In Egypt, a new reach for CNG deliveryJune 21, 2021
Khaled Abubakr, executive chairman of TAQA Arabia, talks to The Energy Year about improvements to bureaucracy in Egypt’s oil and gas industry, the company’s CNG delivery innovations and ramifications of the energy hub strategy for Egypt and the region. TAQA Arabia is the largest private-sector energy distribution company in Egypt.
What is your view on the impact of the Ministry of Petroleum’s modernisation programme?
The modernisation the ministry is rolling out has two objectives. The first objective is internal to the ministry, which is to ensure there is no duplication of decision makers or processes. This is to reduce the number of hurdles inside the ministry and between EGAS, EGPC, etc., and to enhance the efficiency of the business flow.
The second objective is to make it much easier and less repetitious for a partner, a foreign company or an IOC to deal with a process with the ministry, either through a foreign concession agreement or other negotiation. The idea is to have fewer doors to knock on to get approval. When you start to enhance the structure of your management, your counterpart – the business community – will start to feel it gradually. I and most of my colleagues in multinational companies have started to feel the results. We are seeing less bureaucracy, fewer approvals and clearer conditions for bids.
What are the ramifications of the energy hub strategy for Egypt and the region?
First, for us in the local market, it will create the security of supply. There are different countries sending gas through the Egyptian infrastructure, to either be used in the Egyptian local market or exported through the existing infrastructure. This allows any new investor – for example, a petrochemicals investor, a fertiliser producer or a steel factory – that wants more gas that was not on the EGAS plan to still buy gas from what has been handled and transported through the Egyptian infrastructure. The first value added for us, as Egyptians, is the security of supply.
A second ramification is that automating the transition of existing infrastructure, such as stranded energy assets that have only been partially utilised, will enhance the capacity of the infrastructure.
A third is development: prospering with the neighbouring countries, enhancing their economy, finding a way to monetise reserves with efficient infrastructure. Gas will support policy and peace in the region. It’s becoming a stimulus for economic development and security. Regional co-operation and being a regional hub is fantastic, and I am very proud that Egypt is in the driver’s seat.
Are you feeling the impact of the 2017 gas law and its establishment of GasReg as a new regulatory authority?
We started to feel the changes that came about as a result of the gas law in 2021. It has been a transition over several years to replace a role that was played by EGAS. Gradually, we have seen the ministry giving more authority to the regulator. We started to communicate with the regulator, and it’s gone very well.
We have a very successful story of electricity regulation. The electricity regulator is much more mature than the gas regulator. It has been in place for more than 24 years, so we see an excellent model of a regulator that serves to balance the needs of the state-owned company, the private sector, service suppliers and service receivers. It’s a very healthy process that gives credibility and confidence to the investor that there is a regulator, there is a judge, so he’s not vulnerable in relation to the supplier of the service. We expect the gas regulator to become as well developed as the electric regulator.
What appetite do you see from multilateral financial organisations to get engaged in Egypt’s energy industry?
When I look through the portfolio of international financial institutions like the IFC, EBRD, the World Bank and the African Development Bank for the past few years, Egypt – particularly through the IFC and EBRD – is becoming a major destination for investment. At TAQA, we have felt it. We signed with the EBRD to supply energy to agriculture developers, for example.
With IFC, we have a successful story of developing the Benban project [a 65-MW solar plant in Aswan]. That project was considered by the IFC and World Bank to be the best in the world in 2019-2020. These financial institutions have a permanent presence in Egypt. We see their staff increasing and we see them very focused on North Africa, specifically on Egypt, and we are happy to work with them.
What is your view on the PPP success story seen in the greenfield Egyptian Refining Company project?
This is a USD 4.8-billion project. It is the largest investment project of the last eight years in Africa. Our holding company, Qalaa Holdings, is the developer and owner of this project, partnering with EGPC and other regional investors and financial institutions from Japan, Korea, Germany, Europe and the United States. It is a fantastic project in terms of the financial structure.
It’s also a project that develops and enhances the efficiency of Egypt’s refining capacity. Most of the refineries are very old; only Midor is a modern refinery. With so many old refineries, an investment that adjusts to the products needed for the local market is a fantastic project.
The project faced many challenges – starting with the global crisis of 2008-2009 and followed by the 2011-2013 instability in Egypt, fluctuating global prices and even Covid, but it was inaugurated last year by the president and is operational. In terms of infrastructure and engineering, it’s a state-of-the-art facility.
What have been TAQA Arabia’s main activities over the last year?
It was a strong period, bearing in mind the difficult times. Our main purpose is to deliver energy to our customers. We set “no interruptions” as our major aim, while protecting our customers and staff as much as possible, especially during the first months of the pandemic. Delivery of services, especially operation and maintenance, to the customer without interruption in this environment was a big challenge.
From the development point of view, we have continued to develop most of our projects. Some of the projects involving mechanical installation were delayed, such as a substation in the 6th of October industrial zone that was supposed to be working last August and only started working this February. That was a huge delay, and it impacted our financial projections. The figures that we were supposed to deliver in 2020 were reduced by 18-20%.
But we have seen some of our peers in the industry making losses. Thankfully, we didn’t have losses. We reduced our income, but the most important thing is that we did not have losses in our people or our team, or losses in the public infrastructure, which is the electricity network and the gas distribution infrastructure we operate.
Overall, I am quite happy and satisfied. There was continuous co-operation, and TAQA was part of a bigger successful system. There was full co-operation and understanding between an operating company like ourselves and the Ministry of Petroleum and the Ministry of Electricity. They were facilitating our jobs and permits. There was always an open dialogue between us and the government that facilitated our operations and our capability to deliver services.
How is Egypt rolling out the conversion of vehicles to CNG?
Egypt has been in that business since 1994. Our leadership group – myself and our founders – have been developing that for the government. In the Egyptian market, there were only three companies, two that are state-owned and one from the private sector, branded Master Gas, owned by TAQA that we developed in 2003. That business has been unlucky for the last 20-30 years because there were not enough incentives. However, we have seen other places in the world like Argentina, Chile, Bangladesh, Pakistan, India, China and so on have tremendous development.
Egypt has finally settled on ranking 19th globally on utilisation of CNG and converting its fleets to much cleaner energy. In late summer 2019, the president launched a strategy of converting the vehicles to electricity and natural gas. That project launch was a game changer. We, as a company, have seen a strong direction and immediately reshaped our investment decision and team. From 2003 to 2006, we developed seven stations. From 2006 to 2019, there were zero additional stations. Last year alone, in 2020, we added 14 stations. We tripled the number of stations in the CNG business, and we tripled the number of conversion centres that convert cars to use the gas.
There are now 23 stations, and this year we are increasing the number to 50. By next year, we will reach 100-120 stations. By 2023, we will have more than 200. This is also reflected in the number of conversion centres and the number of cars converted.
Tell us about your mobile CNG projects.
To add onto the CNG business, before Covid we ran a couple of pilot projects for mobile CNG. I call it the virtual pipeline. This is where we need to move gas to customers who are not connected to the grid in remote areas, such as the desert or a mining site or a resort. We started to develop a model where natural gas is loaded into large tanks and moved to the customer by truck. It is then offloaded at a small terminal for the customer, who can then send it through their distribution network at a hotel, compound or factory.
In 2020 and 2021, we have increased the number from three hotel customers to 11. We have diversified our customers, with industrial clients and poultry facilities. This is a success story that we have developed. Moreover, by mid-2021, we will be delivering mobile CNG to the first residential customer. This is unique in Africa and the Middle East.
In Africa, there is mobile CNG, but it all goes to power generation or industry. There has never been mobile CNG delivered to a small city and with a distribution network so that residential customers can receive gas for cooking through a truck instead of a pipeline. We are doing this in one of our distribution concessions, which is by area the largest governorate in Egypt: the New Valley Governorate. It has no gas pipelines.
We are delivering the gas to the residents of the capital of this governorate. The construction infrastructure has been completed. It really applies the best practices and technology of the gas industry to develop something new.
We are very happy with the work we’re delivering in the CNG industry. This is the area of the largest industry activities for our group.
What potential do you see in green hydrogen?
This is something very dynamic and we have a small team looking at it. We have spoken with several potential partners, but so far, it does not look economical at this stage. It might not be economical in Europe by the numbers we see – the EU has imported it and is paying the cost of switching to hydrogen. Thus far, nobody is paying that cost in the United States, the Asia-Pacific region or Africa.
The energy mix the government has developed so far is quite balanced. This is a mix of emphasising natural gas, reducing fossil fuels and having more renewable energy and potentially nuclear power generation in the near future.
Within that strategy of the Egyptian government, we are implementing our projects. We are keeping an eye on hydrogen, but it is too early right now. The government is now engaged in drafting a strategy. As a company, we have to wait to see what the strategy is, whether it will be subsidised and how it will be implemented.