AM — Eni, Chevron strike gas in the Eastern Mediterranean

Good morning, lovely people, and happy Monday. To our friends in the US marking Martin Luther King Jr. Day, we wish you a restful holiday. And to those who subscribe to the notion that this is the single most depressing day of the year, try dancing the bluest of Mondays away (watch, runtime: 4:07).

PSA- Expect more rain today: There’s a good chance of intermittent, light-to-medium showers across Greater Cairo and most other parts of the country today, according to an Egyptian Meteorological Authority statement. Our favorite weather app sees only sprinkles between 12 noon and 2pm in the capital city and a chance of showers in the early afternoon and early evening in Alexandria. Look for a daytime high of 17°C in Cairo and 18°C in Alex.

THE BIG STORY here at home: We’re getting a slight reprieve from all the EGP talk this morning after Chevron and Eni confirmed a “significant” gas find in the Eastern Mediterranean.

But first, your obligatory EGP WATCH- The EGP held steady against the USD yesterday, falling less than 0.01% to settle at 29.63, down from 29.61 at the start of the day, according to the official central bank rate. The currency remains down nearly 20% from its 24.79 / USD level immediately before the central bank allowed it to slip further against the USD on 4 January, as authorities transition to a fully flexible exchange rate as agreed with the IMF.

Keep an eye on trading dynamics after 10:30am CLT, when London traders hit their desks. London was off yesterday for the weekend, but the EGP gained on the USD last Wednesday and Thursday after 10:30am, suggesting flows out of London could be playing a role.

The central bank sells more t-bills on strong appetite: Yesterday’s treasury auction of three-month bills was more than 10x oversubscribed, receiving EGP 140.1 bn worth of bids on an EGP 13 bn sale, according to central bank figures. It ultimately sold EGP 87.1 bn worth of bills at a weighted average yield of 20.52%. The central bank also sold EGP 10.7 bn worth of nine-month bills at a weighted average yield of 21.48% in an auction that was 1.5x oversubscribed.

Local banks crack down on gold diggers: Banks are preparing lists of clients who it thinks are misusing their debit and credit cards to buy gold abroad using USD, putting pressure on our FX reserves, Shorouk News reports, citing unnamed banking sources. The CBE had previously instructed banks to notify it of any misuse of cards after noticing a spike in people using their debit and credit cards to secure FX from abroad despite having never left the country. Most major banks have introduced FX purchase and withdrawal limits abroad.

REMEMBER- Local gold prices saw record highs on the back of the EGP’s depreciation, with the price of 21-carat gold rising to EGP 1.8k in December.

FROM THE RUMOR MILL-

Some shareholders at Paint and Chemical Industries (Pachin) aren’t fully on board with Compass Capital’s valuation following last week’s depreciation of the EGP, Shorouk News reports, citing “informed sources.” Compass has offered to pay EGP 30 per share to acquire a majority stake in the company — valuing it at EGP 720 mn — and was last week given the all-clear by Pachin’s board to start due diligence. But in light of recent movements in the exchange rate — which last week saw the EGP lose more than 7% against the greenback — some shareholders now reportedly believe that the offer undervalues the company, the sources reportedly said.

This comes amid a bidding war that has seen Eagle Chemicals offer EGP 29.5 a share, a 1.7% premium to the price offered by UAE’s National Paints Holdings.

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HAPPENING TODAY-

Davos starts today: Global finance, business, politics, and media players will converge on the Swiss town this week to chew over the biggest challenges facing the planet. With “Cooperation in a Fragmented World” the chosen theme for this year’s World Economic Forum, expect discussions to be dominated by the war in Ukraine, deglobalization, and food and energy security.

Representing Egypt at this year’s event are Planning Minister Hala El Said and International Cooperation Minister Rania Al Mashat, who will take part in a number of panel discussions over the five days.

IT’S DOOM GLOOM IN THE BUSINESS PRESS as the jet set gathers on the slopes. “Top global companies write down bns as deals make way for gloom,” writes the Financial Times in its lead story this morning, adding that as much as “a third of the global economy [is] forecast to be in recession this year.” Two of the four big above-the-fold stories in this morning’s WSJ dance to the same tune, with the Journal noting that “declining international cooperation and commerce could shrink the global economy, particularly harming low-income countries.” It also notes that economists in its exclusive survey see a 61% chance of a recession in the United States in the coming 12 months even as inflation cools. (More on that last bit in this morning’s Planet Finance, below.)

MEANWHILE- Egypt beat Morocco 30-19 in the national team’s second match of the 2023 World Men’s Handball Championships yesterday. The victory comes after Egypt kicked off the tournament with their first-ever victory over Croatia. Egypt plays its next group stage match against the United States tomorrow at 7pm.

FM Shoukry in Abu Dhabi for sustainability week: Foreign Minister and COP27 President Sameh Shoukry will speak at Abu Dhabi Sustainability Week and hold bilateral talks on climate change during the Masdar-hosted event, according to a ministry statement. The gathering runs 14-19 January.

Go deeper: Read about the renewables pacts signed yesterday between the UAE and South Korea at the summit in this morning’s edition of Enterprise Climate.

IN THE HOUSE-

On the legislative agenda this week in the House:

• TODAY- The House Economic Affairs Committee will continue discussing the Unified Ins. Act. MPs will also discuss and vote on agreements that could see Egypt join three multilateral economic entities, as well as a draft law that allows the Oil Minister to contract the Egyptian General Petroleum Corporation and Brenco to explore for oil offshore North Sinai.
• TOMORROW- Water and Irrigation Minister Hani Sewilam will face questions from MPs.

ICYMI- Missed this week’s Inside Industry? In our weekly vertical exploring all things industry and manufacturing, we looked at what 2023 holds for Egypt’s manufacturing sector.

CIRCLE YOUR CALENDAR-

It’s that time of year again: The Cairo International Book Fair will open its doors to the public at the International Exhibition Center in New Cairo on 26 January, according to Youm7. The event, which runs until 6 February, is expected to draw mns of visitors during the two weeks. More details about the fair will be revealed by Culture Minister Nevine El Kilany at a presser today, the Culture Ministry said Saturday.

Check out our full calendar on the web for a comprehensive listing of upcoming news events, national holidays and news triggers.

*** It’s Blackboard day: We have our weekly look at the business of education in Egypt, from pre-K through the highest reaches of higher ed.

In today’s issue: Could small schools solve classroom overcrowding?

Chevron and Eni have made a “significant” gas discovery in the Eastern Mediterranean, the companies announced in separate statements yesterday (here and here, pdf). The discovery was made at their Nargis offshore block off the coast of North Sinai, in which each company holds a 45% interest, while state-owned Tharwa Petroleum holds the remaining 10%. Both companies described the finding as “significant” but didn’t disclose how much gas is estimated to be in place.

Work is underway to estimate the size of the gas reserves at Nargis, Oil Ministry Spokesperson Hamdy Abdelaziz told Ala Mas’ouleety’s Ahmed Moussa (watch, runtime: 8:31) and Al Hadath Al Youm (watch, runtime: 3:16) adding that this is Chevron’s first discovery since it entered our market in 2020.

A really big find?: MEES reported last month that the field has been estimated to hold 3.5 tn cubic feet of gas. Oil Minister Tarek El Molla later confirmed that a large gas discovery had been made at the block but didn’t disclose the size of the finding. Upstream Online has also reported that Chevron’s Nargis-I field was in the 3.5 tcf range — but reported that Eni was “shooting for the stars” with an “11 tcf probe” that it said targets a “huge Thuraya prospect in a a block that may host an extension of Chevron’s Nargis discovery.”

How big is this? For context, Eni’s supergiant Zohr field is estimated at about 30 tcf.

The oil giants are hungry for offshore exploration in Egypt: In its statement, Eni reiterated its “focus on Egypt offshore,” which it aims to advance after recently being awarded exploration blocks in North Rafah, North El Fayrouz, North East El Arish, Tiba and Bellatrix-Seti East. Eni is in the process of selling down shares in its mature producing concessions in the Western Desert but is also preparing to launch new exploration efforts in the area. Chevron, meanwhile, is looking to expand its exploration operations in Egypt after stepping up its presence in the EastMed hydrocarbon sector, purchasing a 40% stake in Israel’s Leviathan field and 25% of Tamar in recent years.

And both companies want to help boost our energy infrastructure: Eni — which holds a 50% stake in the Damietta LNG plant and produces around 60% of the country’s gas — has committed to investing in upstream assets here and across the region as it works to boost its LNG export capacity to Europe. State-owned EGAS signed an MoU with Chevron in July to work on developing infrastructure to transport gas from offshore fields to Egypt and increase exports. Those investments could bring a welcome boost to local gas production, which has reportedly slipped in recent months from a peak of 7.2 bn cubic feet per day in September 2021 to 6.5 bn cf/d in 3Q 2022.

More where that came from: Work is also underway to determine the size of a new gas discovery (pdf) in the East Damanhour block Wintershell Dea holds with Cheiron Energy and other partners in the Nile Delta, said the Oil Ministry’s Abdelaziz.

REMEMBER- Egypt is trying to maximize its exports of natural gas as the EU looks for new energy suppliers to fill the gap left by the loss of Russian fossil fuels. The state is rationing its usage of gas for domestic power production and turning to other types of fuel in order to free up more gas for export. The Oil Ministry plans to run our two liquefaction plants at full capacity throughout this year in a bid to bring LNG exports to a maximum capacity of 12 mn tons per annum. Export volumes were up 14% to hit 8 mn tons last year — 90% of which was directed to Europe.

The Finance Ministry has issued the amended executive regulations for the VAT Act, which contain new targeted tax breaks designed to support manufacturing and boost exports. The amendments were published in the Official Gazette late last week.

The provisions are aimed at:

#1- Supporting capex in the industrial sector: Purchases of machinery by companies in the industrial sector will be exempt from VAT for one year. This applies to items imported from abroad or purchased locally. Machinery is usually subject to a 5-14% VAT, the Tax Authority’s director of taxpayer services, Mohsen El Gayar, told Enterprise.

#2- Boosting investment in economic zones: Goods or services purchased for projects in special economic zones are exempted from VAT.

#3- Encouraging tourists to spend: Tourists will now be able to claim VAT rebates on select items worth EGP 1.5k or more, down from EGP 5k previously.

#4- Making it easier to register with the Tax Authority: The amendments introduce simplified procedures for non-residents to register with the Tax Authority, which can now be done online and without the need of a legal representative.

This is the latest in a list of measures designed to support the economy, boost investment and increase exports in response to the economic crisis triggered by the war in Ukraine and tightening financial conditions. The Madbouly cabinet announced in the wake of the latest currency devaluation last week that it would continue offering subsidized loans at a slightly higher 11% rate to support companies in the industrial and agriculture sectors. It also recently made it easier for firms to acquire on-stop golden licenses for new industrial and infrastructure projects

Industry + exports are key to getting the economy on the right foot for the long term: The government is aiming to increase exports to USD 100 bn a year by the middle of the decade and reduce dependency on imported products, a move that would help narrow the current account deficit. This would leave us with more resilient local industries that can weather external shocks like the fallout from covid-19 and the Russia-Ukraine war.

REMEMBER- Expect more tax changes in the weeks ahead: The Madbouly government is set to unveil its tax policy document in the coming few weeks, which could see changes made to income and capital gains tax.

The House of Representatives gave final approval to amendments to the law regulating police officers’ performance and disciplinary measures against them. Under the amendments to the Police Authority Act, only the general director of the Interior Ministry’s disciplinary department will have the power to take action against police officers, taking away powers from security chiefs. The amendments also give the Supreme Council of Police the authority to require police officers to take early retirement or move into a civilian role if they fail to meet policing standards.

AND- Unified Ins. Act is back on the docket: The House Economic Affairs Committee began its discussion of the Unified Ins. Act yesterday. Approved by the Senate last April, the bill has been more than four years in the making and would give the Financial Regulatory Authority (FRA) broad new powers to regulate the sector, make ins. compulsory for SMEs and freelancers, and set up new economic courts to mediate disputes. Discussions will continue today and tomorrow.

Emirati retail conglomerate Majid Al Futtaim (MAF) has appointed Ahmed Galal Ismail (LinkedIn) its CEO, replacing Alain Bejjani (LinkedIn), who had headed up the group for eight years, the company announced in a statement Friday. Ismail has been CEO of MAF Properties since 2018. Bejjani was one of the country’s highest-profile CEOs and had been the face of the MAF brand around the world since 2015.

** We talked to Ismail about the future of retail in Egypt in our Making It podcast back in 2020. Listen to the episode here.

Mopco has appointed Hesham Nour El Dein (LinkedIn) as acting chairman and managing director, replacing Ibrahim Mahgoub, the company said in a statement (pdf) yesterday. Mahgoub left the company last month after being appointed chairman of the Egyptian Petrochemicals Holding Company (ECHEM).

The government has appointed Mohamed Eissa to liquidate Egyptian Iron and Steel, according to a bourse disclosure (pdf) filed by Metallurgical Industries Holding yesterday. He replaces Hisham Fahmy, who had held the role since June 2022.

Housing Minister Assem El Gazzar has appointed Maha Fahim as chairman of the General Authority for Urban Planning for a one-year term, according to a ministry statement.

The talking heads honed in on Chevron and Eni’s “significant” EastMed gas find last night (more on that in today’s Energy section.) Elsewhere, the pundits aired a warning that meds could be about to get pricer on the back of the latest EGP deval and looked at new measures to subsidize bread.

The price of some meds could increase by 20-25% by the end of February after around 50-60 medicine manufacturers submitted requests to the Egyptian Drug Authority to hike prices against the backdrop of the EGP’s depreciation, Ali Ouf, head of the pharma division in the Federation of Egyptian Chamber of Commerce, told Kelma Akhira’s Lamees El Hadidi (watch, runtime: 2:36). The companies had used an exchange rate of EGP 20 / USD 1 when they determined the current prices, Ouf said.

Subsidized bread for everyone? All citizens — including those not eligible for ration cards — may soon be able to buy subsidized bread at cost, Supply Minister Ali El Moselhy told El Hekaya’s Amr Adeeb (watch, runtime: 1:12.) Consumers will be able to purchase the bread using prepaid cards that will be sold at post offices for around EGP 100, he said.

It’s a mixed bag for mentions of Egypt in the foreign press this morning.

The prizewinning graphic novel Shubeik Lubeik by Egyptian author Deena Mohamed is getting more love from the foreign press: The Guardian and NPR sit down for separate interviews with Mohamed to find out about her story and what inspired the book, not long after it received a glowing review in the New Yorker, as we noted last week.

Meanwhile, the Independent’s international correspondent Borzou Daragahi heaps praise on our loan agreement with the IMF — and calls on world powers to pressure authorities to follow through on promises to the multilateral lender to reduce military involvement in the economy. Daragahi was from 2011-2015 a Financial Times correspondent based in Cairo. (Independent)

Also making headlines:

• An Egyptian court yesterday sentenced 38 people to life in prison in connection with 2019 anti-government protests, including exiled contractor / dissident Mohamed Ali. (Associated Press | AFP)
• Too many new mosques? Al-Monitor asks if the EGP 10.2 bn spent on renovating or building some 9.6k mosques since 2013 is “excessive” amid a squeeze on household budgets. (Al-Monitor)
• The Jordan Times is reporting that Egyptian authorities have blocked a number of Jordanian trucks from entering Libya through the Salloum border crossing.

CAPITAL MARKETS-

Minority shareholders in Vodafone Egypt will have another two days to decide whether to sell shares to Vodacom after the EGX extended the subscription period by two days to tomorrow, 17 January due to national holidays. Vodacom — the South African subsidiary of Vodafone Group — made an offer to purchase 0.05% of the company from minority shareholders in tandem with acquiring the parent company’s 55% stake in December

COMMODITIES–

Some 151 locations across 18 governorates are now open for the Ahlan Ramadan supermarket expo, with the number expected to reach more than 200 outlets across all governorates within days, Alaa Ezz, secretary-general of the Federation of Egyptian Chambers of Commerce (FEDCOC), is quoted as saying in a cabinet statement. The pre-Ramadan expo, which offers shoppers discounts of more than 30% on essentials in the run up to the holy month, launched early this year to help alleviate the squeeze on living costs amid high inflation. Moves to ease a backlog of imported goods at our ports are also starting to bring down food costs in the wider market, Ezz added.

A first look at what fair prices mean to the Supply Ministry: Price tags at the expo are in the EGP 14-19 range per kilo of rice, EGP 14-16 per kilo of sugar, EGP 5 per 400 gm of pasta, EGP 29-45 for oil, EGP 79-115 for a kilo of imported meat, and EGP 140 for a kilo of local meat, the statement reads. We’re still waiting to hear more on a suggested price list the government is drawing up for certain essential foods. Ramadan is set to begin toward the end of March.

HEALTHCARE–

Foreign doctors to visit gov’t hospitals with private-sector backing: Foreign medical experts will spend one or two days in government hospitals across the country to perform delicate and critical surgeries, help diagnose patients, and train local staff at no cost, under an MoU signed between the Health Ministry and private-sector healthcare firms including Alameda Healthcare, Alfa Cure, Saudi German Health, and Cleopatra Hospitals Group, according to a ministry statement.

M&A-

To sell or not to sell: The board of tourism developer Remco has called an extraordinary shareholders meeting to discuss selling the company’s five-star Stella di Mare Beach Hotel in Sharm El Sheikh to Tolip Hotels and Resorts, according to a bourse filing (pdf). The military-owned company offered to purchase the hotel for EGP 700 mn in October.

Chinese Foreign Minister Qin Gang met with President Abdel Fattah El Sisi and Foreign Minister Sameh Shoukry yesterday, according to an Ittihadiya statement, on the final stop of an African tour that also saw the newly appointed Qin visit Ethiopia, Gabon, Angola, and Benin. Qin met separately with Arab League Secretary-General Ahmed Aboul Gheit, according to VoA.

More Chinese inflows incoming? Qin stressed to El Sisi China’s desire to up its investments in local infrastructure projects, including those with links to China’s flagship Belt and Road Initiative, the statement reads. He also touched on efforts to attract Chinese private investment and tourism to Egypt in a presser following his meeting with Shoukry (watch, runtime: 32:00.)

SOUND SMART- China hasn’t had a huge hand in the state’s national infrastructure push thus far. Outside of the new capital business district and the light rail transit system, China has had little involvement financing infrastructure projects in Egypt, which has tended to rely far more heavily on western development finance institutions. A 2021 report estimated Egypt’s total sovereign and hidden debt to China to be in the region of USD 4.6 bn; small fry compared to Ethiopia (which owes USD 15.4 bn) or Africa’s most China-indebted country, Angola (with a USD 52.3 bn debt pile).