New partners and opportunities in EgyptJune 16, 2020
Marwan Haridy El Shazly, vice-president for marketing and contracts at Pan Marine Group, talks to The Energy Year about why now is the time for Egypt’s local companies to expand their capacity and the signs of strength emerging as the country navigates the Covid-19 crisis. Pan Marine Group provides shipping, logistics and petroleum services.
What is your overall sentiment on the impact of the pandemic?
The pandemic has already affected all sectors, but what has really affected the oil and gas sector is the addition of the oil price crash – and it is not just the oil price but gas and LNG prices. The gas unit price is very low now, even lower than the cost of extraction in Egypt. This is affecting all of the investment coming into Egypt’s gas sector. With the current prices, it does not make sense to go for deepwater.
Operators have all delayed their drilling campaigns in the offshore Mediterranean, and I don’t think the Red Sea will fare differently. There are one or two operators in the Mediterranean that will drill at the end of this year or in Q1 2021, but the rest are pushing everything back for discussion in Q1-Q2 of 2021. Activity is slow, and it will be similar in other parts of the world too. We still have production and subsea maintenance, which provides some activity, but it will not be as active as in previous years.
In previous years, clients were very active, drilling with more than one rig and having at least one construction project. Now all companies, not just ours, are experiencing contract cancellations or clients asking for discounts. However, we already cut our costs years ago, with the 2014 crisis, and honestly, there is no more room for rate reductions. The only thing we can do is invest in technology to see how we can save on man hours and cost optimisation.
The good thing about the pandemic is that people realised that they don’t need to be in the office for communication. We started to develop our IT system in Q4 2019, but now it is being fast-tracked, which will help our employees and clients to save on costs and time. There is no longer a need to go to the office – we can do live reporting, and everything happening at the port or on the vessel is reflected in our IT system.
We at Pan Marine have dedicated our team in the supply department to focusing on providing and delivering much-needed supplies such as medical PPE or other critical supplies to all of our clients and colleagues, especially in the offshore operations, to make sure they are safe during their work, as well as another emergency response team to respond immediately to operational medical/ambulance needs 24/7.
How resilient is Egypt in the face of the crisis?
The government recently issued a new law mandating that 1% of people’s income as well as a half-percent deduction from the net pension income of pensioners go to support relief for the economic recession. The government also decreased the income tax for one year, effective July 1, 2020. This is in addition to several decisions related to the economic plan to help Egyptians financially while facing this crisis.
Another very good decision the country took was to add real estate and construction under the umbrella of governmental economic support. Construction is a huge sector in Egypt and most of the workers are employed on daily wages, so these people were immediately affected.
Egypt is also in a good position because our economic indicators for Q1 2020 are still positive despite Covid-19. The GDP growth forecast for 2020 was 6%, and this has been downgraded to 2.5-3%, but that’s still better than countries with negative GDP growth.
One thing that will affect us badly is the lack of tourism. This year, tourism was supposed to break records, but now with Covid-19 this won’t happen.
Is this a time for local companies to gear up?
This is the right time for local players to expand. To give you an example, there have been many foreign companies importing spares and components for manufacturing from China. When the pandemic hit China, people started to look for other sources. And now many Egyptian suppliers have new clients because of the pandemic. Even though China now is slowly recovering and air freight is available, people have started to consider a third factor apart from quality and cost, which is lead time. From Egypt to Europe, a flight will take a maximum of 12 hours including Customs, but from China it is at least 48 hours.
Many companies and factories have changed their supply chain process. They ask for exactly what they want even if it is a bit more expensive. They also have to cope with uncertainty, not knowing what the demand will be next month. They would rather buy one container from Egypt than 10 containers from China. Quality-wise, these are the same, though a bit more expensive, but the delivery time is shorter.
All in all, there are many developments we have never seen. Before the pandemic, these types of manufacturers in Europe would never risk or change their long-term suppliers, even if it would make sense economics-wise. Another aspect is that travel is still unclear. It does not make sense to arrange a single meeting that requires a 14-day quarantine. I believe new agencies will arise to represent companies as travel is restricted.
What sort of new efficiencies are you seeking during this crisis?
Our top management made the decision that until the end of this year, salaries won’t be decreased and there won’t be any layoffs while taking all measures to keep all employees paid on time and insured. At the same time, we are working on a strategy which entails cutting expenses while increasing market share and keeping the company profitable. Our target has changed. Before the pandemic, it was to increase our net profit and maintain our revenue. Our current target is to increase revenue and work with a decreased net profit, which is 10% of what was planned.
At the same time, we are trying to take advantage of our financial strength in order to expand and position ourselves better. With new technologies and IT systems, the same employee can do more than one job or deal with more clients. We are now on a one-third rotation, with only one-third of all employees in the office while the rest work from home.
We’ve also started a couple of new projects related to Covid-19. We launched an isolation boat equipped with an isolation container, which can transport any suspected Covid-19 cases from offshore structures in the Mediterranean to the port at a high speed of 20 knots. This boat has been refitted, as it used to be a crew boat for crew changes. BP already joined this project and is very happy about the idea, and hopefully after Eid, Eni will join too. All the users would pay their share as a daily rate, and it would work as an emergency response vessel. At the port, Ministry of Health staff would test the patient.
In Egypt, helicopter transportation is only government-run, and they will not accept any cases for transport from offshore. So there is a very high demand for such a service.
Will the country emerge stronger from this period?
I fully believe that we are in a very good position. The number of confirmed cases is acceptable and our population is young. We are a commercial hub in the Mediterranean thanks to the Suez Canal and our gas developments. I don’t have any doubt that Egypt will come back stronger than other countries after this crisis. The government took good and early steps. We had already started to get ready for Covid-19 in January 2020. Now, banks have decreased the interest rates on loans and clients have a six-month waiver for paying the instalments.