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Egypt ordered to pay over US$2 billion in compensation to Union Fenosa Gas
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The World Bank’s arbitration arm has ordered Egypt to pay US$2.013 billion in compensation to the Union Fenosa Gas company for halting gas procurement in the aftermath of the 2011 revolution, according to a statement by Egypt’s Ministry of Petroleum released on Wednesday.

The compensation is expected to be paid in the form of gas supplies to the Damietta LNG plant rather than in cash, sources familiar with the matter told the London-based Financial Times on Monday.

Union Fenosa Gas, a joint venture between Italy’s Eni and Spain’s Naturgy, had filed the lawsuit in 2014 demanding compensation worth $4 billion, according to the Petroleum Ministry statement.

Egypt will have to pay US$2.013 billion, in addition to interest rates and litigation costs, Union Fenosa Gas said in a statement on Monday. The company had previously won a similar case by the Cairo Regional Center for Commercial Arbitration (CRCICA) in December 2017, the statement added.

The agreement in question, which was signed in 2000 between the company and state-owned Egyptian Natural Gas Holding Company (EGAS), stipulated a specific quantity to be supplied by Egypt to the Damietta factory from the start of its operations in January 2005, according to the Petroleum Ministry statement.

But EGAS was forced to reduce supplies to the Damietta factory before halting supplies altogether in December 2012, the Petroleum Ministry statement explained, saying that this was due to “factors completely out of the hands of EGAS.”

The arbitration body stated on Monday that, in halting its gas supply, Egypt had failed to grant Union Fenosa Gas “fair and equitable treatment,” according to the Financial Times.

Egypt plans to take all necessary measures to maintain the rights of the Egyptian state, the ministry stated, without specifying the exact measures it planned to take or when these would be implemented.

The settlement could help accelerate Egypt’s plans to become a regional hub for gas trade, by allowing the country back into the LNG market as a supplier. The international LNG market is expected to have grown by as much as 50 percent in the years from 2015 to 2020, according to the Financial Times.

Egypt began importing gas to cover its domestic needs in 2011, following a drop in production after the 2011 revolution that rendered the country unable to keep up with export deals. However, local production has been on the rise since 2016 after the discovery of Zohr gas field, as well as other fields, including Atol and Norus.

The start of production in 2017 at North Alexandria’s Zohr — Egypt’s largest gas find — has added 1.75 billion cubic feet per day to local production, a contribution predicted to rise to 2 billion cubic feet per day in September.

Egypt’s natural gas production is expected to reach a total of 6.75 billion cubic feet per day in mid-September, up from 6 billion cubic feet per day produced now, an EGAS source told privately owned Al-Borsa newspaper.

Egypt will also be able to end its lease of the Norwegian Hoegh LNG import terminal when it halts imports, the source added. Egypt had reached a five-year agreement to rent the Norwegian Hoegh Floating Storage and Regasification Units (FSRU) in 2014.

However, the government plans to keep its second LNG import terminal, which was secured in 2015, to be used for manoeuvering in case Egypt needs to import gas or change the technology used for floating units, to allow for liquidation of gas instead of regasification of LNG, the EGAS source told Al-Borsa.

Earlier this month, Petroleum Minister Tarek al-Molla said that Egypt will import its last three batches of gas in September before starting to export small quantities next year, which will be determined according to deals with other countries, including Jordan and Spain, that were signed in 2011.

In an interview with the privately owned Al-Watan newspaper, Molla said that the Egyptian government expects to reach gas self-sufficiency by October, and to start exporting surplus gas liquefied in Egypt after being imported from other countries by January 2019.

Egypt aims to become a regional hub for gas trade, starting with a 2018 agreement to import gas from Israel that is expected to start between January and March of next year, according to sources in the petroleum sector who spoke to the privately owned Al-Shorouk newspaper in August.

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