglo- Egyptian Oil Company was taken over. -9- Exploration Agreements 2.04 History. The nature of exploration agreements have seen the usual transition from the 'Concessions' of the pre-1960's, to the participation agreements which were subsequently converted into production sharing agree- ments. Undce the concession arrangements, the government would impose royalty and tax on the oil companies, provided the tax, etc., did not exceed the oil companies', net of cost realization (which were computed on the basis of a posted price) by more than 50%. In 1963, the Government of Egypt for the first time entered into a participation agreement with the ENI whereunder the costs of exploration and development were shared equal:Ly between the for- eign contractor and the national oil company. The profit oil was also shared equally, with the Government reserving the right to tax the foreign contrac- tor to a maximum level of 50% on his share of profit oil. By this device, the level "Government take" was increased significantly over the earlier concession arrangements. Production Sharing Agreements 2.05 In 1970, following the Indonesian model, the Government of Egypt entered into the first production sharing contract. Under this agreement, the cost of exploration and development was to be borne exclusively by the foreign contractor and amortized, interest-free over the next 4 and 8 years respec- tively. After taking into account amortization, and also the operating cost, the profit oil was to be shared between the foreign contractor and the Govern- ment in the ratio of 40:60. In successive agreements, Egypt has improved upon these conditions and currently some agreements have been concluded in which Egypt's share in the profit oil has been negotiated at 87%. Furthermore, a minimum cost recovery factor is assumed at 20% and in the case of costs falling below this level, the difference is appropriated by the State. The contractor's share of oil is free of all taxes and in the event of any tax being assessed by any authority within Egypt, EGPC is obligated to reimburse *the foreign contractor to the extent of the assessed tax. Exploration Plan 2.06 The Exploration Policy, as pursued by Egypt, has well served the Government' s objectives of maximizing oil production without bearing any risk of exploration. Of the present level of production of about 500,000 barrels per day, as much as 470 ,000 barrels are produced from these concessions. Over the next four years, geological surveys, seismic work and exploratory drilling (both offshore and onshore) as is expected to be undertaken by oil companies in various structures, is indicated in the Table below: - 10 - EGYPT'S EXPLORATION PLAN 1979-82 Geophysical Surveys Exploratory Drilling (Party Months) (No. of Wells) Area Onshore Offshore Total Onshore Offshore Total Red Sea - 4 4 - 4 4 Gulf of Suez 40 29 69 20 29 49 North Sinai 16 2 18 8 2 10 Nile Delta 16 2 18 8 2 10 Western Desert Mediterranean 40 2 42 20 2 22 Total 112 39 151 56 39 95 Current and Anticipated Level of Oil Production 2.07 Over the past few years, there has been an impressive recovery in the production of oil in Egypt which rose from 11.5 million tons in 1974 to 20.9 million tons in 1977, a level which had earlier been attained in 1969. Field-wise production of oil from 1955 to 1976 is indicated at Annex 2.02. EGPC's projections, as indicated in the Table below, envisage that the pro- duction of oil would reach a level of about 50 million tons by 1982 and remain at that level thereafter. EGYPT'S FORECAST OF PETROLEUM PRODUCTION 1/ (in Million Tons) Operating Actual Estimated Company 1977 1978 1979 1980 1981 1982 1983 1984 1985 1. GPC 1.5 1.2 1.1 1.0 0.95 0.8 0.7 0.6 0.5 2. COPE 3.5 4.4 4.5 4.0 4.0 3.8 3.6 3.4 3.4 3. GUPCO 14.4 18.9 24.6 29.0 29.0 26.35 21.3 18.8 16.8 4. ABU GHARDIG 0.9 0.8 0.7 0.4 - - - - 5. WEPCO 0.6 0.5 0.6 0.5 0.3 0.1 0.1 0.1 0.1 6. WEPCO (Moleha) - - - 0.1 0.16 0.15 0.1 0.1 0.1 7. DEMINEX - - 0.3 0.3 0.3 0.3 1.0 1.2 1.2 8. New Discoveries - - - 0 12.1 15.3 20.0 22.6 24.7 TOTAL 20.9 25.8 31.8 36.6 46.8 46.3 46.8 46.8 46.6 1/ In the event of Egypt regaining Sinai from Israel, it would secure an oil field which is reportedly producing 20,000 bbl./day or 1 million tons per annum. EGPC considers the hydrocarbon potential of this area as high warranting intensive exploratory effort. - 11 - While Gulf of Suez crude, designated as El Morgan Blend has an API gravity of 32.7 degrees, the Sinai Peninsula crude (Belayim) is of relatively low value, having high sulfur content. GUPCO secures 75% of the oil production from the Gulf of Suez; essentially from El Morgan, July and Ramadan oil fields. 2.08 Egypt anticipates a sharp upswing in petroleum procuction which is projected to exceed 35 million tons by 1980 and reach 47 million tons by 1982, a production level it hopes to sustain over the next 20 years. These projections take account of the fact that major oil fields, which currently account for 80 percent of Egypt's oil production, are anticipated to peak by 1981. Attainment of the targeted production rate of 47 million tons is, predicated upon new discoveries being made, which will not only double the current level of production but would also make good the decline in production from oil fields which have peaked. Failure to achieve the assumed discovery ratio could result in a significant shortfall. In any case, the lags which are inherent in the development of an oil field, will make it extremely difficult to achieve the target stipulated for the current Five Year Develop- ment Plan (1978-82). Refining, Transportation and Marketing 2.09 An element of duality can be discerned in Government's policy toward foreign companies in the oil sector. While in exploration, Egypt has actively sought foreign assistance/participation, insofar as refining, transportation and marketing of oil products is concerned, it has followed a policy of pro- gressive nationalization. The International Egyptian Oil Company (IEOC) was partially nationalized in 1957. In 1964 the Petroleum Cooperative Society, formed in 1934 to refine and market products, was nationalized. In the same year, the Suez Refinery was nationalized to form the El Nasr Oil Company and SERCOP formed in 1954 to establish and operate a refinery in Alexandria was fully nationalized and renamed as thLe Alexandria Oil Company. Currently, all refining, transportation and marketing 1/ is in the hands of EGPC or its fully owned subsidiaries. Refining Capacity 2.10 The first refinery in Egypt was built in Suez in 1913. Currently, Egypt has six refineries located in Suez, Alexandria, El Ameria, Cairo and Tanta cumulatively having a capacity of about 12 million tons. However, after completion of current debottle-necking and balancing programs, the capacity will increase to about 16 million tcns. The current refinery throughput is of the order of around 11.5 million tons. The product yield as anticipated by EGPC from its refineries is indicatetd in the table below: 1/ Mobil and Esso are still involved in marketing of oil products, but together, they share less than 25% of the market. - 12 - PRODUCT YIELD OF EGYPTIAN REFINERIES ('000 tons) Actual Estimated Projected Products 1977 1976 1977 1978 1979 1980 1981 1982 Butane and Propane 49 59 63 54 48 48 75 93 Gasoline/Naphtha 1,331 1,476 1,556 1,553 1,731 1,812 1,980 2,151 Kerosene 1,142 1,320 1,381 1,400 1,480 1,550 1,668 1,747 Turbine Fuel 152 119 123 220 230 240 150 166 Gas Oil 1,607 1,717 1,957 1,788 1,775 1,840 2,295 2,525 Fuel Oil 4,165 5,056 5,272 5,582 6,418 6,470 7,185 7,899 Asphalt 118 135 145 235 200 200 300 330 Lube Oils 31 39 48 80 90 100 150 150 Others 19 23 20 69 22 22 126 96 Total 8,614 9,944 10,655 10,961 11,994 12,282 13,929 15,157 2.11 It would be seen from the table that the proportion of low value heavy ends like fuel oil and asphalt is more than 50% while the output of relatively high value middle distillates is relatively low (35%); this is despite the fact that increasingly Egyptian refineries have been using a much larger proportion of relatively light El Morgan crude having specific gravity of 32 0API. Investment in secondary processing including installation of fluid catalytic crackers, could with advantage, be considered by EGPC, more so as demand for middle distillates and light ends is anticipated to rise. Transportation and Marketing 2.12 For internal transportation and marketing of petroleum products, EGPC uses a variety of modes including product pipelines, railways, barges, and road transport. In 1977, it is estimated that 7 million tons of products moved by pipeline, 5 million tons through trucks, 600,000 tons through rail- way and another 600,000 tons through river barges. A pipeline network to carry 8 million tons of crude from Ras Shukeir to Suez is currently under construction. From Suez to Cairo, two pipelines having a capacity of 5 mil- lion tons already exist. These pipelines had earlier been constructed for transporting black and white products, but are currently being used to trans- port crude to the Cairo refinery. Separately, another product/crude pipeline has been constructed from Cairo to Alexandria via Tanta. This pipeline is capable of working in reverse direction and is being used both for pumping crude and white 1/ products. Additionally, there is a product pipeline from 1/ White products, which constitute the light ends and middle distillates of crude oil, comprise typically of motor gasoline, naphtha, kerosene, diesel oil, etc. - 13 - Helwan to Tebbin which has a capacity of 1.5 million tons and is used for transporting products to Upper Egypt. Two other product pipelines, each having a capacity of 0.75 million tons, exist from Tanta to Mansura and Benha to Zagazig. Recently the Sumed pipeline, consisting of two 42" pipelines and having a capacity of 80 million tons, was completed at a cost of US$500 million. Thi- 320 mile pipeline connects Ain El Soukhna on the Gulf of Suez to Sidi Kreir on the Mediterranean, is owned jointly by Egypt (50%), Kuwait (15%), Saudi Arabia (15%), UAE (15%) and Qatar (5%) and will be used for transporting Persian Gulf crude to Europe. It is currently being used by Exxon, Mobil and Agip, and its throughput as at the beginning of the current year was reported to be running at 415,000 bbl/day. 2.13 While Mobil and Esso continue to market petroleum products, the major share of the market is controlled by two subsidiaries of EGPC, namely the Cooperative Petroleum Company and Misr Petroleum Company. Consumption Pattern 2.14 Consumption of petroleum products has been rising sharply and in 1977 was of the order of 9.1 million tons against 6.7 million tons in 1974. While the overall annual growth rate was of the order of around 9.5%, motor gasoline and LPG recorded a growth rate ranging from 13% to 15%. Over the next four years, EGPC projects a growth rate of 12.5%. A qualitative change in the pattern of consumption is, however, anticipated with natural gas being increasingly used to substitute liquid hydrocarbons especially fuel oil. It is hoped that by 1980, natural gas would replace fuel oil to the extent of 2 million tons and in 1985 by 3.6 million tons. A precise assessment of the likely demand for petroleum products during the eighties must await the preparation of a detailed input output matrix; based on the past trend and in the anticipation that gross national product would grow at about 6.5% in real terms, consumption level by 1985 could be of the order indicated in the table below. For purposes of working out the demand for fuel oil, the requirements *of the Power Sector have been taken account of separately. - 14 - PROJECTED CONSUMPTION OF PETROLEUM PRODUCTS t'000 tons) Average Product Actual Projected Growth Rate Per Year 1974 1977 1980 1985 1974-77 1977-85 Butane and Propane 159 247 350 630 16 12.5 Gasoline 556 833 1 Naphtha 24 18 1,200 2,200 13.5 12.5 Kerosene 1,109 1,363 1,750 2,600 7 8.5 Turbine Fuel 119 101 250 400 -15 19 Gas Oil 1,055 1,507 2 10.5 10 Diesel Oil 168 150 2,200 3,500 Fuel Oil & Natural Gas: Power 849 1,529 3,600 7,700 21 22.5 Others 2,471 3,031 3,700 5,400 7 7.5 Asphalt 64 142 Lube Oils 93 129 390 670 20 12 Total 6,667 9,050 13,440 23,100 11 12.5 Availability of Natural Gas (fuel oil equiv- alent) 2,000 3,600 Demand for Liquid Hydrocarbons 11,440 19,500 11 10 2.15 From the above, it would be seen that the consumption of petroleum products is projected to grow annually at around 11% between 1980 and 1985. This in part is attributable to a quantum jump in thermal power generation which is anticipated to rise from 17.1 billion kwh to 28.3 kwh. The growth rate beyond 1985 would depend in part on the induction of nuclear power. Delay in commissioning of the proposed nuclear plants (which is not unlikely) having a capacity of 2400 MW (between 1986 to 1990) would result in a greater reliance on fossil fuel for power generation. - 15 - Prices and Fiscal Contribution of the Sector 2.16 Worldwide price increases and consequent fall in the growth rates of oil consumption has had no impact in Egypt where domestic prices are still being maintained at essentially 1956 levels. 1/ The pump head prices are fixed through a governmental decree and the revenue accruing to the government and EGPC is what it secures from the sale of products, net of refining, marketing and transportation costs. Current product prices and the estimated costs of refining, transportation, marketing and the implicit subsidy in relation to the international prices is indicated below: Average Price Pusp- Asverage ':ra.s,,or- Market- Nare of '_-ter-..av Oty., head Refir.inG :ation iL%; .S;;s., M:anr1 Yk- po¢uc ~ ?_ce Cart Cost _,o_,-: Cost _ _ eted 'snv Iuss tonLt;tSq.4 (000 tons)-U;SX,.-' 5' LPG 74.88 10.94 40.32 34.56 170.00 275 37 Gawsline P '50.70 9.07 0.29 13.10 147.60 150.00 530 1 Casoline R :24.56 7.93 0.29 12.10 112.46 l4O.C0 310 9 .erosine 46.51 6.05 0.58 2; 38.30 130.0C 1,:00 128 CZ& Oil 43.4i 5.62. C.114 ; S1 37.58 120.00 1.457 120 Mlesel Oil 3S.4Z 4.61 :.30 6.91 28.51 120.00 147 14 Fuel C11 10.80 1.30 0.29 1.73 9.07 75.00 3,998 264 Gas 11.50 75.00 635 6 0 8,772 613 At the existing level of consumption, it would be seen that the subsidy implicit in the current prices is around $70 per ton. In view, however, of the fact that there are a large number of inbuilt subsidies in the downstream operation, especially in the transportation sector, the costs indicated above, at best, are a rough approximation an,d do not adequately reflect the real costs to the economy; which in all probability is higher and likely to increase with the growing consumption for oil products. 2.17 On its accounts EGPC values Egypt's share of the oil produced and refined locally in terms of the net-back 3/ it derives from the domestic sale of the manufactured products. Its present net-back per ton of local 1/ Except for motor gasoline, whose! retail price has successively been increased and now on an average is at par with international prices. 2/ Based on September 1978 prices. Since then there has been an appreciable increase. 3/ The weighted average sale price to distributors less averaged refining and transportation costs as well as treasury dues and excise fees. - 16 - crude averages to around $11 per ton - a figure which is net of about $17 per ton paid to the Government in excise fees and treasury dues. Thus, the total revenue which the economy derives from the sale of crude domestically is around $30 per ton or $4/bbl - which is about equal to what it costs Egypt to produce a barrel of oil in terms of cost oil and profit oil. In relation to the level of petroleum production, the fiscal and budgetary contribution to the economy is minimal. In 1978, a production level of 25 million tons valued at around $2,5C0 million is envisaged; but the revenues which Egypt would secure from domestic sales and exports would be about $1 billion. Natural Gas 2.18 Associated Gas. The current level of production of associated gas in Egypt is around 100 million cubic feet a day (MMcf/d), and save for a nominal amount which is being used for meeting oil field needs, the rest is being flared. The energy thus lost is equivalent to around 1 million tons of oil equivalent, which is more than what Egypt currently uses for power genera- tion. This gas is rich in butane and propane and has an average calorific value of 1350 BTU/cft. Most of the associated gas is produced from the fields of El Morgan, July, Ramadan and Block 382 in the Gulf of Suez, and according to present estimates, the total gas which would be produced in association with oil from these fields would be of the order of 450 billion cft. The proposed project aims at recovering and utilizing this gas in Suez and Cairo by constructing a pipeline from Ras Shukeir to the city of Suez. Surplus gas would move to Cairo through existing pipelines. 2.19 Non-Associated Gas. Non associated gas on a commercially exploit- able scale has been discovered at Abu Qir, Abu Madhi, Abu Gharadig and the Amal field. It has an average colorific value of 1100 BTU/cft, is clean with virtually no sulfur content. The main gas fields are: (a) Abu Qir. This gas field on the periphery of the Western Desert and the Nile Basin was discovered by Philips Petroleum in 1969. EGPC as its partner developed the field under the 'sole risk' clause of the participation agreement. This gas is now in the exclusive onwership of EGPC. The recoverable reserves have been estimated at 1.2 trillion cf which would be capable of sustaining a supply of 100 MM cf/d for around thirty years. A 57 km pipeline having a capacity of 100 MM cf/d has been constructed from Abu Qir to Alexandria and therefrom to Damanhur via Kafr El Dawar. While the current level of absorption is low, in order to fully utilize the gas, a urea plant having a capacity of 570,000 tons, a 220 MW power station in Damanhur and a 300 MW station at Kafr El Dawar are currently under construction. Supplies likely to become available from the Abu Qir field are fully committed on the basis of existing invest- ment decisions (Annex 2.03). The Elf-Aquitaine group has recently found gas shows in this region, but the discovery, which appears promising, is yet to be quantified. - 17 - (b) Abu Madhi. This gas field was discovered in the Nile Delta by ENI but after the renegotiation of the production sharing agreement it now belongs exclusively to the Egyptian Govern- ment and is being operated by Petrobel, a subsidiary of EGPC. Recoverable reserves are estimated at 0.8 trillion cf cap- able of supplying 100 MMcf/d for about 20 years. Currently 15 MMcf/d are being utilized by the Talkha ammonium nitrate plant and the El Mahala El Kubra Textile Mill. With the commissioning of the Talkha Urea Plant (570,000 tons) and the Talkha Power Station, this gas supply would be fully preempted. (c) Abu Gharadig. This gas field was discovered in 1971, has estimated recoverable reserves of 0.8 trillion cft and is being operated by GUPCO, a subsidiary of AMOCO and EGPC. For purposes of utilizing this gas, a 24" pipeline has been built over 370 km from Abu Gharadig in the Western Desert to Helwan near Cairo. Though the current level of utilization is low, the gas supply is likely to be fully taken up by the cement plants, the Helwan steel mill and the 240 MW Helwan Power Station (Annex 2.03). In addition, thereto, EGPC proposes to supply this gas to four districts of Cairo as domestic fuel so as to replace LPG which is currently being imported, and has requested Bank assistance for this purpose. (d) Amal Field. This gas fiel,d, located offshore in the Gulf of Suez, was discovered by AMOCO and has recoverable reserves of 0.5 trillion cft. This company has relinquished its rights on this gas field, which would be developed, if con- sidered necessary, by EGPC. In the proposed project, Amal gas, it is envisaged, would supplement associated gas when supply of associated gas falls below 80 MMcf/d. 2.20 The recoverable reserves, the present level of production and the projected consumption level is indicated in the Table below: - 18 - EGYPT - NATURAL GAS RESERVES AND PRODUCTION (in thousand tons) Recoverable Reserves Actual Estimated Projected Area (Trillion cf) 1977 1978 1979 1980 1985 Abu Madhi 0.8 132 168 250 400 900 Abu Gharadig 0.8 264 515 700 800 800 Abu Qir 1.2 - 85 350 450 1,000 Gulf of Suez 0.45 Flared Flared Flared Flared 300 Amal 1/ 0.5 - - - - - Total 396 768 1,300 1,650 3,000 Proposed Investment in Petroleum Sector 2.21 Egypt plans to make substantial investment in the petroleum sector over the five year period 1978-82. Besides expenditure on exploration and development of production facilities, resources for which would come essen- tially from foreign companies, EGPC proposes to invest in refining, marketing and transportation. The existing grid of gas and crude/products pipelines too would be expanded. 2.22 The total sector investment between 1978-82 is tentatively estimated at LE 3,264 million. The break-down of the planned investment is indicated below: 1/ Production planned only on the contingency of associated gas for the Ras Shukeir project falling below 80 MMcf/d. - 19 - Investment Plan for Petroleum Sector 1978-82 (million Egyptian Pounds) Foreign Exchange Total Component Production and Exploration: EGPC 173 127 GPC 69 50 Foreign Contractors: i. Exploration 542 434 ii. Production and Development 1,500 1,200 Subtotal 2,284 1,811 Refining and Processing: EGPC 469 319 Alexendria Petroleum Co 73 41 Suez Oil Processing Co. 88 54 El Nasr Petroleum Co. 103 70 Subtotal 733 414 Marketing and Distribution EGPC 157 110 Misr Petroleum Co 29 19 Coop. Petroleum Co 54 27 Petroleum Pipelines Co 3 1 Mobil 2 2 Esso 2 2 Subtotal 247 161 Total Investment [US$4700 million] 3,264 2,386 Public Investment [US$1750 million] 1,218 748 Private Investment [US$2950 million] 2,046 1,638 2.23 The major share of the planned public investment LE 1.2 billion (US$1.75 billion) would need to be financed by the Government as the retained surplus with EGPC under the present Government policy regarding retention of public sector companies' and corporations' profits is not anticipated to exceed LE 50 million for the same period. An element of uncertainty attaches to the proposed public investment in the refining and processing sectors. Precise sources of funds have not been fully identified and in the case of - 20 - certain major investments, such as the proposed petrochemical complex and the new refinery in Suez, serious project preparation has not yet been initiated. Similarly, investment in production and development of oil (almost 50% of the proposed investment) by foreign contractors is only indicative and would, to a large extent, depend upon the nature and magnitude of new discoveries. Issues and Recommendations 2.24 A recent review of Egypt's energy sector brings out the need for Egypt to take major policy decisions in order to optimize the use of internally available energy resources and ensure adequate supply for the future. In order to assist Egypt in taking these decisions, an agreement was reached with the government and EGPC that EGPC undertake, with Bank's financial and technical assistance, the following sector related studies. (a) Exploration Study The current projections regarding the attainment of a production level of one million barrels a day by 1982 is predicated upon discoveries being made which would not only double the current level of production but also compensate for reduced production in oil fields which are likely to peak by 1980-81. Consumption levels may also be higher than those currently anti- cipated. Therefore, if Egypt has to rely upon oil as a major source of foreign exchange earnings, it would need to redouble its efforts in oil exploration. Despite Egypt having entered into as many as 53 pro- duction sharing agreements, the interest of foreign oil companies appears to be slackening, especially in the western desert. One possible way of stemming this trend would be for Egypt to reorganize, collate and reinterpret the existing geological seismic and drilling data. The purpose of this review would be to assess whether the current exploration program is adequate and as to whether there is a need to reorient it towards other prospective areas which may have been neglected ini- tially because of a higher cost or lack of data. Parallel to this effort, the study would also cover past production data and assess whether it would be viable to go in for enhanced/secondary recovery. We anticipate that this study would be taken up in two stages. The first would attempt to quantify the problem and identify areas requiring detailed analysis. This would form the basis for drawing up the terms of reference for the subsequent and more detailed study. - 21 - (b) Pricing Study Egypt currently prices a barrel of crude for domestic consumption at less than $4 (including excise, taxes, etc.) against international price of more than $14. By artificially maintaining the petroleum price at this level, it is losing a unique opportunity of using its finite petroleum wealth for raising domestic resource. Such a pricing policy, in addition, encourages wasteful consumption and could accelerate growth well beyond the level currently stipulated. Selective increase in price, especially of products like motor gasoline and diesel oil, therefore, requires immediate consideration. Yet it is anticipated that E7gypt will not consider a gen- eral price increase until its incidence on end prices and on various categories of consumers has been quantified and carefully evaluated. AE; a first step towards more realistic pricing of petroleum products, Egypt would undertake a study, as a part of this loan which would, inter alia, aim at evaluating the effect of discrete price increases of goods ancd services in which petroleum products constitute an important input. This study would attempt at suggesting various sets of policy options for the Government spelling out clearly the fiscal and other implications of the proposed measures and its effect on demand and consumption pattern. (c) Gas Utilization Study Important gas discoveries have been made in Egypt during the last decade. It is, however, easy to overestimate the abundance of gas. These finds (both associated and non-associated) when fully developed would produce not more than four million tonnes of oil equivalent energy. Over the long run, these gas fields would need careful husbanding so as to maxi- mize the benefits which the economy can derive therefrom. Natural gas usage would also need to be upgraded from fuel equivalent for boilers to higher value use, such as, fertilizers, domestic fuel, etc. However, the process of evo:Lving a set of policy options for the economy is a complex one requiring difficult technical and economic evaluation. As a part of the loan an optimization study will therefore be undertaken and a gas development plan prepared thereunder. This plan could form the basis of the Bank's future lending operations. - 22 - Terms of reference for the above studies were reviewed and broadly agreed upon during negotiations. Consultants for the studies will be appointed shortly; completion of the exploration study is expected by June 30, 1981, while the pricing and gas utilization studies should be completed by June 30, 1980, respec- tively. EGPC agreed to implement all recommendations that are satisfactory to the Government, EGPC and the Bank in accordance with an agreed time schedule for each study. III. THE BENEFICIARY History 3.01 To oversee all matters relating to the petroleum industry and espe- cially after the sequestration of Anglo-Egyptian Oil Company, Egypt General Petroleum Company was created in 1956. With the general restructuring of the public sector in 1962, this authority was converted into the Egyptian General Petroleum Organization (EGPO) with almost similar functions. With the promul- gation of Law 20 of 1976, EGPO was converted into Egyptian General Petroleum Corporation (EGPC), the beneficiary of the proposed loan. While the Ministry of Petroleum, which was created in 1973, acts as a link between EGPC and other government bodies, the primary responsibility of managing and operating the petroleum sector rests with EGPC. Statutory Functions 3.02 The main functions of EGPC under Law 20 are to: - draw up a general policy for converting and granting concessions, negotiating and preparing concession agreements for approval of the government; - supervise exploration and exploitation activities of the oil companies engaged in the search of oil and production of oil and/or natural gas; - plan, coordinate and control the activities of various affiliates in the field of production, refining, trans- porting and distribution of petroleum products; - undertake the export of crude oil and petroleum products and effect similar imports for balancing domestic requirements; - 23 - determine, in conjunction with other competent authorities, the pricing of petroleum products; 1/ and - supervise the operation and management of all sub- sidiary companies. Capital Structure 3.03 EGPC's capital of 50 million Egyptian Pounds is invested in the capital of joint venture companies and in companies established for partici- pation in oil production with foreign partners. Funds available to EGPC for its operation, consists of its share in the net profits of all its affiliates in the petroleum sector, its share in the net profit of the joint venture companies and profits arising out of supervision and administrative fees. In addition, it secures funds from the government as loans. EGPC, as a distinct corporate entity, can and has borrowed from external financial agencies. Organization and Management 3.04 EGPC is governed by a Board consisting of the Chairman and three Vice-Chairmen who are in charge of exploration and production, planning and projects and operations. In addition, thereto, a General Manager (administra- tion), and General Manager (Finance) are members of the Board. Separately, through a ministerial decree, three ChaLirmen of subsidiary companies (General Petroleum Company, Suez Petroleum Company and the Petroleum Cooperative Society) along with the General Manager of the Egyptian Petroleum Research Institute have been appointed to the Board of EGPC (Annex 3.01). 3.05 EGPC has been vested with considerable autonomy. Within the frame- work of general policies set by the Supreme Petroleum Council and stipulated in the Company's statutes, its Board is; competent to issue any decree it deems suitable, any governmental regulation or system to the contrary, notwith- standing. It is, therefore, competent to establish its own internal regula- tions for financial, administrative and technical management, as also evolve its own norms regarding conditions of employment, remuneration, etc. EGPC is, however, obliged to consider policy directives issued by and otherwise func- tion under the guidance of the Supreme Petroleum Council which is presided over by the Minister of Petroleum and for which EGPC functions as a secre- tariat. Furthermore, all resolutions cf the Board have to be approved by the Minister of Petroleum who can, at his discretion, amend or cancel any such resolution. 1/ While Law 20 vests with EGPC the authority to determine prices, in effect prices have been fixed through governmental decree in which EGPC, has at best an advisory role. - 24 - 3.06 EGPC's management at the senior level is competent and experienced in various aspects of the oil and gas industry. It has, over the last decade, expanded the marketing organization to meet growing demand, set up and rehab- ilitated a number of refineries, laid an extensive network of crude, petroleum products and gas pipelines; facilities which it operates with competence. It has created within its organization a specialized group which has successfully negotiated production sharing agreements with 53 foreign oil companies. Separately, EGPC has developed three non-associated gas fields within Egypt and linked them to the market. While foreign partners are largely responsible for the production of oil, EGPC closely monitors their exploration and develop- ment programs. Egypt's improved energy position is in no small measure due to EGPC's effective intervention in the sector. It currently faces the problem experienced by many national oil companies of competing with the private sector and the Gulf area for experienced staff. Rapid growth has further strained its managerial resources. Plans are underway to install a computer- ized management information system to assist in effective control of these multi-faceted operations which will increase in complexity as time goes on. EGPC may find concurrent review of its management system and practices rewarding. There is an apparent need for assistance in the area of financial planning, rationalization of accounts and budgeting techniques. There is also a need to give the Company's finance and economics division staff wider exposure and further training in current industry procedures and practices. The proposed loan would include funds for financing consultants (para. 5.10) and training. Functional Structure 3.07 EGPC functions as a holding company and performs the variegated functions with which it is charged through seven fully owned affiliates; three operating companies formed in partnership with the foreign oil com- panies and two joint ventures. These companies have been set up on a functional basis and relate to the following sectors (Annex 3.02). (a) Exploration and Production 3.08 All work relating to geophysical surveys and exploration are car- ried out by General Petrolem Company and 53 foreign contractors who have been awarded concessions in Egypt. These companies, under the terms of their agreements, are obliged to spend a fixed amount on exploration and surveys during the primary exploration period. The annual work program of each of these companies is drawn up under the general framework of its respective agreement and reviewed and approved by a joint committee consisting of the representative of EGPC and the company. Once a commercial discovery has been made, a non-profit operating company is formed which operates and works the concession on behalf of the partners and allocates oil (after deducting oper- ating costs) to the partners in accordance with the terms of the concession agreement. Currently, there are three such operators, namely, the Gulf of Suez Petroleum Company (GUPCO), the Western Desert Company (WEPCO) and the - 2.5 - Belayim Petroleum Company (PETROBEL). GUPCO was formed in participation with AMOCO, WEPCO in participation with Phillips Petroleum Co., and PETROBEL in participation with the Delta Petroleum Co., Oriental Petroleum Co. and the International Egyptian Oil Co. (b) Refining and Processing 3.09 All refining and processing of petroleum products is undertaken by three fully owned affiliates for EGPC, namely, El Nasr Petroleum Company, Alexandria Petroleum Company and the Suez Oil Processing Company. The Suez Oil Processing Company, which would be responsible for supervising the con- struction and thereafter possibly operating the processing unit of this project; currently owns and operates three refineries at Suez, Tanta and Mostorod. (c) Petroleum Pipeline Sector 3.10 Egypt's extensive network of pipelines for transporting crude oil, petroleum products and gas is owned and operated by the Petroleum Pipelines Company, a fully owned subsidiary of EGPC. Currently this company is super- vising the construction of Ras Shukeir-Suez-Mostorod crude oil pipeline and a gas pipeline from Abu Qir to Kafr-el-dawar and Damanhour. This company will also supervise the construction of the gas pipeline from Ras Shukeir to Suez under this project. (d) Distribution Sector 3.11 Marketing and distribution of petroleum products is undertaken by two affiliates, namely the Misr Petroleum Company and the Corporative Petroleum Company. These companies control the major share of the market, though marketing of petroleum products is also being undertaken by two foreign companies, namely Mobil and Esso. (e) Joint Ventures 3.12 For purposes of transporting crude oil from the Gulf of Suez to the Mediterranean Sea, a pipeline with an annual capacity of forty million tons has been constructed. This pipeline is owned and managed by the Arab Petroleum Oil Company (SUMED) of which EGPC is a 50 percent shareholder with Saudi Arabia (15%), Kuwait (15%), the United Arab Emirates (15%) and Qatar (5%) owning the balance. Recently another joint venture, namely, Petroleum Projects and the Technical Consulting Company (PETROJET) has been established jointly by EGPC and Montubi for purposes of undertaking design and construc- tion work for all projects related to the petroleum and gas industry in Egyptian, Arab and African countries. Accounts and Audit 3.13 EGPC, like other Egyptian public undertakings, follows the 'Unified Accounting System' which was established by a Presidential Decree in 1966. This accounting system was evolved, inter alia, with a view to establishing - 26 - uniform denomination of accounts, accounting rules, definitions and termi- nology. Similar and compatible financial statements for capital operations, current operations and cash flows, for all public sectors undertakings have been stipulated by the system. EGPC is required to prepare detailed accounts and financial statements for periodic review in addition to following stipu- lated financial control. EGPC undertakes detailed internal auditing through its Department of Internal Control, and the Department for Financial Evalu- ation. While the former audits of all financial operations within EGPC, the latter is responsible for checking and evaluating financial systems and procedures, not only of EGPC but all the affiliated companies. This depart- ment is responsible for assessing and evaluating the efficiencies of various units being operated by EGPC and its affiliates and evolving improved systems and procedures. EGPC accounts are also subject to an annual external audit by the Central Accounting Authority. Aside from documentary audits, this review is effected in collaboration with the Ministry of Finance to ensure that the expenditures were in accordance with the authorized budgeted amounts. EGPC would be required to have the project accounts and its other accounts and financial statements audited by independent auditors and supply to the Bank copies of such statements no later than nine months after the end of each year. Insurance 3.14 EGPC affiliates carry adequate comprehensive insurance on its major facilities and equipment against fire, blowups, damage and theft. Insurance agreements are entered into directly by each company with insurance companies within Egypt who are, in part, reinsured by foreign insurance companies. IV. THE PROJECT Project Objective 4.01 More than 90% of Egypt's oil production is concentrated in the Gulf of Suez. During 1979 about 100 MMcf/d of associated gas from these fields will be flared. This co-exists with a situation where fuel oil of almost equivalent thermal value (one million tons of oil equivalent) and which could otherwise be exported is being used for power generation. Oil produc- tion from existing Gulf of Suez oil fields, however, is now declining and consequently gas supplies will drop over the coming years. Studies show that there is demand for gas in Suez and Cairo and a fair proportion could be economically gathered and transported to these markets from the Gulf of Suez. To utilize this energy resource, EGPC proposes to install a system of gas gathering, transmission, distribution and processing facilities capable of processing and transporting up to 80 MMcf/d of gas to Suez and Cairo. 4.02 Natural gas liquids (NGL) and liquified petroleum gas (LPG) would first be recovered from the natural gas at Ras Sukheir and the dry gas would be transported and distributed to end users. In Suez the stripped gas would - 27 - be used principally as a fuel for electric power generation and cement manu- facture, where it would displace fuel oil, and as a feedstock for ammonia synthesis (fertilizer plant), where it would displace naphtha. Surplus gas, up to a maximum of 42 MMcf/d, would be transported to Cairo where it would augment the existing gas supplies from the non-associated gas fields of Abu Ghardig. In Cairo the gas would also be used for power generation where it would replace fuel oil in the steam generation power plants and high value diesel oil in the gas turbine plants. The equivalent quantities of these petroleum products, along with naphtha recovered from gas, would be exported. Currently, Egypt imports 70% of its domestic LPG requirement and to the extent LPG becomes available from this project, the import requirements would diminish. 4.03 The existing Gulf of Suez oil fields will not be able to sustain the proposed 80 MMcf/d gas supply rate over the economic life of the facil- ities to be financed under the proposed project. However, the Gulf of Suez contains unexploited gas deposits, and EGPC plans to develop the off-shore Amal non-associated gas field when it becomes necessary to supplement the declining production from the existing oil fields. EGPC presently estimates that Amal gas will have to flow sometime between 1983 and 1986 to maintain the proposed supply rate. The cost of developing the Amal field is not in- cluded in the proposed project because the timing of the investment cannot yet be definitely ascertained, but it has been included in the financial and economic analyses of the project. The transmission line will be designed so that its throughput can be increased by 50%, with the addition of more com- pressors, should additional markets and supplies develop in the future. Gas Supplies and Reserves 4.04 The proposed project provides for utilizing, to the extent feasible, natural gas being produced in the Gulf of Suez in association with oil produc- tion. However, as the associated gas from existing oil fields appears in- adequate to support the gas system for the economic life of the project, non-associated gas would be used to supplement and subsequently replace associated gas. The associated and non-associated gas fields, which are proposed to be fed into the system, are: (1) Ramadan field. The Ramadan field is located off-shore in the Gulf of Suez and is composed of three sub-parallel northwest/southeast trending fault-bounded structural blocks. This field was placed on production in 1974 and as of 1st September 1978, the field was producing at the rate of 125,000 BBLS of oil per day and 50 MMcf/d of gas. The field is likely to peak within the next year or so, but as it is operating above the bubble point pressure, no change in the gas-oil ratio is anticipated. This would permit solution gas production to remain at about 30 MMcf/d through 1986, before significant declines occur. - 28 - (2) July field. This field was placed on production in November 1973. It consists of two reservoirs, of which in one (Nubian) it would be possible to maintain reservoir pressure, while the other (Rudeis) would require pressure maintenance through water injection. Both reservoirs would produce significant quantities of gas, until about 1986, before decline occurs. (3) Location 382. This off-shore field started producing in December 1977 but has yet to be fully delineated. Four wells have so far been drilled and the fifth well is currently being drilled. The initial gas-oil ratio was 1,010 standard cf/BBL, yielding a solu- tion gas production rate of about 50 MMcf/d. Of late, gas-oil ratio has risen rapidly, but full characteristics of the field would be firmed up only after further drilling. Because of its high gas content, production rates will be adjusted to gas demand so as to minimize flaring in the area. (4) Amal field. This non-associated gas field consists of six wells, which are either shut in or abandoned. It has two primary hydrocarbon reservoirs which contain gas-bearing sand. The proved gas-in-place estimates for the Amal field are 250,000 MMcf and the proved-plus-probable estimate of gas in place are 497,000 MMcf. Depending upon the reservoir behavior of the associated gas fields, development of this gas field would need to be timed appropriately so as to ensure that cumulative gas availability is about 80 MMcf/d. (5) One-well fields. Five one-well fields presently under delineation/development are considered prospective sources of supply for the Ras Shukeir gas system. Of these, four are oil fields (173-1, 185-1, 195-1, and 195-2) and one is a non-associated gas field designated as Deminex LL-87-1. The Deminex gas field, by virtue of its close proximity to July and Ramadan fields, presents an extremely viable alternative. All these fields would, however, require additional develop- ment drilling before gas availability can be quantified. 4.05 An evaluation of the gas reserves was secured by the Bank from inde- pendent consultants, DeGolyer and MacNaughton. These consultants studied the sources of supply and developed projections in regard to the flow and the length of time these gas supply sources would be available at Ras Sukheir. There is an element of uncertainty in predicting precise well behavior in fields with no production history (Amal, Location 382). The consultants have conservatively estimated the proven and probable gas reserves in these fields in accordance with established geological and geophysical procedures. For purposes of our evaluation, we have taken the level of reserves at proved-plus-half probable, and disregarded the gas availability from the four one-well oil fields and the Deminex gas field. These new discoveries, even though promising, require further development work. Gas availability projections on this basis are indicated in Annex 4.01. - 29 - 4.06 In order to facilitate the overall investment planning for this project and to ensure that the gas facilities operate at full capacity, it would be necessary for EGPC to further develop location 382 oil field. The proven reserves of gas are estimated at 137 billion cubic feet (Bcf) and the proven-plus-probable of 421 Bcf of gas. Further development of the field would assist in determining the extent to which probable reserves could be classified as proved. A similar exercise is necessary in regard to Deminex 87 gas field. Such an evaluation is essential for determining the time sequence for developing the Amal gas field. Separately, there is a need to re-evaluate the internal consumption requirements of the July and Ramadan oil fields. A sharp increase over the previous requirement is being suggested as of 1982; which may in fact not materialize. A more realistic re-evaluation could show that, in fact, larger quantities of gas would be available for the project which, in turn, would have a bearing on the development of the Amal field. EGPC confirmed that it was aware of this situation and that it would take the necessary action to defer the development of Amal as long as possible. On the basis of the above, EGPC agreed to review with the Bank its plans for the development (including the financing thereof) of Location 382, Deminex, Amal, the in-field requirements of July and Ramadan and the associated and non- associated gas reserve data for the Gulf of Suez. Status of Project Preparation 4.07 A feasibility and optimization study for the project was completed in mid-1978 by Braun Egypt Engineering, who are qualified consultants and are an affiliate of the USA based engineering firm, C.F. Braun and Co. Braun Egypt subsequently updated the study to incorporate revised gas supply esti- mates, and issued a final report in late November 1978. The Braun Egypt study forms the basis for the project scope defined in the following section. Braun Egypt has been awarded a contract (November 1978) to provide the process design and detailed engineering for the project facilities and to lend the necessary technical assistance during procurement. EGPC will retain overall responsibility for project management, procurement and construction (para. 4.09). Description of the Project 4.08 The proposed project forms the first phase of EGPC's program for associated gas utilization and includes the necessary gathering facilities comprising pipelines and compressors to collect gas from the Ramadan and location 382 oil separator stations and the GUPCO separator station and bring it to compressors and an LPG plant located near Ras Shukeir. A 16" pipeline, constructed parallel to a new crude oil line, will transport the gas from Ras Shukeir to a terminal at Suez. From there it will be distributed to the customers in Suez through a system of smaller pipelines. Excess gas, up to about 42 MMcf/d, will be delivered to Cairo over an existing 10" gas line and a 10" white products line looped together with a 24" tie-in to the Cairo distribution system. Location of these facilities are shown on Map IBRD 14056 and their relationships to Egypt's pipeline network on Map IBRD 14294. The major project components are: - 30 - 1. Gas Gathering System (a) Combustion gas turbine driven centrifugal compressors with ancillaries to handle the gas released from gas oil separators at: (i) Ramadan Station (located offshore); (ii) 382 Station (located onshore); and (iii) GUPCO Station (located onshore). (b) Pipelines from the separator stations to the Ras Shukeir compressor station and LPG plant including approximately: (i) 50 km of 10" submarine pipeline from Ramadan Station; (ii) 32 km of 16" pipeline from 382 Station, all on land and buried; and (iii) 12 km of 16" pipeline from GUPCO Station, all on land and buried. 2. Ras Shukeir Compressor Station and LPG Plant. Major facilities included are: (a) gas driven centrifugal compressors for associated gas and pressure boosters with their ancillaries; (b) turbo expanders to cool the gas; (c) one gas fractionation unit to extract NLG and LPG; (d) LPG storage and loading facilities; (e) one fired heater and hot oil system; (f) laboratory, workshop, warehouse, and other support facilities; and (g) operating personnel quarters and recreation and support facilities. 3. Ras Shukeir - Suez Gas Pipeline. Consist of: (a) approximately 300 km of 16" buried pipeline; and (b) communication and supervisory control system. - 31 - 4. Distribution System. Consists of approximately 30 km of 8" - 10" buried pipine from the pipeline terminal to the customers' metering and receiving stations. 5. Looping and Conversion of Suez; Cairo Pipelines: Involves alterations to reverse flow in the existing 10" Cairo-Suez gas pipeline. In addition, the present 10" white product pipeline would be converted to gas and looped with the gas pipeline. Compression facilities would be added to create a cumulative capacity of 42 MMlcf/d, and a 24" pipeline would tie the Suez system into the Cairo grid. 6. Miscellaneous Support Items. Includes earth moving and transport equipment, cranes, miobile communication equipment, testing equipment and similar items to support maintenance, operations and management of the new facilities. 7. Project Management, Technical Assistance and Engineering Services. Includes project supervision, optimization and feasibility studies, design engineering, procurement, controls, construction supervision, inspection and all related activities required for the complete execution of the project. 8. Petroleum Pricing Study. The study is intended to evaluate the downstream effects on Egypt's economy of an import parity pricing policy for petroleum products (para. 2.24 (b)). 9. Gas Optimization Study. The study would examine Egypt's available gas supplies and establish usage priorities whereby, the economy would derive the maximum benefit from this natural resource (para. 2.24 (c)). 10. Exploration Study. The study would first concentrate on accumulating, collating and reinterpreting existing geological and geophysical data with the objective of determining ways and means for optimizing oil and gas exploration. The findings and recommendations could then be implemented as a second phase of the study (para. 2.24 (a)). 11. Training and Consulting Services. Includes in-house and overseas training in the operation and maintenance of machinery, control systems, etc. comprising the proposed facilities and specialized overseas training in accounting and finance for professional personnel. Funds are included for consultants' assistance in analyzing and improving EGPC's financial management and accounting system. 12. Project II Engineering. Includes engineering and consulting services for a gas distribution project to be installed in Cairo and for which the Government and EGPC have sought Bank assistance. - 32 - Implementation 4.09 EGPC would have overall responsibility for implementing the proposed project. A project management team would be assembled and attached to its Planning and Projects Department to coordinate and supervise the various implementation functions necessary to design, procure, construct and com- mission the project facilities. Assistance in carrying out the construction and commissioning phase of the project would be assigned to two operating subsidiaries: (i) the Suez Oil Processing Company (SOPCO) for the LPG plant, the main compressor station, the gas gathering stations and distribution system; and (ii) the Petroleum Pipeline Company (PPCO) for the Ras Shukheir - Suez pipeline, Suez - Cairo lines and 24" tie-in to the Cairo distribution system. Staffing of the project management team would come mainly from within EGPC's organization including SOPCO and PPCO. Additional technical assistance requiring skills and/or equipment not available within EGPC's organization or in Braun Egypt's scope of work (para 4.07) would be assigned to local or expatriate consultants whose qualifications, experience and condition of employment would be satisfactory to the Bank and EGPC. 4.10 To expedite completion of the project EGPC has proposed and the Bank has agreed for EGPC to procure and construct the gathering facilities, LPG plant and compressor station through two single responsibility contracts, one for the onshore portion and the other for the Ramadan field which entails mostly offshore work. Prospective contractors are being prequalified prior to being asked to bid. This arrangement will greatly simplify project implemen- tation, and judging from similar cases in the past there should be active competition for the contract. The Ras Shukheir-Suez pipeline will be con- structed by the joint venture company, PETROJET, which is also installing a parallel 16" crude oil line. 4.11 The onshore contract bidding documents are scheduled to be completed during 1979 and no problems are anticipated in meeting the project completion date of this portion of the project. The offshore facilities are complicated by plans to install the Ramadan compressor package on an offshore production platform currently being designed by GUPCO. Space has been allocated for the compressor package on the platform, but its final design depends on the actual compressor packages selected by EGPC. EGPC has agreed to expedite this matter and has assigned Braun Egypt the task of preparing the design and procurement documents so that bids can be requested by no later than end of August 1979. After selecting the lowest evaluated offer, EGPC will investigate the modi- fications necessary to set the compressor package on the GUPCO platform. EGPC will concentrate on completing this investigation by no later than December 1979 to maintain the planned commissioning by December 1981. If - 33 - for some unforeseen reason the GUPCO platform cannot accommodate the com- pressor package, EGPC would install a separate platform adjacent to GUPCO's. This probably would not entail a significant delay in commissioning, but it would increase EGPC's cost by US$5-10 million. The Ramadan offshore gas gathering facilities also include a submarine line which is also being designed by Braun Egypt. 4.12 The composition, qualification and organization of the management team set up in EGPC for overall managemeat of the project were reviewed during negotiations and found satisfactory. Similar organizations, principally to oversee construction and to carry out start-up and commissioning of the facilities, will be established in SOPCO and PPCO once contracts have been awarded. The composition, qualification and organization of these units has been reviewed and found satisfactory. At EGPC's request its project implemen- tation and commissioning teams would be assisted by qualified consultants (Braun Egypt). The experience and education resumes of those considered for early assignment to EGPC have been reviewed and found satisfactory. 4.13 Satisfactory agreements were reached on planning the project activ- ities. EGPC will prepare a critial path method (CPM) plan of its activities leading up to the award of contracts for the onshore, offshore and main pipeline components of the project. Each contractor will be required to prepare and maintain a CPM plan for carrying out his portion of the project. Since the three project components are to a large extent independent projects, this is a workable arrangement. Project Costs 4.14 The project is estimated to cost US$167 million of which US$123 million or 74% represents the foreign exchange component. A physical contin- gnecy of 10% was applied against the cost of the LPG plant, main pipeline and compressor station and 15% against the gas gathering facilities and distribu- tion networks. It was felt prudent to use a high contingency factor for these facilities because no right of way studies and surveys had been completed for the gathering and distribution pipelines and because offshore pipelaying and equipment is involved. Price contingency is calculated on a combined equip- ment/civil works escalation of 7% during 1978 and 6.5% thereafter for all foreign exchange expenditures and 15% per year for local costs. The cost of consultants is based on a rate of $7,000 per month, and is in line with current costs of similar services in Egypt. 4.15 The development of Amal gas field is estimated to cost US$45 million (1978 dollars). This expense has not been included in the project cost esti- mates (para 4.03). The estimated project costs are summarized below. Annex 4.03 gives a more detailed breakdown of the various components of costs. - 34 - In LE Million In US$ Million Local Foreign Total Local Foreign Total 1. Project Design, Implementation, Training & Studies 2.2 5.2 7.4 3.2 7.4 10.6 2. 382 Gas Gathering Station 3.3 8.4 11.7 4.8 12.0 16.8 3. GUPCO Gas Gathering Station 0.7 3.0 3.7 1.1 4.2 5.3 4. Ramadan Gas Gathering Station 2.9 8.1 11.0 4.1 11.6 15.7 5. Ras Shukeir-Suez Pipeline 5.3 17.0 22.3 7.6 24.4 32.0 6. Suez Distribution System 1.1 1.4 2.5 1.6 2.0 3.6 7. LPG Plant & Compressor Station 5.6 16.7 22.3 8.0 24.0 32.0 8. Suez-Cairo Pipelines and 24" tie-in line 2.2 7.3 9.5 3.1 10.5 13.6 9. Misc. Support Items 0.7 2.2 2.9 1.0 3.2 4.2 Basic Project Estimate 24.0 69.3 93.3 34.5 99.3 133.8 Physical Contingency 3.1 8.5 11.6 4.4 12.7 17.1 Price Contingency 3.6 7.5 11.1 5.1 11.0 16.1 Estimated Project Cost 30.7 85.3 116.0 44.0 123.0 167.0 Project Financing Plan 4.16 The total foreign exchange cost, US$123 million, is to be financed as follows: Suppliers Bank Credit EGPC Total 1. Gas Gathering Facilities 27.8 - - 27.8 2. LPG & Compressor Station 24.0 - - 24.0 3. Ras Shukeir-Suez Pipeline & Distribution - 13.5 12.9 26.4 4. Suez-Cairo Pipelines & 24" tie-in line - 5.9 4.6 10.5 5. Project Design, Supervision, etc. 1.0 - 1.0 2.0 6. Training 0.8 - - 0.8 7. Sector Studies 2.5 - - 2.5 8. Project II Engineering 2.1 - - 2.1 9. Misc. Support Items 3.2 - - 3.2 Sub-Total 61.4 19.4 18.5 99.3 Physical & Price Contingencies 13.6 5.1 5.0 23.7 75 24.5 23.5 123.0 % of Total 61 20 19 100 4.17 As indicated in the table above, the Bank loan, excluding the cost of studies and Project II engineering services, would represent approximately - 35 - 41% of the total cost of the project. It is 31% of the anticipated investment, when the development costs of Amal (anticipated to cost US$58 million in current dollars), are included. The proposed Bank loan would be made to EGPC at the current lending rate for 20 years including four years of grace. In addition, EGPC would pay a guarantee fee to the Government so that the effec- tive rate of interest to EGPC would be 10%. 4.18 The Government has agreed that the local expenditure equivalent to US$44 million and foreign exchange expenditures of $23.5 million and the Amal gas development costs would be borne by EGPC from its own resources and through budgetary allocations from the Ministry of Finance. It was also agreed that in order to ensure that Amal field or any other appropriate non-associated gas field is developed in time, and there is full utilization of the project facilities, the Bank would monitor and review associated and non-associated gas reserves data until such time that an adequate gas supply (80 MMcf/d) is assured for the life of the project. Market 4.19 No problem is foreseen regarding disposal of condensates recovered from natural gas. The condensate which is essentially naphtha would be blended into crude oil and exported. LPG would be readily absorbed in the domestic market, where a continuing and growing deficit, is anticipated. The dry gas is slated for use in the city of Suez by the existing fertilizer plant [14 MMcfd], a 30 MW power station [45 MMcfd] currently under construction and the proposed cement plant and other industrial loads [15 MMcfd]. A slippage of one to two years is anticipated in the Suez power plant. This could, in the absence of an alternative market, result in EGPC having to flare, on- shore, a proportion of the dry gas after the condensates have been recovered. It is in this context that the project has been redesigned to tie the Suez gas in with the Cairo gas distribution grid through looping and converting the existing gas and white products pipelines between Cairo and Suez. These pipelines would have cumulative capacity of 42 MMcfd and no difficulty is anticipated in absorbing these quantities of gas in Cairo. Nevertheless, between the time the project is completed [19811 and the Suez power plant is commissioned [1983] production from Location 382 may have to be kept at a reduced rate (para. 4.04,(3)) to avoid flaring. EGPC has provided satisfac- tory assurances regarding sales agreements with the major consumers. Procurement 4.20 The gas gathering, compression and process (LPG) facilities would be procured and constructed under two separate single responsibility con- tracts (para. 4.10) on the basis of international competitive bidding in accordance with procedures set forth in the Bank's guidelines. Bidders would be separately prequalified for each of the two contracts. Proceeds of the proposed loan would finance 100% of the foreign exchange cost of the two contracts, estimated at US$62.5 million including contingencies. Miscel- laneous items of maintenance, operating and management equipment which cost less than US$250,000 each but not exceeding US$4.0 million in the aggregate, - 36 - would be procured in accordance with EGPC's limited international bidding procedures which are satisfactory to the Bank. In the event that the esti- mated amount of any contract or the aggregate amount is likely to be exceeded, EGPC would consult and agree with the Bank on the procurement procedure to be followed. 4.21 The proposed loan would be disbursed against (1) 100 percent of the foreign expenditures for (a) two single responsibility contracts for on-shore and off-shore facilities, respectively, (b) engineering and related services, and (c) technical assistance, training and studies, and (ii) 100 percent of the foreign and local expenditures, ex-factory, and 70% of local expenditures for imported items procured locally. 4.22 The loan would be fully disbursed by June 30, 1982 in accordance with the projected disbursement schedule in Annex 4.02. Project Risks 4.23 The risks associated with the project are those inherent in petroleum production and pipeline industry. These risks are somewhat compounded by off-shore work, though it forms a minor part of the proposed project. Over the years, industry has developed techniques and technology to reduce them to a minimal level. The existing oil and gas production facilities are operated by an experienced oil company with a good safety record. New production facilities would be installed and operated in accord- ance with the same standards as those now in operation. EGPC's consultants for the design and implementation of the gas pipeline and its auxillary facilities are experienced and well-qualified for the assignment. Only experienced pre-qualified contractors will be invited to construct the facilities. 4.24 There are, however, two risks specific to the project; namely, (a) adequate and continuous supply of associated gas from the oil fields of July, Ramadan, and location 382; and (b) slippage in the implementation schedule of the power plant, presently under construction in Suez and slated to be the main consumer of dry gas. In order to reduce these risks the Bank has secured an independent reservoir evaluation from DeGolyer and M4acNaughton which confirms, in conjunction with the non-associated gas from Amal, adequate levels of gas availability for the proposed project. Furthermore, the possibility of gas availability from Deminex 87 and other one-well fields in the gulf of Suez provides additional insurance. Separately, by re-designing the project, which would enable gas to be moved to Cairo, the risk arising from the inadequacy of the market has been satisfactorily contained for the life of the proposed project. - 37 - Training 4.25 Although EGPC subsidiaries already operate similar facilities, it will be necessary to train supervisors and operating personnel in the opera- tion and maintenance of new or unfamiliar equipment introduced by the proj- ect. The main items in this category are the large combustion gas turbines and compressors, the telemetry and supervisory control system for operating the pipelines and the turbo-expansion LPG process. Approximately 70 man months staff time will be required for overseas visits to manufacturers' plants for training in the operation and maintenance of the equipment being supplied and for visits to facilities similar to those included in the proj- ect. Additional on-the-job training will be provided during construction and start-up by equipment manufacturers' representatives who will be at the job site during those periods. Ecology and Safety 4.26 Two of the major consumers of the natural gas supplied by the project would be a power plant and cement factory which otherwise would have to burn residual fuel oil. By displacing these two major sulfur dioxide emission sources, the project in effect makes a significant contribution to atmospheric pollution control in the Suez area. 4.27 The pipeline itself would pose no serious environmental hazard since it would be buried and since measures would be taken to assure proper protection, maintenance and operation. Design and construction would be in accordance with the appropriate codes and standards to minimize the chances of overpressurization, corrosion and third party damage. To minimize risks, the offshore pipeline portions would be buried in areas where the pipe may be subject to damage from marine activity. Adequate "fail-safe" features would be incorporated into the supervisory control system to minimize the possibility of operator errors. Schedule and Reporting 4.28 The proposed project is scheduled to be completed in September 1981 except for the Ramadan offshore portion which may extend into December 1981. A schedule showing the timing and completion of the various project activities is shown in Annex 4.01. During negotiations agreement was reached that EGPC would submit quarterly project progress reports up to the time major equipment has arrived in the field and monthly reports thereafter. - 38 - V. FINANCIAL ASPECTS Introduction 5.01 Within the framework of Law 20, the primary responsibility of managing the petroleum sector rests with EGPC. Its activities range from exploration to downstream operations like marketing and refining. However, except for foreign trade in crude oil and refined products, EGPC discharges these functions through foreign partners 1/ (exploration) and wholly-owned subsidiaries (refining, transportation and marketing). While EGPC is vested with considerable managerial and technical authority it is not financially autonomous. In the domestic market EGPC has, at best, an advisory role in the determination of petroleum products prices. All surplus from its operations, but for a nominal proportion, is transferred to the Government, and EGPC has to seek appropriations from the general budget on a loan basis to finance most of its investments. EGPC's Past Financial Performance and Present Situation Income 5.02 Under the terms of the production sharing contracts entered into with EGPC's foreign partners, a proportion of oil produced is used to cover costs and the balance (profit oil) is shared between the partners. EGPC receives and owns Egypt's share of profit oil. Its income is derived almost exclusively from the sale of this oil in the domestic and export markets. On account of the low level of domestic product prices, EGPC's net income depends critically on the volume of its exports. Exports 5.03 Rising production levels over the last few years have led to a significant increase in EGPC's exportable oil surplus. This, coupled with the sharp increase in the international price of oil, has had a significant effect on its income. The increase in EGPC's profit from LE 4 million in 1973 to LE 218 million in 1978 is almost exclusively relatable to its exports which increased from LE 7 million in 1973 (7% of sales) to LE 270 million (60% of its net sales) in 1978. Domestic Sales 5.04 Although its statute vests EGPC with the authority to determine domestic prices, retail prices of petroleum products are in practice set by Government and are currently well below the international prices. EGPC's net income from domestic sales is determined on the basis of fixed product prices less various costs relatable to refining, transportation, marketing, 1/ The only exception being the General Petroleum Company (GPC) a wholly- owned subsidiary of EGPC engaged in exploration and production. - 39 - Government fees, excises and dues. It is appropriately designated as net- back', which in 1977 for El Morgan blend (the major Egyptian crude) was as given below: LE/bbl. $/bbl. (1 LE=$1.44) Weighted Average Revenue from Sale to Distributors 3.297 4.75 Weighted Average Expenses: Processing 0.307 0.44 Special Processing 0.031 0.05 Products' Transport 0.030 0.04 Customs & Excise & Fees 0.745 1.07 Treasury Rights 0.955 1.38 2.068 2.98 Net Income 1.229 1.77 Less Crude Transport Cost 0.120 0.17 Net-back 1.109 1.60 5.05 As indicated in paras. 3.05 and 3.10, all functions relating to refining, transmission and marketing are handled by EGPC's subsidiaries. EGPC sells refined products to its marketing companies at the set level less marketing margins. Its other non-producing subsidiaries are separately recompensed for their services (refinirng, distribution, etc.), on a cost plus basis. So as to have an element of control over the functioning of these subsidiaries, EGPC periodically predetermines reimbursable costs and profits on the basis of a fixed set of norms. This system is not uncommon in the oil industry. However, the fact that these subsidiaries make a profit is not an index of their efficiency. Since the Government continues to be reluctant to increase the retail prices of refined products, any increase in refining, transmission and marketing costs would result in a corresponding decrease in EGPC's net-back. 5.06 A summary of EGPC's unconsolidated income statements and the dis- tribution of profit for the period 1973 to 1978 is given below. Detailed accounts are in Annex 5.01. UNCONSOLIDATED INCOME STATEMENTS Actual Estimated Year Ended December 31: 1973 1974 1975 1976 1977 1978 ---LE Millions --------- Total Income 180.8 266.3 360.7 514.1 746.2 783.6 Total Costs, Expenses and Taxes 176.7 259.3 310.1 395.4 547.8 565.4 Net Profit 4.1 7.0 50.6 118.7 198.4 218.2 Retained by EGPC - 3.8 33.0 34.3 21.2 31.6 Distribution to Government 4.1 3.2 17.6 84.4 177.2 186.6 - 40 - The above statements record an impressive increase in EGPC's prof4ts from LE 4 million in 1973 to LE 218 million in 1978. These profits are mostly attribut- able to increases in the exportable surplus and international prices. Appropriation of Surplus and Financing Investment 5.07 EGPC, after meeting costs relating to its operations, is allowed to retain 10% of its profits with Government appropriating the balance. EGPC has recently been permitted to keep, at the discretion of the Gov- ernment, an additional 5% of its profits for new project financing. The Government, therefore, is the major beneficiary of the sector's growing surplus. Prior to 1974 most of the Government's income came in the form of taxes and royalties, EGPC's surplus forming only a small proportion. By 1977, with increased profits, the sums paid to the Government from these two sources had become roughly comparable: about LE 195 million on account of taxes and LE 177 million as the State's share of EGPC's surplus. In 1978 the Government anticipates a revenue of LE 400 million from these two sources (Annex 5.01). As the Government mops up almost the entire surplus, EGPC must, for financing its investment, secure approriations from the national budget; which is in consonance with Egypt's practice in other sectors of the economy. However, once a program of investment has been approved by the Government and is included in the Five Year Development Plan, EGPC, under its statutes, is permitted to use its earnings through export of oil to meet its foreign exchange requirement. This system will apply in the case of the proposed project, where EGPC aside from meeting the local cost requirement will cover the foreign exchange gap not covered by the proposed loan. 5.08 As shown in EGPC's unconsolidated balance sheets (Annex 5.01) EGPC's investments in fixed assets (mostly buldings) are relatively small and mostly depreciated. Its investments in subsidiaries and in projects in progress have in contrast been steadily increasing, as a result of extensive rehabili- tation and extension programs required to meet domestic needs in the oil sector. EGPC has chosen, since 1977, to curtail its lending to subsidiaries and presently finances its investments in these companies through equity contributions. To cover these growing investments and its other requirements for funds, EGPC has relied primarily on its retained earnings, on Government funds and, to a lesser extent, on the funds borrowed from subsidiaries and loans from commercial and development banks. The expected position as at December 31, 1978 was as below. These figures have not been audited and may be changed on consolidation. - 41 - Assets L.E. Millions Net fixed assets 15 Projects under construction 120 Investments in subsidiaries 317 Net working capital 11 463 Financing Equity 50 Reserves 172 Domestic Loans 164 Foreign Loans 77 463 Financial practices 5.09 A number of the financial practices are in need of review, in particular the debt service situation outlined below and problems detailed in the next paragraph. It has been already noted that eighty-five to ninety per cent of EGPC's net earnings must be distributed to the Gcovernment and that any of these used by EGPC are treated as loans. It has also been noted that while EGPC finances most of its investments by borrowing it has transferred them to its subsidiaries without transf'erring equivalent loan obligations. Taken together the situation could arise where EGPC generates insufficient funds to meet its debt service obligations. Therefore, (i) the Government and EGPC agreed that EGPC would retain out of its profits a specific reserve, additional to its other reserves as prescribed by law, for the repayment of the Bank's loan; and (ii) EGPC agreed that prior to deciding to transfer the assets created under the project to one or more of it subsidiaries, it would submit for the Bank's approval its plans for such a transfer. EGPC also agreed to maintain separate project accounts until the project completed or the assets have been transferred, whichever is later. 5.10 EGPC like other public sector undertakings follows Egypt's Unified Accounting System (3.11). EGPC has the critical task of setting standards of cost accounting and for financial resporting which must follow the Unified System and yet be fitting and useful for the industry. In setting up guide- lines for uniform costing, for investment analysis and valuation of assets, for the consolidation of accounts and flexible budgeting, EGPC's financial managers have come up against numerous problems which are still not resolved to their satisfaction. The accounts are not kept in a manner which permits accurate consolidation. The accounting procedures require review and simpli- fication. EGPC has requested technicaL assistance in this area. EGPC there- fore agreed to appoint consultants on terms and conditions satisfactory to the Bank, who would (i) review the accounting systems and financiial practices of EGPC and its subsidiaries and their fi-nancial relationship with the Government; (ii) recommend suitable changes in financial policies and practices; (iii) assist EGPC and its subsidiaries in instituting a system of medium term - 42 - planning; and (iv) review and advise on future institutional and financial arrangements in the gas subsector. Consultants would be required to complete a diagnostic study by April 30, 1980, on the above issues. EGPC also agreed to consult with the Bank on the findings of the diagnostic study and commence the implementation of a time-phased plan of action by July 31, 1980. EGPC's Future Financial Prospects 5.11 The Sector Plan envisages a total investment of LE 3.2 billion during the current Plan period (1978-1982). Of this, investment of LE 2 billion would be undertaken by foreign partners and the balance (LE 1.2 billion) by EGPC and its subsidiaries. It is anticipated that EGPC and its subsidiaries will provide LE 50 million from internal resources and as such almost all incremental investment would need to be financed by the Government. 5.12 As indicated in para. 2.23, considerable uncertainty attaches to EGPC's investment program particularly in the refining and processing sector. The flow of income is dependent upon the rate of future oil and gas discover- ies. In view of the uncertainties attending EGPC's future sources of income and the levels of investment expenditure, it is impossible to project EGPC's future financial performance with any precision and this, therefore, is not being attempted. Nevertheless, we do not believe that there is any cause for concern about EGPC's finances over the medium term. We are satisfied th-at the underlying potential income based on Egypt's oil production is sound and substantial. Present income levels should increase over the next two to three years and the prospects for retaining a more than adequate level of income are good. Given the present uncertainties in the financial information available for EGPC it will only be possible to set financial objectives in the conven- tional manner after the completion of the proposed studies (see para. 5.10). Nevertheless it is necessary to ensure that financial performance over the longer term does not fall below a minimum standard; it was therefore agreed that EGPC would review its finances and those of its subsidiaries by September 30 of each year to ensure that, based on the findings of such review, the consolidated net revenues of EGPC and all its subsidiaries for such year shall not be less than 1.5 times the consolidated debt services requirements of EGPC and all of this subsidiaries for that year. Pro-ject Cost and Benefit Investment 5.13 Investment in the intitial phase of the project is estimated at US$167 million of which US$7 million is for studies and technical assistance and US$160 million for the project, including price escalation. We have, for purposes of incremental analysis of the project taken into account, as a second phase, the cost of the development of the Amal field. - 4:3 - PHASE I PHASE II US$ million US$ million 1979 26 1984 15 1980 85 1985 29 1981 49 1986 27 160 27 The pipeline system will have a physical life not less than the 20-year period used for project evaluation. Profit Estimate 5.14 The projected increase in EGPC's income and expenditure resulting from the project is indicated in Annex 5.02. A summary of the project income and expenditure statement consolidated for EGPC and its subsidiaries is given below. In view of the substantial impact of inflation on company income taxes the projections take account of inflation at 7% annually, except in relation to domestic prices. This exception is of little consequence in relation to the projections. 1981-85 1986-90 1991-95 1996-2000 In $ Millions (including 7% inflation) Consolidated Project Income (net of fees): Gas 46 34 32 31 LPG 6 5 4 1 Naphtha 52 64 66 24 Fuel Oil (Net) 261 399 516 717 Diesel Oil (Net) 42 - - - Total Income 407 502 618 773 Expenses: Operating Cost 78 112 153 210 Depreciation 40 67 71 45 Interest and Charges 51 44 22 5 Income Taxes 87 103 143 201 Total Expenses 256 326 389 461 Net Profit (before distribution) 151 176 229 312 The average annual incremental income from the project would be US$115 million. Of this, direct sales both internal and external (dry gas, LPG and naphtha), - 44 - would account for no more than US$18 million which would be barely adequate to cover operating costs. The major flow of income would be from increased fuel oil exports. Income 5.16 As explained previously, the Gulf of Suez project will result in a significant addition to the quantities of gas available in the domestic market where it will replace fuel oil and diesel. Processing of the gas will produce LPG for the domestic market and natural gas liquids as naphtha for the export market. The income generated for EGPC as a result of the project will be from the sale of (i) initially about 90 MMcf/d of gas, falling to 80 MMcf/d after 1985, which sells domestically at a price equivalent to US$0.25 per MCF; (ii) around 50,000 tons per year of LPG for which the net of tax selling price is US$15.29 per ton; (iii) about 50,000 tons per year of naphtha at an estimated normal export price of US$129 per ton and (iv) the higher price obtained by EGPC from selling 600,000 tons of fuel oil overseas instead of in the domestic market, consequent on the supply of natural gas. The price obtainable will be about US$70 per ton instead of US$10.80. Expenses 5.17 EGPC's expenses will increase as a result of the project but on a scale much below the increase in income. Operating costs are expected ini- tially to be about US$12 million annually. Initially, taxes are the largest single element of cost and will equal the operating costs over the project period. Profitability 5.18 Net profit to EGPC would be US$43 million per annum. The financial profitability of the proposed project is therefore beyond question. The project gives an after tax financial rate of return of 13% in real terms. This figure is conservative particularly in that it takes no account of the developments in the oil industry in 1979, and assumes that both domestic prices and relative prices of oil products will remain unchanged over the project life. VI. ECONOMIC ANALYSIS Project Justification 6.01 The projects principal justification lies in its securing for Egypt an energy resource, which is presently being wasted. Natural gas, both associ- ated and non-associated, gathered from the Gulf of Suez would be processed for recovery of LPG and NGLs. While LPG would be sold in the domestic market, the NGLs which will consist essentially of the naphtha fraction would be exported. Dry gas on an average of about 80 MMcf/d would be sold in Suez and Cairo, where it would essentially replace fuel oil, which in turn will be exported. - 45 - The total gas anticipated to be recovered by the system during the life of the project would be 570 billion cft (equivalent to 16.3 million tons of oil), one million tons of LPG and 860,000 tons of naphtha. Rate of Return and Sensitivity Analysis 6.02 Project costs at constant prices (1978 dollars) are estimated at US$190 million including the cost of the development of Amal. The benefit stream consists of the net incremental revenues derived from exports of fuel oil valued at international prices and savings in import of LPG. The economic rate of return on this project has been calculated on an incremental basis, with the past investment on the deveLopment of oil fields in the Gulf of Suez being considered as sunk costs. In computing the rate of return, petroleum products have been valued at international FOB prices. No adjustment is considered necessary for internal freight as products not consumed in the city of Suez can be exported therefrom, especially fuel oil as bunker to the tanker trade. We have further assumed that there would be no change in the relative prices of petroleum products. 6.03 The economic cost and beneEit streams for the project are shown in Annex 6.01. The summary results for the economic rate of return and sensitivity analysis are shown below. The parameters chosen for measuring the sensitivity of the project's rate of return are: The Base Case: DeGolyer and MacNaughton's (D&M) estimates of proved plus half probable gas reserves and final capital cost as esti- mated by the mission. The Best Case: D&M estimates of proved plus probable gas reserves and a 15% underrun in capital cost. The Worst Case: D&M estimates of proved gas reserves and a 15% overrun in capital cost. Intermediate Case 1: proved plus half probable reserves and a 15% capital cost underrun. Intermediate Case 2: proved plus probable reserves and estimated capital cost. Intermediate Case 3: proved plus haLlf probable reserves and a 15% capital cost overrun. Intermediate Case 4: proved reserves and estimated capital cost. - 46 - Economic Real Rate of Return Best Case: 41% Intermediate Case 1: 38% Intermediate Case 2: 35% Base Case: 32% Intermediate Case 3: 28% Intermediate CAse 4: 26% Worst Case: 22% 6.04 As indicated above, the economic rate of return is 32% for the base case. While the rate of return is sensitive to the variations of the sensiti- vity parameters, specially the availability of gas, it remains satisfactory even under adverse assumptions. VII. RECOMMENDATIONS 7.01 During negotiations the following issues were raised with EGPC and satisfactory assurances were obtained that: (a) EGPC would prepare and maintain a CPM plan for implementing the project (para. 4.13); (b) EGPC would undertake sector studies related to exploration, pricing and natural gas utilization with consultants and terms of reference satisfactory to the Bank (para. 2.24); (c) EGPC would develop location 382 reserves and optimize in-field consumption (para. 4.06); (d) EGPC would periodically review with the Bank associated gas supplies and undertake the timely development of Amal to maintain 80 MMcf/d (para. 4.18); (e) EGPC would appoint consultants satisfactory to the Bank to review its cost accounting, financial reporting system, financial policies, medium term planning and training needs and review with the Bnak the findings and recommendations (para. 5.10); (f) EGPC would submit audited accounts within 9 months after each fiscal year (para. 3.13); (g) EGPC would submit project progress reports to the Bank (para. 4.28); and (h) EGPC would submit its plans for the transfer of asets to subsidiaries to the Bank for prior approval (para. 5.09). - 4;7 - 7.02 Assurances were obtained from the ARE during negotiations that: (a) ARE would make provisions for EGPC to retain additional reserves for repaying the Bank loan (para. 5.09); (b) ARE would review the findings and recommendations of the sector studies with the Bank (para. 2.24); and (c) ARE would make funds available to EGPC for the timely development of the Amal gas field (para. 4.18). 7.03 Based on the above assurances, the project is suitable for a Bank loan of US$75 million equivalent for 20 years including 4 years of grace. - 48 - N;E: 1.01 Page l oE l. EGYPT GULF OF SLEZ GAS PROJECT TOTAL INSTALLED CAPACITY OF ELECTRIC PLANTS EXISTING STEAM AND GAS TURBINE POWER UNITS PL'T (1) CAP No. & SIZE (1) YEAR PLANT LOCATION MW UNITS COMMISSIONED Steam Power Cairo West 261 3 x 87 '66-'68 Cairo South 240 4 x 60 '57-'65 Cairo North 100 2 x 30 '54-'55 1 x 20 '52-'53 2 x 10 '52-'53 El Tebbin 45 3 x 15 '58-'59 Talkha 127 3 x 12.5 155-156 3 x 30 '66-'67 Damanhour 225 2 x 15 '60 3 x 65 '68 El Siouf 113 2 x 26.5 '61 2 x 30 '69 Karmouz 64 4 x 16 '49-'56 Assiut 90 3 x 30 '66-'67 Suez 100 4 x 25 '64 (Damaged) El-Max 28 2 x 14 '66 Suez 17 1 x 17 '76 Ismailia 22(4) 1 x 21.6 '77 Cairo North 22(4) 1 x 21.6 '77 Fayum 22(4) 1 x 21.6 ITahrir Matamir 22(4) 1 x 21.6 '78 Heliopolis 35(4) 3 x 12.5 '78 Karmouz 24(4) 2 x 12.5 '78 Port Said 46 2 x 23 '77 Total 1603 Souirce: Sanderson and Porter -. 49 - EGYPT ANNEX 1.02 Page I of 2 GULF OF SUEZ GAS PROJECT TOTAL INSTALLED CAPACITY OF ELECTRIC PLANTS STEAM AND GAS TURBINE POWER UNITS UNDER CONTRACT PL'T (1) CAP No. & SIZE (1) YEAR PLANT LOCATION MW UNITS COMMISSIONED FUEL Kafr El-Dawar 330 3 x 110 '79-'82 Cairo West 87 1 x 87 '79 Abu-Qir I 300 2 x 150 '80 Ismalia 300 2 x 150 '83 Abu-Qir II 300 2 x 150 '81 Suez I 300 2 x 150 '82 Helwan 132 5 x 25.5 '78 Diesel Oil Talkha 198 8 x 24.8 '78 Diesel Oil El-Tebbin 50 2 x 25 '79 Diesel Oil Cairo East 50 2 x 25 '79 Diesel Oil Total 2047 Source: Sanderson and Porter - 50 - ANNE': 1.02 Page 2 of 2 EGYPT GULF OF SUEZ GAS PROJECT TOTAL INSTALTLED CAPACITY OF ELECTRIC PLANTS EXISTING STEAM AND GAS TURBINE P0WER UNITS T PL'T (1) CAP No. & SIZE (1) YEAR PLANT LOCATION . MW UNITS COMtISSIONED Steam Power Cairo VWsst 261 3 x 87 '66-'68 Cairo South I 240 4 x 60 '57-'65 Cairo North 100 2 x 30 '54-'55 1 x 20 '52-'53 2 x 10 '52-'53 El Tebbin 45 3 x 15 '58-'59 Talkha 127 3 x 12.5 '55-'56 3 x 30 '66-'67 Damanhour 225 2 x 15 '60 3x 65 '68 El Siouf 113 2 x 26.5 '61 2 x30 '69 Karmouz 64 4 x 16 '49-'56 Assiut 90 3 x 30 '66-'67 Suez 100 4 x 25 '64 (Damaged) El-.4ax 28 2 x 14 '66 Suez 17 1 x 17 '76 Ismail±a 22(4) 1 x 21.6 '77 Cairo North 22(4) 1 x 21.6 '77 Fayum 22(4) 1 x 21.6 Tahrir Matamir 22(4) 1 x 21.6 '78 r.eliopolis 35(4) 3 x 12,5 '78 Karmouz 24(4) - 2 x 12.5 '78 Port Said 46 2 x 23 '77 Total 1603 Source: Sarderson and Porter - 51 - ANNEX 3.01 Page 1 of 1 EGYPT GULF OF SUEZ GAS PROJECT ORGANIZATION STRUCTURE . Suprem EGCBard of Directr ertra Chairall Vice Chairman for Vice Chairman Vice Chairman Exploration and for for Production Planning & Projects Operation 2 ~~~~ ~~Genral Genra i ~~~~~Manager l Manager l Exploration F nance Engineering Administration Refin. & Manu. Department Department Department Department Department _ Production _ Follow-up _ Distribution _ Department _ Department _ Department | Agreements | Comrnerical | m Department l Departnnent l Source: Egyptian General Petroleum Corporation World Bank - 20395 EGYPT GULF OF SUEZ GAS PROJECT FUNCTIONAL STRUCTURE OF OIL INDUSTRY Minister of Petroleum Supreme Petroleum Council E.G. P. C. Production Refining & | | . . l [ Marketing & l l Construction & tn Exporation Processing Pipelines Distribution Engineering Services [ Foreign | l [ ELNASAR l l | Coop~~~~~~~~~~~~~~~~~~~~~~orig _ Coy s l WEPCO - _ ~~~~~~~~~~~Petroleum _ SUMED |_ e (53) 1 ComPanV l l l Co. |~~~~~~~~~~~~~~~~~~~~~~~~~Patnr ComPanV |ol Sourc:oEgyptian VVEPCO PetroleumPCorporationeWorldtBnnk-20396 1s Source: Egyptian Genrnl Petroleum Corporation World Bank -20396 - 53 AINNEX 4.01 Page 1 of 1 EGYPT GULF OF SUEZ GAS PROJECT ESTIMATE OF GAS AVAILABILITY FROM THF CITT.F OF SUEZ (In millions of cubic feet per day) 382 July and Ramadan -July and Ramadan Proved + Year Gross OilField Use Net 1/2 Probable Amal Total 1981 71 40 31 75 - 106 1982 63 44 19 74 - 93 1983 71 45 26 75 - 101 1984 73 44 29 70 - 99 1985 63 38 25 60 - 85 1986 54 37 17 50 13 80 1987 45 34 11 42 27 80 1988 36 30 6 35 39 80 1989 29 25 4 29 47 80 1990 24 20 3 24 53 80 1991 21 17 4 19 37 80 1992 11 11 . 16 54 80 1993 2 2 13 67 80 1994 - 11 69 80 1995 - - - 9 71 80 1996 1996 - ~ 8 72 80 1997 1997 - - _ 7 73 80 1998 _ _ - 80 80 1999 - 8 8 2000 - - 80 80 -ource: IDe (olyer and '4ac%.aughton "ocervoir Studv Egyptian General Petroleum Corp. - 54 - ANNEX 4.02 EGYPT GULF OF SUEZ GAS PROJECT Estimated Schedule of Disbursement Cumulative Disbursement IBRD Fiscal Year at End of Quarter and Quarter (US$ 000) 1979/80 September 30, 1979 1,000 December 31, 1979 2,000 March 31, 1980 7,000 June 30, 1980 15,000 1980/81 September 30, 1980 25,000 December 31, 1980 35,000 March 31, 1981 45,000 June 30, 1981 55,000 1981/82 September 30, 1981 65,000 December 31, 1981 70,000 March 31, 1982 73,000 June 30, 1982 75,000 Source: Mission estimate May, 1979 o ~ ~ ~ ~ ~ ~ a a a a ~ j a a a a a~ a-aa ra a a a a aaaa. a-aa .a.aaaa aa a., aa | °°- |°< Q~> °|' _~o ool _<> 9oN |^o onS N°@ 9<< NDH oW1
    - 1 250( 25075022_3 109 223 107 103 167 054 145 132 120 131 24 64 64 64 64 0000700 (FOOlS> 9 - 6 205 205 205 205 100 175 160 163 157 154 145 139 112 94 32 32 32 32 32 DOMESTIC PRICES SA0 ($/20E09 0.0,O;25 0.O25 0.025, 0.025 0,025 0,025 0,025 0.025 0.025 0.025 0,025 0.025 0,025 0.025 0.025 0.025 0.025 202 0.025 0.0 25 2.025 O02.01125 FUEL OIL (1/TON 9.07 0.0 0.03 0.02 .07.07 0.57 .07 0.2 0,2 007 0.07 0.07 0.07 9.07 9.07 9.07 9.07 9.07 9. 27 9.27.7 9.7 ,0 DIESEL 0IlL (0/TORI 37.321 37.32 3 /3 2 37.;32 12.32 37.32 37.32 37,32 37.32 37.32 37.32 39,32 37.32 37.32 37.32 37.32 37.32 37.032 37.32 37 .32 37.32 37.07 LFOI >0/T0N 34,56 34,56 34.50 34,56 34.56 34.56 34,506 34.56 34.50 34,56 34.56 34,56 34.06 34.56 34.56 34.565 34,56 34.56 34.56 34 .56 34.56 34 .526 EXCISE ODES FUEL OIL 10/TONW) 0,70 0.20 0.70 0.70 0,70 0.20 0,70 0.79 0/V 0,79 070 0.79 0.79 2.2 279 0 .79 0.79 2,79 0.7 0 0.79 0.79 0.79O. DIESEL OIL (2/TON 17 35 17.35 17.35 17.35 (1.35 17.35 1235 17.35 17,3F 17.3 7.3 17.35 12.35 12.30 17.395 17.35 17.35 37.35 07.35 17.35 17.35 17.35 LEO It/Toll 10.~~~~~~~~~~~927 19.20 10.7 10.27 302 19.2 02/ 9022 10.27 10.7 910.7 19.2 7 19,27 19.27 19.27 19.27 19.27 19.27 19.27 19.2 92 92 EXPORT PR ICES27 97 197 FUEL OIL >0/TO)NI 72.00 77.00 02:.0 08.00 03.00 00,00 106.00 1300 120.00 120.00 136,00 145.00 055,00 165.0 175.0X 127.000 199.02 212.00 226.00 24X.00 256.20 273.00 OISL OIL (2/TON 114,00 122.00 - 12.0 130.00 142.00 950.00 162.0120 O20 201.00 214.00 722.00 243.52 259.00 276.00 294.00 313.02 333.00 055.0320 0.0480 0602002 (S/TON) 12~~~~~~~~~~9.00 1300 120 15.0 0.01700000 0O 2.0 215,00 220.00 243.00) 259, 00 276.00 294.00 313.00 334.00 355.02 378.20 423.00 429,00 457.20 407,00 165 CAIRO 11000 7200 ~~F.O.E.( - 5 226 326 372 4,5 6-- - - - - - - 001S SuE (1000 XONS F.,, 1 23 054 712 60 000 000 647 647 615 65 615 6 05 615 615 Ii 615 615 615 605- G62011000TONS F.O.E.) 209 550, 701 9021 752 600 600 600 64/ 647 615 615 615 615 615 615 615 615 615 615 GAS CAIRO~ (ACFI 12 02 6 2 - - 020SRE IMNEPI 4 08 17 20 26 26 26 26 26 26 26 26 26 26 26 26 26 26 26 26 00(INE 0 20 20 32 20 26 26 26 26 26 22 26 26 26 26 26 26 26 26 26 La0(000 TONSS> 27 Q3 03 01 74 02 74 65 60 565 561 48 46 42 40 21 20 20 21 21 NAPHTHA (1000 TONS) 2 0 0 5 0 2 2 5 4 5 51 4 4 9 10 1 11 Fl 1 008 SALE CARO6 7.1 7, 3. 11 - - 521 OOLES SXEZ ~~~~~~~~~~~~~~~~~~~~~12 2.3 5.0 7,6 7,2 6.0 0.0 6.9 6.6 0.6 2.3 6,3 6.3 6.3 2.3 6.3 -6.3 6 .3 -63 6.3 DONESTIC SALES/ LP5 0 0,4 12.1 11.2 04 60 60 6. . . 6.3 6.3 6.3 0.3 6.3 6.2 6.3 6.3 6.3 6. LEO 0 2.0 2.0~ ~~~~ ~~~~ ~~~~ ~~~~ ~~~~ ~~~~~~~~~~~ 2.9 -2. 2. 2. 6 2. 19 1.2 1.2 1.6 15 1.4 0. 0.17 2.7 '0.7 0.7 LESS LEO EXCISE FEDS >0.51~~~~~~~~~~~~~~~~~~~~~~. 11.01 >,1 >1.61 <041 11.21 (.1 1.31 11.2> 11 (1.) 0.91 O (0.01 >0.) 10.8 (0.4) 1041 (0.41 (04) (04) LEO (NET OF FEES> ~~~~~~~~~~~~~~~~~~~~04 13 .3 13 12 00 1.9. 0.0 0, 0.2O 0.2 0.7 0.7 9.6 X.3 03 X.3 0.3 0.3 EXPORTS NAPHTHA 47 10,; >1.4 12.1 12.9 12.5 12.5 12.0 13.1 13.5 14.1 14.1 14.4 13.R 11.2 4.2 4.4 4.7 5.0 5.4 SIRECT PROJECT INLONE - - 0.0~~~~~~~~~~~~~~9~ 21.4 24.0 24,0 6 22.5 20.2 20.6 20.6 20,6 20.9 20.2 21,2 21.4 20.2 17.9 10.2 11.0 1F.3 11.6 13.2 FUEL OIL EXPORTS - - 1X.- 39.6 63.5 05.3 30.7 16.8 01.6 02. 28.0 03.0- 95. IX.5) 007.6) 315.0 122.4, 130.4) 139.2 147.,6 157.4 167.9 LESS DOMESTIC SOLES - 2.11 14.11 61621 (7.00 14.21 16.21 16.21 (6.:21 (5.151 (5 .91 (5,06) (5,61 (5.61 15.6) 15.6> (5,6) (0.6) (5.6 25.6) -. 5.60, L-ESSEXCISEF ECCS 0.2 0.4 0.5 0. 0.6 0.5 O.5 0.5 0.5 0.5 0.5 0.,5 5.5 0.5 0.5 0.5 0.5 0.5 0.5 - 95 LESS DONCUTOC SOLES (NET OF EXCISE FEES) 11.01 13.71 15.71) 17.11 16.11 I 15.> 1)5.71 15,7> (5.41 15,4) (5,11 (5.1) (5.1) >5.1) (5.11 (5.1) (5.1) 05.1) 15.1) (5.11 DIPOESL CIL EXPORTS . 5. 60 02 . LESSE FOMESTIC SOL-ES - 20 41 41 2.2 206 - L-ESS E000 PSEODS - 0.0 1.0 1.9 0.0 0.3 - -- - LESS SOMESTIC SOLES lNOT OF EXCISE FEES) _(1>1 1)2.21 12. 2> (1.2, 10.31 INDIRECT PROJECT INCOME - 22.4 40.3 01.0 06.2 74.2 21.0 25.9 01.3 22.6 82.44 90.27 06,47. 102.5 10000.90.2 96 4 1117.309125.3.3133.0 1 142.542 15 3.3.3 11228 TOTAL PROJECT INCOME -2 3 /0.1 96.4 110.X 07,3 91.4 06.5 101.0 103. 2 109.3 111.4 017.6 123.9 120.9 135.2 136.1 144.9 153.8 -163.9 174.8 PROCESSING PIPELINE CXFENSCO 06, 45.0 40.0 51.0 50.1 54.0 62,1 61.5 61.1 60.5 60.0 59.8 59.7 59.0 59.6 00.4 54,7 56.2 57.7 60.4 ORUSSOP00R023 NO PROFII 25. 1 40.5 509.0 4.0 36.2 34.4 40.4 42,) 40.0 51.54 57,21 64,2 70.3l 75.6 75.7 90.2 97.6 106. 11. RETIONOSI TOCKO 3 . 7.4 7.1 6.6 9.2 . . 22 1: IJR 8~~~~~~~~~~~~~~~~~~~~~~. . .0 7.1 6. 6.0 5.1 4.5 3.9 3.5 2.9 2.7 2.32. MANASEMENT FEE 1.5 1.4 1.3 1. 1.2 0.2 1. 16 1.5 1.3 1.2 1.2 1.0 X. 0.7 0.0 0.6 2.5 0.43 0.4 IRTLOEST - 0.1 7,0 7.0 6.5 6,0 9.1 0.4 7,7 7.0 6.2 5,5 4.0 4.1 3.4 2.7 2.0 1.6 1.2 0.8 ..... .. .2 .5 8 41 34 27 2. 1 1. 0. TOTAL FOOJEXI INCOMF 1t. 42. 7 62.0 75.2 61.3 54.1 54.5 50.0 59.3 04.2 65. 70,4 21.1 70.:7 93.0 02. 05.7 102.4 102. 1 1;17.9 IOTLODOT 0 PoPS ~~~~~~~~~~~~~~~~~~~~66 11.3 ,10 11.1 104 101 10.0 9.0 2,2 7.2 6.1 52 45 3.6 2 2 2.0 1.5 0.8 0.3 0.0 NFCO9 N> 0.X. . . . 2.9 2.723,0 3.1 3. 3. . . .6 4. 49 57 61 66 71 1900010001 0.3 0.5 1.0~~~~~~~~~~~~~~~~~~~~2 1.0 1.52 1.3 17.37 1 11.50 2,7 13.2 .521 2 22.43 2.4 2. .1 33 OOTELSN09T SOOFI 75 4.4 10.1~~~~~~~~~~~~~~~~~~~~, 27.7 32.0 26.1 22.5 22.0 25.0 62 2. 30.8 4435 3934 326. 359. 41.4 1. 4 0.5.3 52.1 56.3 610. GOLF OF S5052 GAS PROJECT OGPC STATEMIENTS OF SOGRCES AND APPLICATIONS OF FUNDS 1979 1980 SF801 1982 11983 1984 1985 1986 1987 1988 198 95990 1995 19I92 1993 1994 1995 1996 1997 1998 1999 2000 DISITRI8-UIIVE SUJRPLUS - - 5.2 18.9 32.6 38.7 30.7 26.5 26.8 30,1 30. 34 4 35. 39.3 42.6 45.9 48.7 48,5 56.8 61.3 66.2 71.06 R'EPAYMENT BIY AFFILGIATE - - - 10.1 10.1 10.1 G.1l 10.1 14.2 14.2 14.2 14,2 14,2 14.2 14,2 14,2 14,2 14.2 7.6 7.6 7.6 714 CAPITAL COST INCLJFDING INTFR ES1 S FEES DURING CONST'RUCTION 25.7 86.2 49.3 - 15.6 28.8 26.6 - - - - WORKING CAPITAL 14.31 15,81 11.4 14,5 4.4 (0.21 (4,51 (0.61 f 5.3 0.9 0,2 1.0 0.4 1.0 1,1 1.0 0.8 0.2 1.5 1.4 1,7 1.0 CASH FLOW BEFORE FINANCING 114 (841 555 1.5 38. (33,4) 16,5) 10.6) 35.7) 43,4 448 47.6 49.5 52:5 55.7 59,1 62.1 62.5 62. 67.5 72.1 7. ACCUNSLATED BPS AT 105 119,5 (85,91 117.6) 7? (93,91 (75.01 166,1 161,6) 46.51 29.81 1147,1 11 15.4 29. 42.5 55.4 67.7 78,9 89.2 99.2 108.9 110.3 FOREIGN LOANS 13.8 39.7 35,0 5.0 - - - - -~ - - -~ - PRINCIP AL - - - - 7,4 7.4 7,4 7.4 7,4 7.4 /.4 7,4 4 .3 4.3 4,3 4,3 4.3 4.3 4.3 4.3 - - CASH FLOW AFTER FOREIGN FINANCING 17.61, (40.7), (20.5) 19.5) 30,9) 26,0) 9,1) 3.2 28.3 36.0 37.4 40.2 45. 48.2 51.4 54.8 57.8 58.2 58.6 63.2 72.1 76.0 ArCCJ ULATES, NPV AT 10% (6,9) (40, (55.91 142.6) (23.4 (84 ( (40 251 95 2, 3, 93 62.4 75.1 87.4 99.3 110.87 121.2 130.68 140.2 149.9 159.1 DOMESTIC LOAN 2.5 31.1 24.0 - 5. 12,7 116 - - - - - FPRINCIFALI - - - 4. 4, 48 4.8 4,G 7,7 7 7.7 7.7 7.7 7.7 7.7 3.8 7.8 2.8 2.8- 2.04 CASH FLOW AFIER FINANCING (5.1l1 (,2 3.5, 19.5 30,9 26,9 17,0 14.0 23.5 31.2 29.7 32.5 37.0 40.5 43.7 47.1 50,1 05.4 55.8 60.4 69,3 74.0 ACCUAULATED NPV AT 105 14.6) - (2.2 (9.6) 3.7 22.9 38.1 46.R 53.3 63.3 75.3 85.7 96,1 107.0 177 128,2 138,5 148,4 18.4 167,5 176.5 105.9 195.0 GOVERNMEAT TARE - - 4.4 16.) 27,7 32.9 26.1 22.5 22.GF 25.6 26.2 29.3 30.3 33.4 36.2 39,.0 41.4 41.2 48.3 52.1 56.3 60.3 (DASH FLOW AFTER 202 :) 12 :) :) 1:) 1:7 4:, 75 :,13 FINO NCING 8 GUY) TAKE:; (5.1) (9.21, (09 3.4) 3,2 (6.0) (9.1) (81> I 5.6 3.5 32 1221 75 81 87 1. . . 30 1. ACJALAEFRF S 15L4.AT122) (1,9N(0.)V8,) 112)(1.! (0.1 224 (8.) 1701 (1.07(3,141201 (1.221.49(.7 (.171.9 1.7 01 . GULF OF SUEZ GAS PROJECT SUBSIDIARIES FINANCIAL STATEMENTS 19/19 19?80 1981 1982 1983 0984 19H05 1986 198/ 1958 19?89 1990 19,91 1992 1993 19?94 1995 1996 1997 1998 1999 2000 SALE OF7 SEEVOCE - 26.8 45.0 46.9 51.0 00.3 54,9 62, 1 61.5 61 .1J 60,5 60.0 59.8 59.7 59,6 59,6 60,4 54.7 56.2 57.7 60.4 j OPERATING COST - 10.6 10.3 14.? 20.2 20.9 19.2 20,9 22,3 23.8 25. 3 26,9 28.7 30.6 32.6 34.7 36.9 39.3 41.9 44,6 47.5 DEP'RECIATION - 00.1.I il 10, 1 10.1 10.1 i0.0 14,2 14. 4.2 14.2 14.2 14,2 14.2 14.2 14.2 14.2 7.6 7.6 7.6 7.6 INTEREST - - - 8.1 7,6 7,0 6.5 6.0 9.1 8,4 7.? 7.0 6.2 5.5 4.8 4.1 3.4 2.7 2.0 1.6 1.2 0.8 INCOME TAXES - 0,9 0. 9 0.8 0.8 0,7 0.1 1,0 0.9 0,9 0,8 0.7 0.6 0,6 0.5 0.4 0,4 0.3 0.3 0.2 0.3 I DISVTRI RUTIVE SURP'LUS - - 15,3 14.6 13,7 12.9 12.0 18.0 16.9 15.7 14.5 13.2 12.0 10.8 9,5 8.2 6.9 6.2 5.5 4.8 4,1 4.2 LEGAL RESERVE - 0.8 0.7 0.?1 0.6 0.6 0,9 0, 0.8O' 0.7 0,7 0.6 0.5 0.5 0 .4 0.3 0,3 0.3 0.2 0.2 0.2 ASSETS RESERVE - 0,8 0.7 0,7 0.6 0,6 0.9 0.8 0.8 0.7 0.? 0.6 0.5 0.5 0 .4 0.3 0.3 0.43 0.2 0.2 0.2 STAT'ES BONUS RESERVE- - 0,8 0.7 0,? 0.6 0.6 0.9 0.8 0l8 0.7 0? 0.7 O6 0,5 0.5 0.4 0.3 0.3 0.3 0.2 0.2 0.2 NASSER BANK SHARE - 0,3 0.3 0.3 0.3 0. 3 0,4 0.4 0.3 0.3 0.3 0.3 0.2 0,2 0.2 0.1 0,1 0.1 0,1 0,1 0,1 DIIVIDENDS PAID ESPE 8,3 8l.0 7.4 7.1 6,1.6 9.8 9.3 8,6 8,.0 7,1 6.5 6.0 5.1 4.5 3.9 3.5 2.9 2,7 2,3 2.3 EMPLOYEE SNARE - 2. 8 2.7 2.5 2.4 2.:?2 3.3 3.1 2.9 2.7 2,4 2.2 2.0 1.7 1.5 1.3 1.2 1.0 0.9 0,8 0,8 E8PC MANAGEMENT FEE - 1.5 1.5 0.4 1.3 0.2 1.8 1.7 1.6 0.5 1,3 1.2 1.1 1,0 0.8 0.7 0.6 0.6 0.5 0.4 0.4 SOURCES OF PUNI'S RESERVES - 2.4 2.0 2,1 1.00 0.8 2.7 2,4 2. 4 2.1 2.1 0.0 1.5 1.5 1.2 0.9 0.9 0.9 0.6 0.6 0,6 PROVISION FOR DEPRECIATION - - 10.0 10, 0.1 1 0,0I. 1 0.1. 14.2 04.2 14,2 14.2 14.2 14.2 14.2 14.2 14.2 14.2 7.6 7.6 7.6 7,6 SELF-FINANCING - - 2,4 12.2 12,2 11.9 11.9 12.8 16.6 16.6 16.3 16,3 16.0 15.7 15.7 15.4 15.1 15.1 8.5 8.2 8.2 8.2 EQUIITY INVESTED - - -- - - - - - - -- - - - - - LONG-TERM LOAN 1 - 61.2 - - 71.0 -- TOTAL SOURCES 1 63.6 12.2 12 . 2 11.9 11.9 83.8 16.6 16.6 16.3 06.3 16.0 15.7 15,7 15.4 15.0 15.1 8.5 8,2 8.2 8,2 REQUIREMENT FOR FIINDS CAPITAL INVESTMENT- - 161.2 - - - - 710. - - - - - - - - - - - - - - LOAN REPAYMENT - - 10.1 10.1 10.1 10,1 10,1 14.2 14.2 14.2 14,2 14.2 14.2 14.2 14.2 14.2 14.2 7.6 7.6 7.6 7,6 FINANCIAL. INVESTMENTS - - 0.0 0.? 0,7 0.6 0.6 0,9 0,8 0.8 0.7 0.? 0.6 0.5 0.5 0.4 0.3 0.3 0.3 0.2 0,2 0.2 ~ CASH I BANK BALANCES - - 1.6 1.4 1,4 0.2 0.2 1.8 1.6 1.6 1.4 1,4 1.2 1.0 1.0 0.8 0,6 0.6 0.6 0.4 0.4 0.4 TOTAL REQIUIREMENT - - 163.6 02.2 12.2 11.9 11.9 83.8 16,6 16.6 16.3 16.3 06.0 15.7 15.,7 15.4 15.1 15,1 8.5 8.2 8.2 UZ2 FIXED ASSETS- - 161.2 161.2 161,2 161.2 161.2 232,2 232.2 232.2 232.2 232.2 232.2 232.2 232.2 232.2 232.2 232.2 232.2 232.2 232.2 232.2 LESS ACCUMULATED DEPRECIATION - - - 10.1, 20,2 30.3 40.4 50.5 64.? 78.9 93.1 107. 3 121.5 135.7 149,9 164,1 178.3 092.5 200.1 207,7 215.3 222,9 NET FIXED ASSET'S - -161,2 15l1. 041.0 130.9 120,8 180.7 16?7.5 153.3 139.1 124.9 110.7 96.5 82,3 68.1 53.9I 39,7 32.1 24.5 16.9 9.3 FINANCIAL INVESTMENTS- - 0.8 1.5 2.2 2.8 3.4 4.3 5.1 5.9 6,6 7.3 7.9 8.4 8.9 9,3 9.6 9.9 10.2 10.4 10.6 00,8 CASH BbANK BALANCES- - 1,6 3.0 4.4 5.6 6.8 8.6 10,2 10.8 13,2 14.6 1 5. 8 16.8 17,8 18,6 19.2 19.8 20.4 20.8 21.2 21.6 CURRENT PORTION OF LONG TERN DEBT - 10,11 110.1) 110,11 1t0,1) (00.01 114,2) 114.21 (04.2) 104.2) (14.20 114.2) (14.2) 114. 2) 014.21 (14.2) 17,6) (1. 6) (7.6) (7.6) - WORKING CAPITAL - 1.5) (7.1) 15.7) 14.5) (3.3) 15.60 14.0) 12,4) 11.0) 0 .4 1.6 2.6 3.6 4.4 5.0 12.2 12.8 13,2 13.6 21.6 101AL ASSETS - 083.5 1.45.5 137,5i 129.2 120,9 180.4 068.6 156.8 144.7 132,6 120.2 107,5 94.8 81.8 68.5 61,8 55.0 48.1 41.1 41.7 EGUiJ TY -- - - - - - - - - - - - - - - - - RESERVES 2.14 4.5 6.6 8.4 00.2 02.9 15.3 17.? 19,8 22.9 23.7 25.2 26,7 27.9 28.8 29,7 30.6 31.2 31.8 32.4 TOTAL FOOUITY- 2 .4 4,5 6. 6 8.4 10.2 02.9 15.3 17,7 09?.8 21.9 23.7 25.2 26.7 27.9 28,8 29..? 30.6 31.2 31.8 32.4 LONG 08ER1 DFET tt05,1, 14 1.0 130.9 120.8 11(0,? 1 67. ,5 153,3 139.1 124.9 11.0,7 96.5 82.3 68.1 53.9 39.7 32.1 24.5 16.9 9.3 9.3 rfilAL I JAfl8LITIES 1. 03 . 5 045.5. 037.5 129.2 120.9 0-80.4 168,6 156.8 144,7 132.6 120.2 107.5 94.8 81.8 '68.5 61,8 55.1 48,1 41.1 41.7 110 T:0 T:O ;:O 1: 0 T:O 0 :O Z P:o F-0 F, II bd 01(l vlo F.( I,-O F 9 0 6 0 0 T I I I I I 9 to, 4 v : 6 1CIZ: 6 I I, e v "v ze I 11: c9 TCr E H z - III 0 - 111 0. 61 -11 - FE F. - F C9 SZ" 8 In T y 6 z0 Z;0 e0 E0 2:.0 F1( 0 0 0 -q y 0 00 8 6 V F.0 z0 z0 F0 V,o E 00 Ei o 8 6 o 9 0 .1 ISS .0 .O 0 9: 0 4 P:O 6: II 0 Z Z.0 F0 v t0 S. 2 2 r T O IN j,)IA,,.q IS qII Iz 9,9 T - 9 C,q 6v 6t, 91v V, t, 61f ,F LE L 61F At,"].q NWI 111 4 An S411 9 :49 6:Z9 S:Ss; 9: or I g 8: sv 05't, 0 : Fv 0 :Ot, 8.,E :;,E 4- E ji, I)w Ft, gla tle T TB 6 /Z 9 V t TZ I 19 F 9 BIZ9 I; RS F 9 4 I.- El C;OT E 96 6 06 T 99 : ,, I I.,, I i7 - - - - - - ------ --- -- ------ ------ ------ ------ -------- ------ ---- ------ ------ --- I : et, B : Et, 9 :Qt, Z:zr t, :ZE SLE! oz 9ez; ge ztz f,, T F 0j Z Z Tr Tt i;,I t C Fv T.0 0 9 t 0 z B I; 9 F 9 t, z .1 T 9 U I Z'B 0 6 V 7 I I II F IC I T I . I T . T T 4 T I L"j 4" 9 :4t, 9 :Z, 9 2 z .02 z:. i . tIF 17 t, 1: z . t1I, zV7 E . tIz" J : t' t' e0 f T T T 111 9 T E 6 6 9 L t' 9 E 9 0 z 9 6 9 F E 6 W, SItIzz- SIV.&T 6'0'T T19VT Z19FT 66i:l 6-FT_ 9'111 V'TTT_ i'-(T 'F(f -T(T '4 96 I, T 6 i' 6 I I 06 1 -0, - - - - - ------ ------ ------ - - - - - - ------ ----- - - -- ----- ------ ------ ---- '49T 'Zr 'ZtT ERI GZT V'ZTT 6 - 601 5; - ZOI V' 6 Z-06 F' rS I, TI H Z 'llo t, t_ 9 6 F 9 Y8 JWOJNJ ------ ------ O I ,-Z) (I (S4AA 3131,)X4 if) 0N) SA-106 IIJSWOII SS3'I 6 6: 1 6:0. jA S"X-A SS31 zI ITI, T v I0 C 111SO3 :IT153WO11 Ss:3I 6) O-Y)l O: 141 H:9 SJIAOAX,0110J ISBTII I719) W S5 IVII) (L-!, I11 I (/-S e T - (S-A-q.j DST X-1 0 1-IN (TIr) (119)- (TIF;) (T'S) (TIE0 W S) I E 6 1 IV' (1:0) 1r:o) Ic::D o S:0 :D) I;: (I 0 91) 0 F;: 0) 0) C 9 C 9 9 9 9 f, 9 s 9 9 6 G 6 9 9 :191, 9 0 S 9 g . 6 T 6-49T 11 4QT 9,401 0.6el .0i:l tl'ZZT OgrT 9./OT 9Tol  9 8 F 0 0 0 Z L 0 9 F, E I;s p 96i 9 13 O-Cl 9I I E - I T 0 - V I S-Ot 6-It 0 - DE, V-16 I e, I, - TZ 6 'O,- Vfj', 9 .0c, 9 F1) L Z',-. VV,.'. S. V, I, T I, 6.,,, - - - - - - ------ ------ ------ ------ ------ ------ ---- ---- olr Pt, t, - t, rlo 0-IT 0 -ET t, I 0 1 Tti T-Vt I FT IT zi S I 5 T t k', J. vI I 0 E -V (f:0) E:O) (E:O, E:O, 9 : 0, Z:O, 4:0) S:C, 8 : 0 I I 8: 0 I 60, (6O Z, 'I 6 11 V.0 tl,o t, .0 el .0 El .0 8.0 6.0 6.0 Q.T T T I J f 9 -1) I9 1 I 9: T (S :0) I DE;TL)I,-i9-Jl S3 7 I 0 ( 0 z 0 t, I 9 T 9 1 1 T 81 6.I Tz ' -- T 97 6F, 1,Z I ' / 0 V, E-9 Ely C9 E,9 F.9 F.9 E9 E9 E.9 9. I?9 '9 6 t,O i- I I TI T I., 13 - A IVS IT I I sgwoa F19 29 Z19 2 E-9 C9 F9 F 19 6-1 E: L 9: 1)S NZ3,15 STvs svf) WV` 'U VS 9vg IT IT IT T ti! 6f 9t, 81 TS 99 tq 91S Fi 11 O 7 89 13 q vz TZ Tz Tz T O! Z! 91, 8t, I9 , S 0 1; i V Y'Ft "s Z H 9z "Z z z 9z ? 91 9z 9z: qF 9 9 9 z 99 z z z Y2: 9 51 94 9 Z, 9z qj 9z 9,- 9, Y Yj 91, z I v y 1 T ,Iww) HIVO GTV GT9 9T9 9T9 9 T 51 1- T 7 919 Sly Sly qT9 Z09 Z*19 (BY Qb (141) l';L t C; I6 q .1 00(i Isvo mC] T t Ofl 'T MIJ rtg rT9 ;T9 GT9 919 919 ST9 ST9 IU79 9T51 4t19 Zt19 009 O H z OR9 Te v4 S?v El- TC I - - - 11.I' Rl 00 EVC, (0'6Z 00': I QO 'CIZ Oo H B'. k 00 9 1 00"Sl 00"t, 00'h T NOL ) VHIHJVN 00 'Let, 00 I 49t, 0016ztl 00 I ZOO. 00,941: 00, 11-qT 00, t12E 00 ETV. 00, v6z: 0019zz OO'6G,. O( - 6z: J, oo:ae, 1, 00: zot, 00:84E 00-9gr 00-Err 00, EIR 00:06Z 00 9/,- 00-65Z 00: Z11Z 00:8ZI: 01) V I" 00' Ioz co 1 68 k 00 I z T OO Z, 00 9111 00 l 00 8f 00, Az I oo. I -.71 00. , I I 00 EZZ 00 99Z 00 oi-Z 0O'9ZZ 00'ZTZ 00' 667 00 /2T 00 GZT 00.S91 00 9ST 00 SVT 00 ?ET 00-EIZI 01) '0,; I "Q i- II 'IO 9, 00 '6 .6 00 i. (I 00 813 oc, Z8 (1-1 Z, 01? I C'. B3'IIdd JIJO,0- ZE16T ZZ161 ZZ-6T ZZ:611 ZZ:6TT 1:IST 4Z:6T ZZ-6T 46-6T /Z'.'6T ZZ7'6T "Z, 61 I: 6 t C 6 1 Z6T Gf:/T GE::4T GE:4I SC./ 5;2.Z 92 /7 9Z 4, 9 S:ZT gi::4T 9R:LT F L f DE z l Ik - L 9EL Ez I '--F: I T -;P: I T F I ;i Z T 'A :Z1 Ii I 64 0 6Z. 0 lgz 0 61 0 64 0 6z 0 0 6L o 640 64'0 64 ( 61 0 6z 0 6z 0 - '0 6(0 - 0 O z 0 4 0 L k) tF Y,,, V, 05, ': tF < NM /$ Sq.4-1 9G:tIE 9s'.:tI2 9c. ve 9": vc !g : tE vr qg:vc S OE PE !S tE yg:vi 9s; tV 9, OF 91;1 IF 9s E yr: , q:vi ZI: LE ZE! Zr. Zr. LE! ZE /i ZE 4E r Z2 LE ZE LE: ZE ec  F, ji IZE z 4, :,I, IF i!F j1E "F c-'z /i 9 -Y 7i 0 LO ZOl 10O% I 'IO", L11(% (,6c, :"OO 4%% (NCJL ),,I/O, '-pi 0% LO,% L00% 100% nzo 9z 5;2: !;z Z: O, G!0% 15z0:o% .0:0% SIOo g,OO Sz V% IZ -011G7114011 ZE ee Z:T I-E ZE MT aTi 6ET 91,1 V-IT 4-,T f9T 6?1 S 1 6 9 11 So" y, 1,19 t? V9 V9 TZ ezT 85-IT GtlT #9T Z9I TRT L /II % , I,I 9 FE: 0 -1; III O' oq T'i 08 08 08 08 Oa 08 08 08 OE) 08 08 (o (B k) (10 a .6 11'.319>4 1.301014 02 00 08 on DS OB G8 013 Gs 08 Oa ou (B 08 (9 (O Oll K C, F - - - - OS;6 096 096 096 Oq6 W; 6 0 1- 6 096 096 OS6 cooll (W I 0(- v T 00 T 001 - T Of;1, - I oli II, O. i I S v7" LM!0 z6f-O e6E,O z 6f.0 46E0 1 620 462'0 46F0 /bF-0 16T-O L6E ' 0 i691( 462  O Zc C, /.bf - 6 Y., I O 0 0 " 620 UW E ZS99'f C OfZZ!-F EW,O ' V 9TVG'C CBY9 - C i:SQQ - C 7.q2 I z 68OZ-Z 00/( 'I7 ',"+ 6 - 1 98,-, F' O' I I ;, 1 9,r II, V ,1. lvi' I e v,;", II 't.1 F DOC-- 666l HA61 Z667 966T ;66 1 T 2661 661 T6AT 066 f 6S6  HENS f 8,,T W16 t T ,!,,T l-'O" I sz=711719 2RODNI (12.1vulOSKOD ZHTOUIT SYD zzfis ao 'Im GULFOFS SUEZ GAS PROJECT CON4SOLIDATED CASH P'LOW STATREI-NTI 1990 1 .911 )P I99 l.12 '11: "I 9) 9. 19 9 sl 1" 1 109l) 1001 l t~53 100"4 1095 I9 J"/ SP9B 1090 2000 SISTRIBUITON SUJRPLLIS 10.7 24.0 3 7. 43. 35.0 32.'9 32.7 35. 3. 39.21 400 43.0 46.0 4S.8 5i.5 50.A 58.8 62.9 67.6 72.5" - - - ~~~~~~~10.1 10.0 I O 10,1 10. 1 10,1 14.1 14.' 14. i4,? 14. 14,2 14.2 14.2 14.144-- 2--7,6 7.6-- --.- --.-- ---- 9 TOTAL OOII8CES - - 10.? 34,1 47.6 53.3 40.1I 43,0 40.9 40.9O 5(0. 53.4 5j4.2 57,2 60.2 63.0 65,2 64.0 66.4 20.5 75.2 80.1I CAP ITAL COTINCLUDEING INTEREST S FLEDS SULIRING COINSTRUCT ION 25.7 60,. 2 49.3 - 15.6 20,0 26.6 - - FINANCIALINDESETNENTS - - 0.0 0.7 0.:7 0.0 ', 11 06) 0.9 0, 0.01 0,? I 07 0.6 0.5 0.0 0.4 0,3 0:3 0.3 0.2 0.2 0,2 WRKING CAPITAL 14.31 15.6' 11,4 14.0 4,4 102 14.5) 1061 53 0.9 02 1,0 04 1,I0 1.1 I. 0, 02 1. .4 17 , …-- - - - - - - - - - - - - - - - - -…-- - -.-- - - - - - -- - -…- NET CASH FLEW AEFORE FDINANCING7S: AND DUDI8TRT008r 121.41 180,41 950,01 18,0 42 ,9 37.3 20.2 16.1 40.0 9 0. 1 49.1 51.7 53,2 55.7 58.6 61,6 64.1 64.3 64,6 68.9 73.3 7. ACCUII0LATED NFV AT 10% 119.51 185.01 1124.1) 1111.21 104,0' 163.~71 153,3) 145,01 126.95) '10,01 7.? 23,? 30.1 53.8 67 .8 81,2 93.9 EOS,5 116.1 126.3 E;36.2 145.6 NET CASH FLOW BEF 'DRE FINANCLING 121.41 18.4 58,31 11 1) 12.0 0.7 1,4 (10.11 145) 1. 90 (, 20.4) 20.1I 20.51 209 213 21.8) 15.2) 10.8) 16.1) 16,9 ACCSNSLATED, AT 10% 119.51 185,9) 129,7 5 1190 1122,3) 12.1 15. 130.)122) 11,' 1001 1351976 1231 8.4 :92,9 (787 (481 172.31 170.01 167.81 165.7 - - - - - - - - - - - - - - - ---- - - - FOREDGN LOANS 13.0 39.7 35.0 5.0 -- - - - PRENCPA L, - -- 7.4 7.4 7.4 7.4 74 9474 7.4 4.3 4. 3 4.3 4.0 43 4.3 4.3 4.3- HIT CASH PLOW FEFOD) E FOOREIGN FINANCTHO 17.61 140.71 123.31 4.8 4,6 15.7 1119.01 11~.01 7.1 11,0 12,5 12.3 16,5) 15. 8 16,2) 16.6) 17.0) 17.5 10,9) 11,5) 16.1) 16,9 ACCUMOLAIELD Al 10% 16.91 1 40.51 158,01 054,71 151,01 155, 01 163.11 171,31 19,fl 31 163.71 150,3 1.41 150.71 146,5) 142.61 1901 135,61 132.5) 130.7) 2 (901 126.6) 124.71 DOMESTIC LOANS 2.0 31.5 24.0 - .7 12.? 15.6 - - - - PRINCIPAL - - -4,8 4.8 4.0 R . 4.01 7.9 ,7 7.7 7.7 7,7 7,7 7.7 2.8 2.8 2.8 2.8 2.8 NET CASH FL116 BEFP(RE DI01(11 SIl ON AFTER PINANLDI, 1I1 09.21 0.2 3, 3, 39,6 79.? 9105 286 35.09 3,1 36.6 41.2 43.7 466 4.6 5. 0. 71 E8 705 7. ACCUHULATEDA 105 14,61 1212.2 16.01 19.3 32.1 490,5 60. 1 69.2 01.3 95. 1 107.0 116,.7 1J0,6 142,1 153.3 164.1 174,4 184,7 904.1 203.3 212.6 222. SET (ASH P0 AN55 '519)RODIFITDNo1.1 92 0.7, 4.01, 4.6 10.9 11.9) '6.91 2 .3-9,1 40 4.:. ,1 05 09 P. 47 81 , 33 1 4. ACG'GMSLFrFI AT 15 14.6 10.2 11,0 ?l4 1 4 j 111.21 102.31 119.41 114,A1 101,71 tot 11.1 851 6 .1 14.91 20 101 1.7 4.3 5.6 ..6_9 8.7-10. GIULF OE SUEZ GAS PROJECT GOVERNMENT TARS 1979 1980 198.1 :1982 1983 .1984 1955. 1986 1987 1988 1989 1990 1 991 1992 1993 1994 1995 1996 1 997 1998 1999 2000 SAVING OIN LPG SUBSIDY - - 4.4 '14.6 15.7 16.9 16.2 14.7 18,7 1 7 8 17. 17.2 17.1 17,3 17.8 17,3 17.7 10.0 10,7 1 1,4 12.2 13.0 LFG EXCISE FEES - 0.5 1.6 1,6 1,6 1.:4 1.2 1.4 1.3 12 1. 1,0 0,9 09 0.8 0,8 0.4 0.4 0.4 0,4 0.4 H LESS FUEL- OIL EXCISE F-EES (0,91 (1,9) (1.,.9) (1.0) (0.3) - - - - - - - TOTAL SAVING ON SUBSIDIES & INCOME FROM FEES- - 3.8 13,9 1.4,9 16.8 16,7 154 19,6 18,6 180.2 17,8 1.7,6 17.7 18,2 17.6 18.0 9.9 10,6 11.3 12,1 12.9 INCOME TAXES EGPC - - 3.5 12.5 21.5 25.4 20.2 17.5 17,7 .19,9 20. 3 22L6 2 3,5 25,9 28.0 30.2 32.1 32.0 37,4 40,3 43.6 46.8 AFFILIATES - - 0.9 0,9 0,8 0,8 0.7 11 1.0 0,9 0,9 0.8 0,7 0,6 0,6 0,5 0.4 0,4 0.3 0.3 0.2 0.3 TOTAL- INCOME. TAXE-S - 4.4 13.4 22.3 26.2 20.9 18.6 :18,? 2.0.8 21.2 23,4 24,2 26,5 28.6 30.7 32.5 32.4 37.7 40.6 43.8 47.1 DIV IDENDS GOVERNMENT SHARE - - 4.4 16.1 27,7 32,9 26,1 1.22.5 22, 8 25~6 26.2 29.3 30.3 33.4 36.2 39.0 41.4 41,2 48,3 52.1 56.3 60,3 EMPL-OYEE SNARE - - 2. 8 2,7 2,5 2. 4 2.2 3,3 3.1 .1.9 2.7 2.4 2.2 2.0 1,7 1.5 1.3 1.2 1.0 0,9 0.8 0,8 NASSER BANK SHARE - - 0,3 0, 3 0.3 0.3 0.3 0.4 0.4 0.3 0.3 0,3 0.3 0.2 0.2 0,2 0.1 0.1 0,1 0,1 0.1 0.1 'TOTAL DIVIDENDS - - 7.5 .19.1i 30. 5 32.6 28.6 26.2 26.3 28.832.9,2 32,0 32.8 :35,6 3.13 40,7 42.8 42.5 49,4 53.1 57,2 61.2 CASH F'LOW BEFORE LENDING - 15.? 46.4 67,-",7 78. 6 66.2. 60.2 64.6 68.2 68.6 73,2 74,6 2~9.8 84,9 89.0 93.3 84.8 97.7 105.0 113,1 121.2 ACCUMUJLATED NFV Al 10% - - 11.8 43,5 85.5 129.9 163.9 192.0 219.4 245.7 2691.7 293.0 314.6 335.6 355.9 375.3 393.8) 409.1 425.1 440,7 456.0 470,9 LENDING (2,5) (31.5) (24,0) - - (5.71 (12.7) (15.6) - - - - - - ~ LESS REPAYMENT . 1.7 .2,19 2.9 7.7 7.7 5.1 8.7 8.4 11.1 10,7 10,3 9,9 9,6 9.2 8.8 3.5 3,4 3.2 3.1 2.9 * - - - - -. - - - - - ----- ---- ------~~~~~~~~~~~-- --- ------ CASH F'LOIW AFTER LENDING C2,51 (31,4) (6.0) 50.6 72,0 81.9 62,4 53.8H 74. 3 77.2 80S.6 84,7 85,6 90.3 95,0 98.6 102.4 88.6 101,3 108.3 116.212. ACCUMULATED NFV AT lOX% (2. 3) (28.3) (32.8) 1..8 46,5 92,7 124.7 149,8 181.3 211.2 239.4 266.4 291.2 '315,0 337.7 359.2 379.5 395.4 412,0 428.1 443.8 459,0 f - 67 -- Annex 5.03 Page 1 of 3 NOTES AND ASSUMPTIONS ON FINANCIAL STATEMENTS A. EGPC Statements (Annex 5.01) 1. Crude Accounts/Royalty. Most of Egypt's oil is currently produced according to the terms of production sharing agreements by operators owned jointly by EGPC and its foreign partners. EGPC administers the State's share of profit-oil, uses it to program the supply of its refineries' re- quirements and exports any excess. It supplements this crude supply to its refineries with purchases of indigenous crude from foreign partners, royalty crude due the Government from GPC, and imports. EGPC is entitled to the State's share of profit-oil but bears the royalty due the State on the country's total oil production and oil reserves. Joint-venture foreign partners are not under an obligation for royalty payments except in the case of- royalty dues on sole risk production. EGPC has an agreement with the Government to value the royalty due on that portion of crude allocated for such payment and used for local re- fining on the basis of the net-back it derives from the domestic sale of the resulting refined products. The Company has followed the practice of recording on its operating account two balanced interdepartmental trading transactions, one for the sale, the other for the purchase of locally refined profit-oil and locally refined royalty crude, both valued by crude at netback. As a result of this procedure, its accounts of its crude sales and of its crude purchases are equally inflated through the addition of non-cash payments and receipts. Since detailed accounts of these were not available at the time of the mission, EGPC's operating accounts could not, at this time, be adjusted to reflect only actual cash payments. 2. Taxes. The Company benefits from an exemption from customs duties on imported capital goods, from export duties on crude oil and petroleum products and from fiscal fees on its equity investments in the capital of affiliates, on the loans it grants an.d on its purchases of stocks and bonds. Its tax obligations are, on the other hand, also extensive. EGPC must pay a transferable value tax on its share in its affiliates' and joint ventures' profits, as well as a commercial and industrial income tax (at a rate of 39.7%) on its net profits. This income tax is calculated after deduction of the value of royalty due the Government as well as the income taxes which EGPC bears on behalf of its joint venture production operations. The Company is subject in addition to excise dut.ies and fees on its domestic sales of refined products, as well as customs duties on imported materials and petroleum products. 3. Profit Distribution. Current profit distribution regulations give EGPC the right to suggest to the Government the level of the reserves it requires for the settlement of its obligations to within at: most 10% of its total net profits. The rest of the Company's profits is due to the Government as, what is termed, its surplus. The Company, which kept to the terms of the Law in 1977, has, at the discretion of the Government, allowed for an additional new projects financing reserve of the order of 5% of its net profits in its - 68 - Annex 5.03 Page 2 of 3 budget for 1978. The amount to be allocated as reserves was not fixed as a specific percentage of net profits in previous statutes (Law No. 167, 1958). The allocation varied between 0% in 1973 and 65% in 1975. Detailed regulations govern the distribution of each of EGPC subsidiaries' net profits, as well. These regulations stipulate that the following percentages of net profits be retained by each subsidiary as reserves: 5% as Legal reserves, 5% as State Bonds Purchase reserve, 5% as Assets Price Fluctuation reserve, and 10% as subsidies reserve (in case the operating capital is negative). The remaining surplus is distributed as follows: (i) 5% of the capital as a first distribution to shareholders (75%) and workers (25%); (ii) 10% of the rest to cover supervision and administrative expenses to be paid EGPC; (iii) a re- distribution of the remaining portion to shareholders and workers using the above ratos. Most of the surplus due the workers is in practice paid to governmental authorities. 4. Borrowing, EGPC relies for a major share of its investment requirements on Government allocations in the form of concessionary loans. Of its foreign commercial bank loans, the most significant has been the 1974 $80 million loan from Chase Manhattan and others taken for the financing of the Company's share of its investment in the Sumed 9ipeline. The Company's other borrowings include a 1975 loan for $13 million from the First National City Bank for the Abu El Gharadig gas project, and two loans (for K.D. 8 million in 1975 and K.D. 7 million in 1977) from the Kuwait fund for Economic Development, for the Abu Qir project and the Ras Shukeir/Cairo pipeline. Special statutory privileges given the Company, have facilitated its dealing in foreign currency. EGPC can keep the proceeds from sector exports in freely convertible U.S. currency in special accounts held with foreign banks or credit institutions, and arranged for by the National Bank of Egypt. It can withdraw from this account, to within the limits set by the Government's allocation for the sector, its requirements for the financing of sector imports and for the servicing of its obligations. At the end of each month, it must sell its net proceeds (resources less utilizations) to the Central Bank at the set rate of exchange. B. Project Accounts (Annex 5.02) 1. Operating Income and Expenses. EGPC's project income is viewed in incremental terms and, thus, as a sum of direct income from the sale of gas, LPG and Naphtha, and indirect income arising from the replacement of liquid hydrocarbons by gas. EGPC's operating subsidiaries are paid by EGPC fees for their services; these fees which represent EGPC's processing and pipeline transportation expenses were assumed to be such as to yield these subsidiaries a net profit equal to 10% of the value of their total capital invested in the project. 2. EGPC Project Borrowing. It is assumed that the Bank loan will be repaid over a period of 20 years including four years' grace, and that the - 69 Annex 5.03 Page 3 of 3 sum of the interest on this loan and the guarantee fee paid the Government is 10%. It is also assumed that the suppliers credits will be for 12 years including four yearst grace at an interest of 8%; and that the terms of the domestic loans will be the same as for Egyptian loans generally, a grace period covering the first three years of operation, a 12 year repayment period and interest at 5%. 3. Asset Transfer Financing. It is assumed that the transfer of project assets from EGPC to its operaLting subsidiaries is financed by loans equivalent to the project's total capital cost. It is further assumed that the schedule of repayment of these loans is based on the schedule adopted for the depreciation of project assets. GULF OF SUEZ GAS UGUUC EGUIOMIC OLUL TE US 'O.60 15 19 1980 1981 1982 1903i 1984 1985, 1986 59827 1988 1990 1990 199 1992 19S1 1994 I?95 1998 0199/ 0998 8999 28080 SALES GA565 50 90 90 90 10 90 90 5 5 5 8E1 rHERMAL VALUE 18TU/C21 1 ,050 5,158 1.150 1,190 1,000 I,-50 I,050 1,050 1,000 10095 90 90 90 90 90 90 90 90 98 FRODU0I PAILSso o BALES 005 IMMEFFI - ~~~ ~~~ ~~~~~30 tO 85 99' 85 80 80 80 8 80 80 s0 8o 80 80 80 80 so so L>610/1 6 50 20I5 223 189 22 197 183 167 154 145 138 128 121 64 64 64 64 64 NAPHTHA (VON/SI - - 90~~~~~~~~~~~~~~e 205 2505 2505 285 19 715 19 06 5 154 045 139 118 94 3 2 22 32 32 32 EXPORT,IMPORT F-90GE01 8/T00817 07 7 0 7 7 0 7 7 0 FUEL VOL70 2 70 0 /0 7 20 2 20 0 20 0 70 70 70 78 70 70 70 70- 70 7 LPG 168 068 168 16 068 168 168 068 168 168 16 6918 16 6 1I 6 068 06I6 66 NAPHIHA 125 125 025 125 125 125 125 125 125 :25 125 125 125 125 125 252 125 125 125 125 025 125 98R10000TONS ...1- - 279 559 791 921 752 680 680 600 647 647 615 615 605 615 615 615 615 615 605 615 LPOISIIOO 20851 - - 2~ ~~~~ ~~~ ~~~ ~~~~~7 83 83 83 42 62 74 65 6(1 5551 4 86 2 40 1 211 211 NAFHTMA 11000 70801 - 2 68 68 68 68E 62 t50 56 5 4 52 SI 48 46 39 31 01 01 11 1 VALUE OF PR8G0UCTION (I8 8881 08S - 17 435 5. 6. 36 47:6 4:6 47.6 45~3 45 43.1 43.1 43,1 43,1l 43.1 43.0 43.5 43.0 43.0 4-3.1 LFU 4.5 13,9 13.9 13. 9 1,4 10.4 12.4 10, IV1 92 8,6 0.1 7.2 7. 6.7 3.5 3,5 3.1 3,5 3, NAPHTHA - - 4.0 8.5 8.0 8.5, 8.5 /.0 7,3 '7.0 6.9 6,5 6,-.4 6- .0 --5.8 --4,9 --3.9 ..1,4 ..1.4 ..1.4 ..1.4 ..1,4 …--- - - - - - - - - - - - ----- . . TOTAL FPROJECT BENEFITS - 30.2 65 .9 82.2 119.3 74,5 05,8 72.3 65,5 62.2 61.0 581 57,2 56.6 55,i 53.7 48.0 48.0 48.0 48.0 48.0 IEX8TENSES1I $ANTMAN) 1 UT - 90 90 550 1. 2. 2 0. 122 1. 22 12.2 12.2 12.2 12.2 12,2 12.2 12.2 12.2 02.2 12.2 LAFIIT8L IN0E51MENTS 060 8A3HERINV) SYSTEMI 6.8 22.'.9 14.2 - - LPG PLANTa& 8808COMPRPESSOR STATION 5.2 26.6 3.3 - - - - - - TRA NSRMISSION PI PELINE 11.3 15.6 8.6 - 0002DIIITRIOTIOjTN NETWORK( - 2.3 18 a SUEX-_GAUP IPELINE - 2.6 2.7 - - - CAIROOSTRIElOTGON] NETWORK - 5.2 5. - OOPORT EQUIP'MENTr - 4.6 - - PROJECT SLUPERESI000, ENGINEE6NIN & TECHNICAL SEROTEES 04 1.5 1 .2 - - OKRAtR8ft I MAINTERANCE T8A1N1N0 0 .2 0.3 - - CAPITAL GUST EXELVUDNSi AMAL 24.8 76.9 41.9- - AMAL WELLS- - 11.5 14.0 AMAL FLA FFORM- - - - - t00. GAOA P'IPEL-INES 5,0 6.5 ------ AMVL 0651f.L0P0E14 - - 1. 100 065 ....---------- -- fOTLV VPIOTAt 151Sr 24,8 /6,9 41,9? 1Y 1. 90 65 - WIORKNSN CAPITFAL TINTIAL INVI'ST~MENT - 3. - - -14 -.~ 2 VLIS3V,NTS A'6051 (4.11) ( 1871 51 7.0 -. 11,81 11.41 0.2 2.0 - 0- -1110 6110081 NTREL I VSRL-E - s ,9 6. 2.2 1.2 125 11--41 ..2.. 10,31 -05-0.-951 (,1 01 1.1 103-1,--- ---- 1T1AL W06110N5 GAPITOL 14.5 1, ,5_) 10.0 iV3, 2,7 10.61 (3,9 10.91 3. 0 10.31 10.517 10.21 10.5~1 (0,21 10.11 10.21 10.31 11,01-) 5216± l611.JLCT EFENS_S 20.' /1,9 61.7 220 11. 24.62- ~ 2. 15. 11.9 0. 12017 12.0 1. 120 :19 1. 22 1, 22 1. cETw66 l 14 I'll 51211861 9160 515. lOT .191 1191 :00~~~~~~~,,31 71 10 31 49 71 92 110 126 039 051 162 071 179 186 192 192 202 206 1101 IOAI 1011 1681 1301 1101 '~~~~ ~ ~~~~31 6 1 25 32 32 41 4~ 40 5 L2 53 54 55 56 57 VIIEFIIIVTi 810 3V5 ' SEFI .N 901 10V607ME1>1 - 71 - AlOin 6.01 loge 2 o7 2 VINW I 0 V i till)' I Hill liii 1101 CI El 0 I o N V 0'ON N NW i I - l-l'l'i I II *iONNN o 00 N N 'Cm 'C 0)001!' f I I I NINIVI Oh II NI.1 N m N.o 10 * I I Vi Ni1I II Ni ,0 1.-i I I I I I  N i' 0 OmN 0 mN N.-).) mo-Oil', -o I 111111 I. I I 11111111 I OlOIVI N Bill NINWINE N N I, mCI', 10N .O.. . I I I - i.i.i.iiii'I mOON N N N N Nm -O 012471110 m I I i .01.0101 01l ii WiV.l .0 0 0.. IN S I I I I 'ml Ni' ii 01 "1 i I I ill i' II V £1 0 OmO 0 NO' 0-..-I O.-.Nlin N I iiilil i i I ii iiiiii Ii OlOINI i lOll NiOlilim N Ii N WON V NO .10.- I I I .i.i.l.i''' iN0N0 N N N N N', '0 NNCIm I oiolNi Out11 0-ON V.0 10 V I I I i mi N11ll - I.., i I I iii..) II II i i i i I ii I N 0 01 Cmli N .N N.-.. Ommim N iiiililii liii, I iOiOlNi Ni lOll 11.00 N N N VON N -ON 00.-I ---'- - i I I .j.. .il.i i ioNNN N I' 0 0 .lm N NVlm N I i i .01.-INI iioi 0i -. II NO IN N I i i iVi .0jI0i i Ci I', I I III ii -0 N C 0VN o mm N.... VNIIll', N I 111111 I I lilIlillili OiNiNi NINII NII1000 N N N V-ON .. ON ..NN -'-I - . I I I ..i.i.i'ii. NONN N II N 0 SIN '0 NEmIN 'C I I I -.1.01471 O11N1 I - 0 NO It N I I I .01.-INI CiI"I I Ci I I I I .011 II N I I 0 0 0 0-V N NO 01W V.00147 N I I 11111 I I 11111 I I iNiNINI  N OiN,iNN N 0 N VON N NN .0VN I - .l.1.I.1IiiiN12NN N V 0 .0 VI', N IINNIII V I I - .010101 011011 .0 0 0.0.0147 N I I I -I ThINI .011.011 -- N I'* I I I I I ..il II I I I I I I I I I 0 0EV N Vm 4700 00010 'C lIlililil 1111.1 liNININI Ni loll OVOWO N 0 N 012o 0 V.0 o',m ..i . . I I  iI.ll .1011 NV N 0 N 10 - -ON N .00.0 IN 0 I I I 0101.01 .1011 NFNO .0 0 .0.0.01-ON I I I I Ni  I Ci 0 1.1 I I I 1110,1 Ii 1< I I I I 1111111 N N 0 OWN 47 .00 ENN 0-OmiV -0 I 1111,1 I iiiiiiliiliOlNlVl NiV Ii Ill .000.0 0 0 N 0NN N 0" Ot', I I .0.0 .0 VN N NOV 1.0 0 I Ni INI I 0 V CNN C LIV NOW EO.0IN N lillilili I I 01010 CIIONVI .0.0 .0 Nil N VilOil 0 oVm 0 ON 111-0 00011', N - iiiIiiii IIiNINiIil .0 -ii 0,ONON -, .11-1011 NV 00 0 NO N 1',0ViW N Ci Ci Ni 0, i V 1(10 0 0 0 CNN N ON NEIl W.Nim N ' I, ilIli lililililli OCiNI .01101 i NINOON 0NN V -ON too 0 NIl N NO', IN N I 0110, No-IN 0 I 01101 1', I .011.011 0 CNN N ON NOV ONOiN 0 ilillIlli I , iO 0101 0 iN l1',l .0000 000 0 05 VNI', .0.00 NO N ONtO IN N .0101 N IN iNO O N 0 i ii iWlVi.- Ni OIl 01.0000 VON 0 001 WOE CNN 0 NO' 000 000110 N Ii NO N NONIN 1 010 0 N 0 0 0011 0 CII OVO 100W 0 0 0011.4 0 .-.0 O0&OIo 00 000040.0.0 OLi ONO.0.NioI.Io 00.0 loIN 0.1100000 0.0111< 0.01-.-.. <11-1..- - 04000.00000 000W 00000 110VO0O000V00N 100000 V 001.01< 41.1 1.1 .00 1<11<11 1< 00 004000 4W .0.040 ONoO JEt.124000 0 01-100 00000 0000 0 ~~~~~e. ~~~~~~~~~~~ARA B REPUBLIC OF EGY PT GULF OF SUEZ GAS PROJECT N N ~~~~~~~~~~~~~~PROJECT M Cep-~o tto USeposot., Stot os, - csigGas P ipeli- e flUELI 1-4 ~~~~~~~~~~~~~~~~~E.stissg G.s Pipeli,,es Enistimg Water Pipelins 0' ~~ ~~~~~~~~~~~~~~A Walerflood Facklies -7 Well Platfor-s * Prad.cing Oil Wells O Gas Wells WasemtIaaO RAMA 0~~~~~~~~~~~~~~~~~~~~~~I Oil Wells (not producing) J.ils W-i- Dry Holes F.61;6.~~~~~~~~~~~~~~~~~ , / ~~~~~~~~~~Oil and Gas Fields so El Gliub 0~~~~~~~~~~~~ Win.- W.lI Ras khalleir rGupto~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~i G53314 I / /1 ..d LPG Pt..t ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ i' Ratt DiI~~~~~~~~~~~~~~~~~~~~~~~~~ ~~~e. / /OETR5A 2 '0. b-N.-db,,~~~~~~~~~~~~~~~ W-/ / N~~~~~~~~~~~~~~~asE ei 0~~~~~~~~'ODN Ra10Zeit KILOMETERS n,, - o ARAB~~~~~~~~~~~~~~~~~~~~~~AA REPUBLIC SAUDI Ras Garra~~~~~~~~~~~~~~~~~~~~ RABIA~~~~~~~~~~~~~~~~~~~O' n 54-ml Ras El Ush~~~~~~~~~~~~~~~~~~~~~~~~~a E em I~~~~~~~~~~~~~~~~~~~~~~~~~~~ A ) 33~~e ' -p r nO f Sc /!H e d z t e r r ci n a, a n- 5 A M- ___ , 2 wt Xq < ~~~~~~~~~~~~~~~~~~~~~~~~~Abu >'. _-Om2R %I MATRUN '- POTW ; 11' xFIs,A X \ TAN~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~-TALKHA I1 - - M 0 ISMALIA» t W ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~0- tiAR I \.~~~~~~~~~~~~~~~~~~~~~~~~~~~T,,~ o ',, I-pAL N~~~~~~ SI '~_ IDE KARIR0 2') --> Q'29.~/ -- 2 ?8MANSUEA 4LS ARAB REPUBLIC OF EGYPT 29-~~~~~~~~~~~~~~~~~~~~~~~~~- 994 K 9 ~~/) 3 ~ / REINERIESEANDEOILNANDILSAPIPELINESIP E L IN Et / k =t bu- ~27- PROPOSED 01L PlPELINt5 4> NATURAL GAS WELLS |t\t i Eir _;-Ise batt_ Eabt5 2 t - -~~~~~~~~PROOSE eAlGASI PIPEL NaS Ci IL PEF1NERIES < \ ( ) ] ' ~~~ - / n ' \ IJORDAPN EXI~~~~S7 NG GAS P PELINE S RIVERS\ i > TA; t L rs / W \ i DEPRESSIONS bw n,9 ds i> LIBYA T '' 7^ SAUDI ARA81A XlLOMelE95 < <78' _ ARAB REPUBLIC t 2'> ' | OF EGYPTI V N ' EANHA ¾ -~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~33 C L.--- I j A N 2scePRtno/ 32h's --3- S ^ ' j wg 2B'29- 30 ) - 3 3 -r 3 "