Egypt’s state-owned oil company, EGPC, has secured a US$1.4 billion package from local banks to repay some 25 percent of its outstanding debts to international oil and gas companies.
The loan, granted by the National Bank of Egypt, Commercial International Bank, the Arab African Bank, and Qatar National Bank was signed on Wednesday.
Earlier this week, Egypt’s Oil Minister announced that by the end of the year, he plans to repay $2 billion to $3 billion, out of a total debt of around $6 billion.
According to state-owned Al-Ahram, the loan includes LE6 billion to be repaid over five years, and $550 million to be repaid over four years. The interest rate on the loans has not been specified.
Short on cash as Egypt’s economy tanked and the tourism sector could no longer be relied on for steady inflows of hard currency, Egypt has struggled to repay its debts for several years.
The situation has been exacerbated by the nation’s energy subsidy scheme, in which the EGPC purchases oil on credit at market prices, then resells it at a lower price to consumers and utilities, leaving a critical financing gap.
The company has become indebted to both foreign exporters and to companies operating locally, who are not being compensated for petroleum products, particularly natural gas that is being diverted to the local grid.
Billions of dollars worth of aid in cash and kind from allies in the Arab Gulf has helped keep the country’s oil sector afloat. The current government has also moved to reduce energy subsidies, and has vowed to cut them even further in the coming years.
However, the unpaid debts have made oil and gas companies wary of investing in capital-intensive projects in Egypt.
The current government has declared that paying down its debts is a priority, and petroleum companies appear to be responding, reflected by an upswing in oil and gas investments over the last year.