[/caption]On a sunny Spring morning on the outskirts of Cairo last month, around two dozen men filed into a conference room of the plush clubhouse in Kattameya Heights, an exclusive residential compound in the eastern desert fringes.
Snappily dressed in pin-striped suits and gleaming, black shoes, they appeared slick and serious as they took their seats around a table beneath the large wooden rafters.
Representing some of the world’s biggest oil companies, the men had been invited to a roundtable discussion to discuss the future of Egypt’s petroleum industry.
With the billions of dollars of future investment at stake, leading figures from BP, Shell and other energy giants took turns explaining to Ministry of Petroleum officials how they thought the country’s oil and gas industry needed to be deregulated.
According to Mohamed Fouad, president of Egypt Oil and Gas, the newspaper that organised the event, it was the first time that such an event had been held involving both the government and oil company executives.
And there is plenty at stake. Although in comparison to its regional neighbours Egypt is something of an energy-producing minnow, government estimates suggest that there are huge reserves of untapped gas in deepwater locations beneath the Mediterranean Sea.
Not only that, but in their bid to cut themselves a slice of Egypt’s resource wealth, international oil companies are looking to overhaul decades-old conventions which they claim will hamper growth.
Since the 1960s, oil deals in Egypt have been based on the system of “production sharing agreements” (PSAs). This method, which is also used in other countries, compels companies to enter into a joint venture with state-controlled firms and then split the share of oil or gas reserves.
On top of this, foreign companies have the full costs of their exploration activity covered by the deal.
Supporters of PSAs say that they give a country greater oversight over its natural resources and guarantee tighter control over the foreign contractor.
But some oil executives claim the system is wasteful, putting off investors and hindering economic growth. Moreover, they argue, the more sophisticated techniques required for deepwater drilling require more favourable conditions for the contractor.
Instead, they argue, Egypt should use a royalty tax system, with the contractor bearing the cost of exploration. In return it receives full production rights and a better price for the gas it sells back to the state.
Essentially the argument comes down to an age-old ideological battleground: statists versus free market flag-bearers. In the past, Egyptian governments have sought greater control over their resource wealth, but right now the oil executives are saying: “Leave the economics to us. The rest will fix itself.”
With hugely lucrative gas reserves simply begging to be drilled, it seems likely that the oil giants will eventually prevail.
Under BP’s deal, and in contrast to the PSA, the contractor bears full cost for exploration activity and pays tax to the government. In return it receives full production rights and a higher price for the gas which it sells back to the state.
