Court rules Tiran, Sanafir are Egyptian. What’s next?

Egypt will allow imports of wheat with ergot fungus levels as high as 0.05% (in line with international standards), Prime Minister Sherif Ismail said yesterday, possibly signalling an end to a months-long conflict over the issue, Reuters reports. Ismail is set to issue a decree today instructing the agricultural quarantine authority to accept the decision, he said following a meeting on Tuesday with ministers involved in the policy. “The decree … will trump the previous ministerial decree which had dictated a zero tolerance policy,” said Eid Hawash, spokesman for the Agriculture Ministry. The ministry also said Tuesday that it would announce the results of a study conducted earlier this year with the United Nations Food and Agriculture Organisation on the amount of ergot that would be allowed in imports. It stopped short of mentioning when an announcement would be made.

Sawari Ventures’ Ahmed Alfi will speak on How tech entrepreneurship is transforming the Middle East at an event hosted by the Rafik Hariri Center for the Middle East. The event will be streamed live from 9 am to 10:30 am PDT, 6 pm Cairo local time.

Obour Land will file to offer 25% of its shares on the Egyptian Exchange this week, according to remarks by Chairman Mohamed Hamed to Al Borsa.

Thursday, 23 June is Brexit Day as voters in the UK head to the polls to decide whether or not to remain in the European Union.

Budget debate: The House of Representatives is set to discuss the state budget in four consecutive sessions starting Sunday, 26 June, Al Mal reported. Finance Minister Amr El Garhy presented an overview of the FY2016-17 budget to the House in May.

The Administrative Court ruled that the Egyptian-Saudi border demarcation agreement that handed the Red Sea islands of Tiran and Sanafir to Saudi Arabia is void and that the two islands remain Egyptian. The verdict is not final and could be overturned by a higher court, BBC notes, but if it is “approved by the country’s High Administrative Court it will become legally binding.” Al Masry Al Youm, however, cites a legal source as suggesting the Administrative Court ruling must be implemented immediately, unless overturned by a higher court.

The government’s State Lawsuits Authority is studying the ruling before deciding on whether to file an appeal, said authority spokesperson Sameh El Sayed during a call-in to the “Sa’a Min Misr” program on Al Ghad (runtime: 4:50). “If the ruling is legally valid, the authority will not appeal the decision,” said El Sayed. Local media, including Ahram Online, appear to have jumped the gun and announced that authority has already appealed the ruling. In a statement issued late Tuesday, cabinet stressed that it respects the Egyptian judiciary. A judicial source told Ahram Online that “the report by the State Commissioner’s Office, which issues recommendations to the Administrative Court, was unlawful, and that the judiciary has no jurisdiction over the islands issue since it is a question of sovereignty.”  

Other sources are also disputing the Administrative Court’s authority to rule in the case. Rep. Margaret Azer told Al Shorouk the right to accept or refuse the demarcation treaty is solely the purview of the House of Representatives. Government sources told Al Borsa the court decision jeopardises agreements signed with Saudi Arabia, including deposits pledged to the Central Bank of Egypt and grants.

There is already talk circulating that Saudi Arabia can — and probably will — unilaterally seek international recognition of the treaty if the appeal process fails, a cabinet source tells Al Shorouk. This may involve legal proceedings in Egypt and abroad. Foreign Minister Sameh Shoukry has begun holding discussions following the ruling on how to proceed considering that the government had already begun the process of transferring sovereignty of the islands to Saudi Arabia.

The lawsuit was filed by rights activist and lawyer Khaled Ali. Celebrity author and activist Ahdaf Soueif tweeted images of what she says are the courtroom ahead of the decision and of the team that handed down the ruling.

Apparently, the Coordination Council — the state committee that coordinates fiscal and monetary policies — was not consulted before the Central Bank of Egypt raised interest rates by 100 bps last week, a source tells Al Masry Al Youm. The council did not meet to discuss the decision, with committee members apparently believing the move might further exacerbate inflation and could end up having negative repercussions, the source adds. The council’s raison d’être is to ensure smooth coordination on decisions such as this. The news, which has not been confirmed by any other source we could find, was buried in a less important article on the government making the acceptance of loans conditional on identifying how they will be repaid, a story we noted on Monday.  

Dropping like flies: The Central Bank of Egypt has “permanently closed” two more FX bureaux for selling foreign currency at more than the official rates, Reuters reported. One exchange bureau source said the central bank has shuttered a total of 21 exchange offices this year out of more than 100 that were active before the crackdown. It blames them for “persistent speculation against the [EGP].”

…Also yesterday, the central bank kept the FX rate unchanged at EGP 8.78 per USD 1 at its regular auction where it sold USD 115.6 mn. On the parallel market, the greenback was reportedly changing hands at EGP 11.05-11.08, according to Reuters. Meanwhile, Al Masry Al Youm said the parallel market rate was closer to EGP 11.80.

A number of renewable energy companies have stated that they are willing to reduce the agreed upon feed-in tariff rates if the government compromises on the issue of international arbitration, which appears to have been the end-game the state had sought all along, a solar energy investor tells Al Mal. The insinuations came at a crisis meeting of the 39 solar energy companies in Benban, which included the source. Investors agreed to meet with the government to resolve the issue. The issue has put a damper on the solar park, with executives from Triangle Group announcing they would have to abandon the project altogether if the issue is not resolved. At the very least, the move would severely damage Egypt’s reputation abroad, said Dia Salah, GM of Sterling and Wilson. The government has been insisting that model contracts for the FiT system use domestic arbitration, a measure rejected by global lenders and development finance institutions, as we have recently noted.

Gov’t gives in to Manpower Committee on Civil Service Act: The Ismail government has agreed to give bureaucrats annual raises of 7% under the Civil Service Act, substantially above the 5% cap the government was trying to impose. The decision came at a meeting with the House Manpower Committee, said Planning Minister Ashraf Al Araby. The move should break a deadlock that had seen the committee withhold its approval for the draft Civil Service Act. Al Araby added that all the committee’s recommendations were approved by the government, which is eager to see the legislation pass on its second attempt. The committee and the government have agreed on a three-year transitional period to phase in the law, Al Masry Al Youm reports.  

Egypt to buy LNG from Tehran? An Iranian official said Egypt has agreed to buy Iranian LNG following “a permit issued by Egypt for Iran to transfer crude oil to European countries through SUMED pipeline,” Iran’s MEHR news agency reported. The deputy director of Iran’s Petrochemical Employers Association, identified by MEHR as Parviz Sahafzadeh, said “given the sanction removal and entry to post-sanction era, the grounds have been provided to expand trade volume between Iran and Egypt particularly in the field of petchem exports… A list of petrochemical items required by Egypt has been delivered to Iranian petrochemical companies.”

MEHR made a similar claim back in April about Iranian tankers having access to SUMED, but the Arab Petroleum Pipelines Co. (APPC) has consistently denied it has given the Iranians the green light. APPC, which runs the pipeline, is owned by EGPC and Saudi Aramco as well as state petroleum companies in Kuwait and Qatar. Saudi, in particular, is believed to object to Iran’s use of SUMED, the Financial Times has reported.

For context: MEHR is an arm of Iran’s propaganda machine, owned by the Islamic Ideology Dissemination Organization, which was set up by Ayatollah Ruholla Khomeini in 1981. MEHR’s homepage is here.

The budget deficit rose to 9.8% of GDP in 10M2015-16, up from 9.5% a year earlier, according to a Finance Ministry report (pdf) that put the deficit at EGP 273 bn in the first 10 months of the current state fiscal year, which ends 30 June 2016. Slower economic growth, a rising public-sector wage bill as well as the cost of subsidies all factored in the widening deficit. Reuters reports that economic growth slowed to 4.5% during 1H2015-16, from 5.5% in the same period last year, likely due to slowdown in global growth rates. The figures mirror those quoted by the planning minister in May.

Egypt needs to address its twin budget and current account deficits to accelerate its economic recovery — and it has already begun taking steps in that direction, Oriental Weavers’ founder Mohamed Farid Khamis said in an interview with Youm7. Khamis still believes the rich should be taxed at a higher, progressive rate reaching up to 30% and is positive about the future prospects for the country. He also believes Egypt is on the right path to economic prosperity, adding that now is the “golden age” for business under President Abdel Fattah El Sisi, with a chance for everyone to “make money.”

Naguib Sawiris is still interested in Brazilian telecommunications company Oi SA, saying it has potential once its debt is restructured — and provided the company gets a capital injection to back a viable business plan, Bloomberg quoted Sawiris as saying on Monday. Sawiris’ comments come on the heels of Oi filing for bankruptcy protection for USD 19 bn in debt on Monday — a Brazilian record — after failing to reach an agreement with creditors, according to a separate Bloomberg article. The filing comes 10 days after Bayard Gontijo resigned as the company’s CEO after disagreeing with some board members on how to proceed on negotiations with debt holders. Oi sought protection from creditors so it could keep serving customers, the company said in its filing on Monday. Talks with creditors stalled last week after some board members disagreed with a plan by bondholders to swap debt for equity, giving them 95% of the company and leaving current shareholders with a 5% stake. “Oi needs a shareholder with a strong telecoms background to solve their operational problems in addition to their financial ones,” Sawiris said by phone. We had reported last week that Sawiris was interested in acquiring Oi.

The Holding Company For Maritime & Land Transport signalled on Tuesday that it is leaning towards an IPO. The state-owned public transportation company discussed the option at a meeting that looked at restructuring and tallying its assets to improve efficiency ahead of a possible IPO, Youm7 reports. The company’s chairman was in attendance. This would be the first major hint this year of an IPO by a non-banking public sector company apart from the Food Industries Holding Company, a perennial IPO candidate that has yet to set a date. Investment Minister Dalia Khorshid had stated that we would not see state-owned companies IPOs for another three to five years, while Public Enterprises Minister Ashraf El Sharkawy is vehemently opposed to the idea.    

Juhayna is studying how to phase-in a 20% price rise on all products this year to cover a 20% increase in production costs due to the FX shortage, CEO Seif El Din Thabet told Al Borsa on Tuesday. Sales during Ramadan have risen 20% y-o-y, he said, short of his May forecast of 33%. We had reported yesterday that Juhayna signed an EGP 15 mn per year cooperation agreement with e-payment firm Fawry to allow the company to collect payments from retailers.

British Airways has indefinitely suspended flights from Gatwick to Sharm El Sheikh, Reuters and the Independent reported. Flights to Sharm El Sheikh were suspended by British operators from 4 November on government instructions following the Metrojet flight crash in Sinai. Despite earlier reports that BA would resume flights to Sharm El Sheikh on 15 September, the airline cancelled the route indefinitely and said “customers who hold bookings on any cancelled services for the coming winter season can claim a full refund or can use the money to cover a new booking with us for an alternative destination.” Daily flights between London Heathrow and Cairo International continue.

Egyptian investigators were set to decide on Tuesday whether the memory units of EgyptAir flight MS804’s black box recorders would need to be sent abroad for repairs, Reuters quotes Civil Aviation Minister Sherif Fathi as saying. If they are sent abroad, they would only be there for 24 hours and would be under Egyptian supervision to ensure the chain of custody, he told reporters yesterday at an airport security contract signing. “The experts on the Egyptian Aircraft Accident Investigation Committee will determine today if the black box memory units need to be sent abroad, in which case it will be for 24 hours under Egyptian supervision,” Fathi said. As of dispatch, there’s been no word on whether or not a decision has been made.

MOVES- Ahmed Shaheen has been appointed as chairman of EgyptAir Ground Services, following the resignation of Sami Abdel Rahman, EgyptAir Holding chief Safwat Mosallam said, Al Mal reported on Tuesday. Shaheen previously served as EgyptAir’s general manager in Saudi Arabia.

The Central Bank of Egypt has a new website: The new page looks nicer and less clunky than its predecessor. On the plus side: We can now download monthly data in Excel, it has a decent search function, and it’s easier on the eye. Oh, and it’s no longer necessary to download the Monthly Statistical Bulletin spread … by … bloody … spread. The negatives: Old links no longer function, the homepage view does not provide the similar volume of information, the full list for the monthly statistical bulletin data is no longer there, and, most importantly, actual data (despite being available in Excel format) occasionally gives out the following error message: “The maximum number of allowed sessions per user has been exceeded. The operation cannot be completed.” Overall, it looks like a better data dissemination vehicle but will require some time to get familiar with. Here’s to hoping CAPMAS improve the dysfunctional abyss that is their website (again).

Most coverage coming out of the international press this morning was unsurprisingly about Sanafir and Tiran. “If upheld, the verdict would not only leave Mr. Sisi in awkward position with an important ally, but it could also pave the way for the prosecution of senior government officials, legal experts warned,” writes the New York Times’ Nour Youssef. “During testimony before the court, the government’s lawyers declined to furnish documents to make their case, arguing instead that the transfer was a ‘sovereign decision’ made at the discretion of the cabinet.” The Wall Street Journal and the Guardian also have coverage.

Also on the mind of the international press are Egypt’s rising costs and their impact on the country’s nascent recovery from five years of the economic doldrums. Reuters’s Mohamed Abdellah writes that the price of both local products and imports are on the rise due to the FX shortage. "They want to make it more difficult to import things but they are also effectively risking engineering a recession," he quotes Timothy Kaldas, non-resident fellow at the Tahrir Institute for Middle East Policy, as saying. Bloomberg’s Tarek El-Tablawy hones in on Ramadan price increases, quoting Bryan Plamondon, IHS Global Insight’s Middle East economic analysis director, as saying that inflation “could rise toward 15 percent year-on-year during the second half of 2016.”

For Egypt’s minorities, “there is a large gap between de jure and de facto rights—what exists under the law versus what exists in practice,” writes Sarah Yerkes in a piece titled “What Egypt under Sisi is really like for Coptic Christians” for Brookings Institute. While President Abdel Fattah El Sisi’s outward support of Copts and inclusion wins him international praise, his insistence on inclusion “fails to acknowledge de facto discrimination against Copts.”

Cambridge University published a letter in the Guardian on Monday refuting allegations made by Italy’s deputy minister of foreign affairs Mario Giro on Friday that the university was not cooperating with the investigation into the murder of Giulio Regeni, when he tweeted at Cambridge: “Shame on you … you value more your ‘secret researches’ than a human life. What are you hiding? TRUTH FOR #giulioregeni.” The university replied on Monday, saying: “The lack of response from Egypt should not divert attention from the search for truth, to which the university is fully committed. To be clear, the central university authorities have not received any request for help from Italian prosecutors and remain ready to react quickly to any request for assistance. One individual academic at Cambridge has received a request from Italian prosecutors and has already responded to all their questions on two occasions.”

Federal Reserve Chair Janet Yellen changed her tune ever so slightly yesterday during her two-day testimony to Senate and House lawmakers. Yellen said she was watching for whether, not when, the U.S. economy would show signs of improvement, Bloomberg reports. Yellen told a Senate Committee that she saw “considerable uncertainty” about the US economic outlook, the FT (paywall) writes. “Proceeding cautiously in raising the federal funds rate will allow us to keep the monetary support to economic growth in place while we assess whether growth is returning to a moderate pace, whether the labour market will strengthen further, and whether inflation will continue to make progress toward our 2 percent objective,” she told the Senate Banking Committee.

Yellen also cautioned against “exaggerating” the impact of Brexit and being “overly alarmist about the probable global fallout,” as the European Central Bank said Tuesday that it was preparing for “all possible contingencies.” “It’s very difficult to foresee the various dimensions how [Brexit] will impact on the markets and the economies of the eurozone,” ECB chief Mario Draghi said. The Wall Street Journal, meanwhile, writes that no matter the outcome of the 23 June referendum, Europe will “never be the same” seeing as “at a minimum [it] has delivered a shock to Europe’s political classes.”

tronc—no, it’s not a new musical sub-genre. tronc (no capital “t”) is the new name of the Tribune, the publisher of the Los Angeles Times and Chicago Tribune. Not only has the name change been universally reviled, so has the video released by the publisher to its employees explaining the name change and new editorial direction. The video is peak corporate-speak. “One of the key ways we’re going to harness the power of our journalism, is to have an optimization group, this tronc team, will work with all of the local markets, to harness the power of our local journalism, feed it into a funnel, and then optimize it so that we reach the biggest global audience possible.” (Watch tronc employee video, running time: 2:30, followed by the parody PLONFT Employee Video, running time: 4:14)

Nasr also met with head of the EU delegation to Egypt James Moran to discuss the current EUR 370 mn cooperation portfolio and future cooperation opportunities, according to a statement from the ministry. The current investment portfolio includes water, health, and energy projects, said Nasr. She also added that she was able to sign financing agreements worth USD 11 bn with both international and Arab funds during the current fiscal year, Al Borsa reported.  

President El Sisi and CBE Governor Tarek Amer met with German Central Bank President Jens Weidmann and Angela Merkel’s Foreign and Security Policy Adviser Christoph Heusgen on Tuesday, where discussions focused on Egypt’s economic reforms and how they would be a catalyst for drawing new German investments to the country. Discussions also included details on the upcoming meeting between El Sisi and German Chancellor Merkel, Al Shorouk reports.

Egypt, Canada sign SME funding agreement for Upper Egypt: International Cooperation Minister Sahar Nasr and Trade and Industry Minister Tarek Kabil signed a grant agreement on Tuesday worth CAD 10.7 mn with the Canadian Ambassador to Cairo Troy Lulashnyk to provide funding for SMEs in Upper Egypt, according to a ministry statement (here in English and here in Arabic). The grant is part of a CAD 50 mn package allocated by the Canadian government to support Egypt’s development projects, Nasr said.

The Egyptian Electricity Holding Company will meet today (Wednesday) with representatives from Japan’s Toyota Tsusho (the trading arm of Toyota Group) to discuss building a 1.3 GW, USD 1.5 bn power-generation station in Qena, Al Borsa reported on Tuesday. The combined-cycle plant would have two units, each with a capacity of 650 MW. The Electricity Ministry is also set to hold talks with a number of Japanese firms in the next five months to bring to life memoranda of understanding signed between Egypt and Japan in March, including the establishment of a thermal energy plant with Itochu Corporation; the construction of 1 GW of generation capacity in Marsa Matrouh with Sumitomo Corporation; and a thermal energy plant in Marsa Matrouh with Marubeni Corporation and El Sewedy, among others.

Royal Dutch Shell is planning on drilling a total of 33 wells in FY2016-17 through its Egyptian JV Bapetco, Al Borsa reported. Of the 33 wells, 19 will be developmental wells, 10 injections wells, and four appraisal wells. The number of appraisal wells planned has been reduced from the seven drilled in FY2015-16. In total, the company will inject USD 342 mn in investments throughout the year, an almost USD 100 mn y-o-y reduction due to the accumulated receivables owed by the Egyptian government.

Oil producers Nostra Terra and Independent Resources said they are on track to start receiving a revenue share from the recently acquired stake in the East Ghazalat operation in Egypt. Their jointly owned vehicle, Independent Resources Egypt Limited, has now been formally registered with EGPC and completed its security clearances. “IRE has now put in place paperwork for the next steps, which include Commercial Registration and the receipt of an Egyptian Tax Card. These steps will allow the venture to receive accrued revenues from July 1 2015, which is the effective date of the transaction.” Independent Resources and Nostra Terra had reached an agreement to acquire 50% of the East Ghazalat concession from TransGlobe Energy in late 2015.

The agriculture arm of the PICO group of companies is targeting the better prospects from red and black grapes following a poor white grape season due to oversupply from India, commercial director Sara Salama told Fresh Plaza. “In addition to the good climatic and growing conditions, she believes that one of the most important advantages of Egyptian grapes is that they bridge that gap between the Chilean/Indian season and the start of the European campaign.” Salama also says PICO is looking to increase the volume of mangoes exported to the GCC and UK, and the company will continue its production of avocados, riding the wave of growing global demand.

ASCOM is studying building a third calcium carbonate production line, Al Mal reported. Qalaa Holdings Managing Director Hisham El Khazindar was earlier quoted saying ASCOM was building an EGP 250 mn production line and exporting 80% of production.

Prime Minister Sherif Ismail met with a delegation from China’s Megan Group to discuss a plan to build an EGP 100 mn electronics factory in one of Egypt’s industrial zones, Al Mal reported. The factory will start assembling mobile phones by 2017 and begin fully manufacturing by 2018, with a minimum of 65% of production earmarked for export, Megan Group’s president told Al Mal. We had reported in May that Megan Group signed an agreement with Egypt’s SICO Technology to build a factory in the Borg El Arab tech park.

Discussions are currently underway between the House of Representatives and the Housing Ministry on modifying the unified building code to make it easier to obtain building permits, Housing Minister Mostafa Madbouly said, Al Borsa reported on Tuesday. His statement followed a meeting with Investment Minister Dalia Khorshid to discuss ways to improve Egypt’s ranking in the World Bank’s Doing Business report.  

SODIC is conducting feasibility studies on a housing development built on a 30 feddan land plot in Sixth October after having received ministerial approval, Managing Director Magued Sherif told Al Mal. The project’s investment cost increased 25% since the previous feasibility study, he said, citing increased construction costs. SODIC has completed 45% of construction on Eastown Cairo, added Sherif.

Amar Consult has contracted Tamkean Investment and Real Estate Development to design and supervise an EGP 300 mn tourism project in New Borg El Arab, Amar Consult Chairman Mamdouh Abdel Wahab told Al Borsa. The company will complete engineering designs within two months, he added. The project will include housing units, entertainment activities, and a sporting club over a total area of 48.5 feddans, said Abdel Wahab. The project will be built over three phases, the first of which will be issued to contractors in August, he added.

Global Telecom is Egypt’s best performing stock this year because the market is making a big bet that owner VimpelCom will buy out the shares it does not own at a premium, Ahmed Namatalla writes for Bloomberg. “It doesn’t make sense for the shares to continue to be listed in Egypt because the company is now down to just its corporate offices here … The speculation continues because sooner or later it has to happen. It’s only a question of when,” CI Capital executive director Khaled Darwish told Bloomberg.

Vodafone has signed an agreement with CIB to provide money transfer services through mobile phones via the “Vodafone Cash” service, Al Borsa reported on Tuesday. Customers will be allowed to conduct their banking transactions via MasterCard, and will soon be able to purchase items online through their devices, Consumer Business Unit Director Nihal Zaki said.

Banque Misr has obtained a USD 105 mn murabaha facility from three UAE banks, Chairman Mohamed El Etreby told Reuters. El Etreby said “the facility was obtained from three of the largest UAE banks, but declined disclose their names. He said the facility will strengthen Banque Misr’s foreign currency resources and will be paid back in two years.” He added that the bank is currently seeking EUR loans, AMAY reported. The National Bank of Egypt is also reportedly in negotiations with international lenders to obtain USD loans, unnamed sources said.

The Central Bank of Egypt has asked Islamic banks to submit briefs on what they feel are the legal obstacles facing the Islamic banking sector ahead of preparing a new draft law regulating the industry, Al Borsa reported.

The Social Fund for Development is in negotiations with international lenders for USD 300 mn in loans to finance SME projects, SFD Secretary General Soha Soliman told Amwal Al Ghad. The lenders include the a USD 100 mn loan from the Saudi Fund for Development and USD 200 mn from the World Bank for infrastructure and community development project, she added.

Prime Minister Sherif Ismail ordered the formation of a committee to handle the new industrial zones, including construction and coordination, the PM’s office said in a statement. The committee will include the head of the Industrial Development Authority, the head of the General Authority for Investment and Free Zones, as well as representatives from the ministries of defense, planning, housing, electricity, finance, environment, interior, and local development.

National Falcon Company, a joint venture between Falcon Group and the Egyptian government, signed an agreement on Tuesday with British security firm Restrata, according to the civil aviation ministry, Ahram Online and TASS reported. The agreement covers training for 7,000 Falcon Group personnel on airport screening procedures for passengers and luggage. Restrata will also serve as Falcon’s airport security consultant. Waiting areas in Egypt’s airports are reportedly being fitted with high resolution cameras capable of storing data for up to three months, according to TASS.

The Administrative Court overturned on Tuesday a decision to seize the assets of Egyptian footballer Mohamed Abou-Treika, who was accused of funding the banned Muslim Brotherhood, Ahram Online reported.

Apparently, the Great Pyramid of Giza has been wonky this whole time, a new investigation shows. The west side of the pyramid is about 14.1 cm longer than the east side, meaning the base isn’t exactly square, researchers from the US-based Glen Dash Research Foundation and the Ancient Egypt Research Associates found.

Ben Affleck mocks some of the plot holes of the film Armageddon in this 17-year old DVD commentary. “In a week, we’re going to learn how to become astronauts?” (Watch, running time: 1:40)