UK embassy re-opens • Russia FTA in the offing? • Actis buys into Abraaj’s labs play • EgyptAir to restructure after USD 1 bn losses in 4 yrs • power crisis looms in summer 2015 • €150 mn from France for natural gas connections • SODIC looks beyond housing

WHAT WE’RE TRACKING TODAY

The British Embassy in Cairo resumed public services yesterday after “security issues related to the building were resolved in cooperation with the Egyptian government.” Ambassador John Casson noted the UK’s commitment to Egypt’s success and said “Britain is fully open for business in Egypt… andpreparing for a trade mission in January to create Egyptian jobs with British investment.” The Canadian Embassy is still closed according to a recorded message.

Technical talks with Ethiopia over the latter’s Renaissance Dam have ground to a halt, opening yet another front for Egypt’s diplomats at the same time as Egypt opened the issue yesterday of a potential free-trade pact with Russia and the possibility of Moscow using Egypt’s mooted commodities hub as a forward logistics base from which to serve East African demand for grains.

LAST NIGHT’S TALK SHOWS

Ibrahim Eissa’a commentary last night focused on foreign journalists’ “hatred of Egypt and their tireless efforts to attack the regime.”

“What is being written about Egypt in the western press is biased and misleading. We are partially at fault because we have not successfully gotten our message across. Just because you are right doesn’t mean that people will believe you,” saidEissa.

“The problem is that we are reading too much into what the Washington Postand the New York Times are saying. We are in awe of the foreign press and regard what they are saying as the absolute truth. It’s quite strange: Why are we looking to the foreigners to tell us the reality of our situation?” said Eissa. “The Western press is like any other press in the world. They have good ethical journalists and they have garbage. We must keep in mind that the New York Times, the Guardian and the Washington Post have their own political agendas and their editorial follows in that direction. They only want to see and hear one side of the story and are completely uninterested in presenting an opposing point of view.”

Youssef El Houssieny interviewed a very old and frail Boutros Boutros Ghali, former Secretary General of the United Nations. The 92 year-old diplomat spoke about his aristocratic upbringing in the palace of his grandfather (a former Egyptian prime minister) in Fagalla, his studies in Paris and his career as a law professor, diplomat and politician.

“I graduated from secondary school with a French Baccalaureate. I spent my summers in Paris and travelled throughout Europe as a Boy Scout. It was a different world back then, before the population explosion. I used to take five minutes to go from Cairo University (where I was teaching at the Faculty of Law) to the Ahram building (where I had to monitor the closing of a weekly magazine),” said Ghali.

“I was involved in politics at very young age. My first experience in politics was helping my cousin campaign; he was running for Parliament against an Ikhwani candidate from Fagalla.  Their tactics have not changed,” said Ghali.

Ghali emphasized that Egypt needs to rebuild its international relations, saying that key relationships have been damaged during the past three years.

“We are still in a transitional period fighting against terrorism and ikhwan, but when things settle down, it is vital that we resume our efforts in diplomacy. We cannot shut ourselves out from the international community.”

SPEED ROUND

The EGX30 was down by 3.58% to close at 8,516 points on turnover of EGP 727 mn, about 7% above the 90-day average. Regional markets were back in the red: KSA’s Tadawul and DFM both down by 7.3%, the ADX off 6.9%, Qatar by 3.5%, Kuwait by 2.2% and the Muscat by 2.9%.

U.S. markets closed slightly down (S&P 500 by 0.85%, DJIA by 0.65% and NASDAQ by 1.24%). European markets bounced back (FTSE 100 up 2.41%, DAX up 2.46% and CAC 40 2.19%).

Crude continued its slide: Brent was down 0.18% to USD 59.83 / bbl and WTI by 0.54% at USD 55.39 / bbl. It’s the first time Brent has been below USD 60 since 2009, the WSJ notes.

EgyptAir hires U.S. firm for restructuring after c. USD 1 bn in losses since 2010: EgyptAir has hired Texas-based airline advisory firm Sabre Airline Solutions to prepare a restructuring plan for the state-owned airline, which has made a net loss of about USD 1 bn since 2010, according to a Reuters report. A company statement did not give the value of the contract, but said the restructuring would focus on EgyptAir Airlines and EgyptAir Express, subsidiaries of EgyptAir Holding Company. Alessandro Ciancimino, vice president of consulting at Sabre, said the company would implement its restructuring plan over the next five and a half years. The national flag carrier is looking to return to profitability in mid-2016. This is the second consulting gig with EgyptAir for Sabre, which was previously retained for a 10-month period to “focus on improving the effectiveness of the carrier’s network planning and scheduling, pricing and revenue management, and sales, marketing and distribution processes.” (Read)

Actis announced its acquisition of 21% of Integrated Diagnostics Holdings (formed by the merger of Al Mokhtabar and Al Borg in 2012) in Egypt from Abraaj. The heads of terms for this transaction were agreed in March 2014 with closed in December 2014. IDH is the largest Egyptian private diagnostics business, with 262 branches, serving nearly 6 million patients and conducting over 19 million tests per year. Abraaj’s Ahmed Badreldin, the firm’s partner and head of MENA, notes in the press release: “Over the past six years, [IDH] under the stewardship of Dr. Hend [El Sherbini] has grown from having a single product in a single market with 62 branches, to having multiple products and operating via 262 branches across its expanded network with a strong focus on quality healthcare delivery.”

Ikhwan asset freeze overturned: Reuters has a very brief piece this morning noting that an administrative court ruled yesterday that the government’s freezing of the assets of leaders of the Muslim Brotherhood “ignored the provisions of the Constitution and the law … A criminal court is the appropriate body to freeze funds and property.” (Read)

You’ll be hearing about Egypt being 23rd on a ranking of “average illicit financial flows, 2003-2012” released yesterday by the watchdog organization Global Financial Integrity. Bottom line: Egypt lost about an average of USD 3.8 bn annually in that period to the black economy, something that shouldn’t surprise readers in Egypt — and which should spur policymakers on to continue their clampdown on corruption. But to keep it all in perspective, have a look at Washington Post’s Wonk blog, where the headline (nearly) says it all:China, Russia, India, and Mexico launder as much money as the next 141 developing countries—combined. (Read the press release or download the reportin pdf)

The “OPEC of natural gas” convenes ministerial meeting in Doha: The 16th Ministerial Meeting of the Gas Exporting Countries Forum (GECF) — more or less the OPEC of natural gas producers, but without teeth for obvious logistical / technical reasons — took place in Doha yesterday, with its closing statementexpressing concern about the “increasing volatility of [the] energy market.” Speaking on the sidelines of the meeting, Omani Oil Minister Mohammed al-Rumhy noted the country was looking to pursue opportunities in “gas because we want to diversify away from oil” given current price swings. The meeting appointed Nigeria’s Diezani Alison-Madueke as president of the ministerial meeting and Libya’s Mashala Said as the “alternate president.” In the Iranian press, the Tehran Times characterized the meeting as aiming to “prop up gas prices.” (Read the release here and read the write-up in the Tehran Times here)

Comparing the cost of production across different sources of energy,especially at multiple locations, often leads to a wide range of figures, as visualized by intersectinsight’s line chart on its landing page here. Take a look at the ranges of production costs of different energy sources, from nuclear to coal to solar and wind, based on data from Lazard and the EIA.

South Korea cancer victims bringing class action against nuclear operator KEPCO: Reuters reports that a group of South Korean thyroid cancer patients living near nuclear plants have filed South Korea’s first-ever class action suit against the KEPCO following an October court ruling in favor of a plaintiff claiming a link between nuclear radiation and the cancer, Reutersreports. As we noted last month, KEPCO has inked an agreement with Arab Contractors ahead of next year’s expected tender for a nuclear plant at El-Dabaa; the company has since announced that the first of four nuclear reactors it has sold the UAE should come online as scheduled in 2017.

Shares of Geely, the exclusive rights to which are held in Egypt by GB Auto, plunged 17% yesterday as the company (which also owns the Volvo brand) announced its earnings will halve on the back of the weakening Russian ruble and falling sales at home and abroad. (We would exclude Egypt from that, given the brand has come out of nowhere to capture a 10+% market sahre.) The selloff comes at Geely looks to re-work its brand, as Bloomberg reported yesterday. (Read)

A number of interesting stories on ancient Egyptian artifacts have appeared recently, the two most compelling of which are the best guesses of archeologists working a 30-year excavation who estimate that an ancient Egyptian burial site probably contains one million mummies. (Read) Also in the news is the discovery of blue glass beads in an ancient Danish grave traced back to ancient Egypt, suggesting that trade routes existed between the two areas far earlier than previously imagined. (Read)

Taliban besiege Pakistan school, killing 132 schoolchildren: Yesterday, as most of you have already heard, the Taliban in Pakistan attacked and killed 145 people at the Army Public School and Degree College. 132 of the victims killed were schoolchildren. (Read in The New York Times) Meanwhile, a suicide bomber killed 15 schoolchildren in Yemen. (Read in The Guardian)

Jeb Bush, son of former US President George W. Bush and brother of that other Bush president, announced yesterday he will explore a bid for the White House in a move that is already shaking up the Republican field. Bush vs. Clinton for the presidency? What is this, 1992?

EGYPT IN THE NEWS

International coverage on Egypt was mixed early morning Wednesday, with the AP noting (as we pointed out earlier in the week) that the 2015 spending bill contains waivers that would allow Egypt to receive military and economic aidwithout necessarily having to be certified as making progress on the democracy front. “The Obama administration said Tuesday that it welcomes new flexibility in providing up to USD 1.4 billion in aid to Egypt,” the story begins. (Read in the APand the pickup in The New York Times)

Otherwise, the million-mummy story referenced above was beginning to get picked up by American news outlets such as NBC News.

UK-based Ikhwani website Middle East Monitor (MEMO) referenced Egyptian website Alamat Online suggesting that Egypt could claim at least part of the newly discovered offshore Israeli gas field Named Royee. (Read)

A piece on the news site Ethiopian Opinion suggests that a third tripartite ministerial meeting between Egypt, Sudan and Ethiopia that was scheduled to take place in Khartoum was canceled due to disagreements between Ethiopia and Egypt, according to Bizuneh Tolcha, a senior official with the Ethiopian Ministry of Water. The talks aim to resolve the ongoing Egypt-Ethiopia dispute over the Renaissance Dam (Read or check out more detail onMiddle East Monitor, which has a surprisingly detailed piece)

In today’s press conference with U.S. State Department Secretary John Kerry in London, Kerry said the following regarding Mahmoud Abbas’ expected resolution on Wednesday to the United Nations calling for an end to the Israeli occupation of Palestine: “Over the past few days, I’ve had very candid and constructive conversations with Russian Foreign Minister Lavrov, Secretary of State of the Holy See Cardinal Parolin, with Israeli Prime Minister Netanyahu yesterday in Rome, with EU High Representative Mogherini, and with my counterparts from Jordan, Egypt, the United Kingdom, France, and Germany … Now obviously, a focus of these conversations has been our deep concern about the situation on the ground in Israel and in the West Bank and the mounting calls from the international community to pursue diplomatic measures to try to address it. I want to be very clear: This isn’t the time to detail private conversations or speculate on a UN Security Council resolution that hasn’t even been tabled, no matter what pronouncements are made publicly about it.” (Read)

WORTH WATCHING

For those of you familiar with the series, this will be a good trip down memory lane. For those of you unfamiliar, Drunk History presents important events in history as told by drunk narrators. We present for your consideration: Drunk History Vol. 5: Abraham Lincoln and Frederick Douglas, starring Will Ferrell, Don Cheadle and Zooey Deschanel (Watch)

WORTH READING

Harvard’s Jeffrey Frankel notes that “oversupply” from OPEC and / or US shale producers is not the sole cause of the oil price drop — the fact that a wide range of dollar commodity prices have fallen implies there are larger macroeconomic factors driving the market. Frankel points his finger at the market’s expectation that US real interest rates are about to rise and points out four channels through which this could suppress commodity prices. In a separate, more structural piece, IMF researchers attempt to generally assess the role of speculation on oil price activity and show that speculative demand shocks in the crude oil market may move the real oil price on impact between 10-35%, contributing to short-run oil price volatility.

Former Deputy PM Ziad Bahaa Eldin has an op-ed in Al Shorouk about the government’s current drive against corruption. He laments the exclusion of civil society from the process, but also notes that the drive would only be successful if the root-causes of corruption are weeded out as opposed to symptomatic efforts. (Read in Arabic)

ENERGY, RENEWABLE ENERGY & SUBSIDY REFORM

Half of all power plants expected to go out-of-service this summer
Al Mal | 15 Dec 2014
An official source predicted that 50% of all power plants will go out of service during the summer because of their dilapidated condition, state of disrepair and the simple fact of their having reached the end of their life spans. The source also said the government plans to increase the supplies of mazut and diesel to fuel the power plants have not materialized. Additionally, scheduled maintenance work has not been properly performed. Meanwhile, a source from EGAS revealed that 70% of all gas supplies are being directed to the electricity sector, amounting to 3.5-4 MMcf per days. (Read in Arabic)

OIL & GAS

Pipeline owner denies role in Egypt-Israel gas deal
Haaretz | 15 Dec 2014
East Mediterranean Gas (EMG), owner of the pipeline originally used to export natural gas from Egypt to Israel and is the proposed means of exporting gas to Egypt said on Sunday that no other companies had approached it about any possible gas export deal. (Read, paywalled)

EGAS to link 16 gas production wells during FY 2014 / 2015 – official
Daily News Egypt | 16 Dec 2014
A senior official at EGAS said that the company plans to link 16 development wells to the production map in the current fiscal year. The links will increase production rates to approximately 4.95 bn cubic feet of gas daily, compared to the current 4.7 5bn. (Read)

France to grant Egypt EUR 150 mn to finance household natural gas connection program
Zawya | 16 Dec 2014
France will grant Egypt EUR 150 mn to finance the connection 1.5 million houses across 11 governorates to the national natural gas, Minister of International Cooperation Naglaa Al-Ahwany said, noting that the financing was agreed during President Abdelfattah El-Sisi’s recent visit to France. EUR 50 mn will be channeled towards financing SMEs in cooperation with Egypt’s Social Fund for Development. (Read)

BG and Petronas plan well drilling campaign
Al Mal | 16 Dec 2014
BG and Petronas plan to drill 9 new wells and work on two others as part of their development of Phase 9B, which is expected to produce 400 MMcf of gas daily. The actual work will be performed by their local partner, RASHPETCO, revealed company president Mohamed El-Masry. The two foreign companies are expected to achieve cost savings of USD 29 mn as a result of lower production expenses. He also added that while production from the Rashid concession has dropped from to 130 MMcf per day as a result of field maturity, production from the Borollos concession increased to 1.3 bcf per day. (Read in Arabic)

Ministry of petroleum studies possibility of importing crude oil
Al Mal | 16 Dec 2014
A senior official at the Egyptian General Petroleum Corporation (EGPC) says Egypt is currently studying the possibility of importing crude oil to exploit the full capabilities of their oil refineries, whether through placing a direct global tender or through direct agreements with Arab companies to import and refine oil for other companies. Previously, the EGPC made an initial agreement to import 4 or 5 mn tons of crude oil to refine and process it in its Egyptian refineries. (Read in Arabic)

BASIC MATERIALS & COMMODITIES

Suez Cement allocates EGP 600 mn to upgrade Tora and Helwan factories to run on coal
Al Borsa | 16 Dec 2014
Suez Cement is planning to inject EGP 600 mn during the next year to upgrade two factories to run on coal and RDF. CEO, Bruno Carre said that the installation of a coal grinding mill at the company’s Katameya plant will be completed by the next month. (Read in Arabic or check out the Reuters piece in English on Ahram Online)

REAL ESTATE

SODIC seeks new land to expand beyond housing in Egypt
Bloomberg | 16 Dec 2014
Tamim Elyan has a look at SODIC’s bid to expand beyond the housing market in Egypt, quoting Managing Director Ahmed Badrawi as saying the upscale developer is in “‘advanced’ talks” with the government on new land on which it will build “office and retail developments as well as resorts that include hotels, homes and leisure facilities.” Said Badrawi: “The key message going forward for the next few years is diversifying out of pure residential. Once you have a stable recurring revenue stream, it helps you a lot for future bumps in the road.” The MD told Bloomberg the company plans to invest c. EGP 13 bn in land it already owns and said he expects to close F14 with sales revenues hitting a record EGP 3 bn. (Read)

NUCA seeks EGP 7 bn loan to finance expansion plan
Al Mal | 16 Dec 2014
Egypt’s New Urban Communities Authority (NUCA) is negotiating a EGP 7 bn loan to finance its expansion in affordable housing projects plan along with infrastructure utilities. A source told Al Mal the loan’s tenor could be five to seven years and NUCA’s receivables will be used as collateral. (Read in Arabic)

BANKING & FINANCE

EFG Hermes finalizes acquisition of 49% in EDPR France
EGX Disclosure | 16 Dec 2014
EFG Hermes has concluded its USD 208 mn purchase from EDP Renovaveis SA of nearly half of a portfolio of wind-power projects in France, it said in a disclosure yesterday. The 33 wind farms totaling about 334 megawatts and were the first investment beyond the Middle East and Africa for the firm’s infrastructure private equity arm. The transaction sees the firm’s private equity AUM rise 33% to USD 0.8 bn. (See the English disclosure)

NBE raises exposure ceiling to contracting industry
Al Mal | 14 Dec 2014
The National Bank of Egypt (NBE) has raised its exposure ceiling to the contracting industry to range between EGP 27-30 bn. NBE Executive Director Yehia Abou El Fetouh was quoted by Al Mal saying that the decision comes in light of the increased demand for credit from the contracting industry fueled by the pipeline of government infrastructure projects. It worthy to note that NBE’s current exposure to the industry stands at EGP 22 bn. (Read in Arabic)

EGYPT POLITICS + ECONOMICS

El-Sisi, Salman mull Russia free-trade deal, investment opportunities, grains partnership
Statement from Ittihadiyya | 16 Dec 2014
Deputy Prime Minister Arkady Dvorkovich and the Russian ministers of energy and agriculture were in Cairo yesterday for talks with President Abdelfattah El-Sisi and Investment Minister Ashraf Salman. Beyond the usual exchanges of good will and offers to have more Egyptian students study in Russia, the three discussed investment opportunities in the Suez Canal zone, the possibility of an FTA between Egypt and the Eurasian Customs Union (which includes Russia, Kazakhstan and Belarus), and noted that the establishment of Egypt’s commodities and logistics hub would provide Russia with a forward logistics base from which to serve the key Sudanese and Ethiopian markets. The two also discussed possible industrial cooperation.

Egypt launches start-up incubator with EGP 10 bn capital
Ahram Online | 16 Dec 2014
Ayady for Investment and Development, a startup incubator put forth as a PPP project (80% state-owned) with a capitalization of EGP 10 bn, was announced on Tuesday by Minister of Planning and Administrative Reform Ashraf El-Araby. Ayady aims to assist entrepreneurs with training, feasibility studies, funding and export opportunities. Stakeholders include but are not limited to Faisal Islamic Bank, the Tahya Misr Fund, and Misr El Kheir Foundation, the Federation of Egyptian Industries, and the Federation of Egyptian Chambers of Commerce. (Read)

Ministry of Finance allocates over EGP 3 bn budget to Ministries of Electricity, Supply and Transport
Al Mal | 16 Dec. 2014
The Ministry of Finance details of the proposed budget priorities of the Ministries of Electricity, Supply and Transport. The Electricity Ministry would receive EGP 2 bn to increase the efficiency of the national electricity grid to allow it to connect to new and renewable energy plants. EGP 1.75 bn will be earmarked for the Ministry of Supply to spend on new subsidized bread mechanism as well as the new ration card system. The Egyptian Public Transport Authority will receive funding pay a second payment for the newly supplied 150 buses.  (Read in Arabic)

REGIONAL

Dana Gas resorting to court to enforce payment from the Kurdish Regional Government
The National | 15 Dec 2014
The Kurdish Regional Government (KRG) failed to honor an order by a London court to pay USD 100 mn in back payments to Dana Gas. A final liability hearing will assess the claims in the week of 20 April, 2015. Dana warned the KRG that its failure to pay up risks sanctions being levied against it but reiterated its commitment to its contract with Erbil. The company is also chasing receivables from Egypt. (Read)

Tunisia: ups and downs of prosol subsidy scheme for solar water heaters
Global Solar Thermal Energy Council | 15 Dec 2014
Nine years ago, the Tunisian Company of Electricity and Gas (STEG) launched an incentive program whereby consumers could purchase a solar water heater with installments paid on their monthly electricity bills over five years. The program has proved immensely successful with the market growing by a factor of 10 in five years. (Read)

ON YOUR WAY OUT

During Egypt’s foreign affairs minister’s visit to Kuwait, 12 protocols and MoUs were signed to prevent dual taxation, promote cooperation in industrial development, and promote diplomatic cooperation amongst other issues. (Read in Arabic)

Al Mal reports that Egyptian exports to the UK grew by 33% y-o-y to GBP 740 mn in 3Q14.