Egypt pays back Qatar $2.5bn and looks to private funding

Egypt will repay the $500 million of debt outstanding to Qatar in the second half of 2015, a central bank official said.

Egypt is swapping Qatari funds for private money, as it repays US$2.5 billion to Qatar, and a major state-owned energy company secures $1.5bn in financing from a consortium of banks.

The country will repay the $500 million of debt outstanding to Qatar in the second half of 2015, a central bank official said.

Egypt has now repaid $6bn to Qatar, with UAE, Saudi, and Kuwaiti financing filling the gap after the fall of the Muslim Brotherhood.

Direct aid from these states totalled $10.6bn last year. The UAE has also launched a number of high-profile investment projects in Egypt, including Arabtec’s contract to build 1 million homes, and has paid for a team of consultants to assist the government’s economic planning.

Egypt’s dwindling currency reserves and large fiscal deficit have necessitated large inflows of funds from Gulf donors.

The news came as Egyptian General Petroleum (EGP) said that it had sourced $1.5bn in financing from a consortium of banks, which will allow it to repay energy suppliers including the UAE’s Dana Gas.

National Bank of Egypt, National Bank of Abu Dhabi and HSBC were chosen to provide the loan, with each bank loaning $500m, said Mahmoud Montasser, the deputy chairman of the Egyptian lender. EGP is expected to receive the loan by next month, he said.

Egypt is trying to pay back receivables it owes foreign energy companies to boost their investments and increase production after natural gas shortages led to mass power cuts last summer.

EGP’s new loan is good news for Dana Gas, which has been burning through its cash pile as it awaits repayment. Egypt owes the firm $276m in outstanding payments, $160m of which has been outstanding since 2011.

The company reached a deal with the Egyptian government in December that will allow it to sell natural gas condensate on the open market. The deal requires Dana Gas to reinvest the majority of repayments back into the Egyptian energy sector.

Dana Gas has been particularly hard hit by Egypt’s late payments, as it is also awaiting repayments from the Kurdistan Regional Government (KRG), after a pricing dispute that culminated in Dana Gas taking the KRG to an arbitration court in London.

The arbitration is ongoing.

Sherif Ismail, Egypt’s petroleum minister, said that the government plans to pay another tranche to energy companies, including Dana Gas, by the end of December, after it paid $1.5bn in October. Current debt owed to foreign partners stands at $4.9bn, he said earlier this month.

Qatar helped to support the Egyptian economy in the aftermath of the 2011 uprising that overthrew Hosni Mubarak, but relations have soured since Mr Morsi’s removal last year.

A government source said this month that Egypt had received another $1bn grant from Kuwait.

Khalid Al Attiya, the Qatari foreign minister, arrived in Cairo on Friday night for a meeting of Arab League foreign ministers.

Egypt’s president Abdel Fattah El Sisi, who led the removal of Mr Morsi, has relied on political and economic support from other Gulf states, including Saudi Arabia and the UAE.

The Egyptian government is trying to strike a balance between cutting its deficit while reviving economic growth, which remains too slow to create enough jobs for a youthful population of 86 million.

In an bid to ease the burden on its swelling budget deficit and minimise its reliance on Gulf aid, Egypt’s government has introduced a number of long-delayed reforms in recent months including energy subsidy cuts and tax hikes.

“There is growing national consensus on the need for economic reform,” said Chris Jarvis, Egypt mission chief at the IMF.

“Structural reforms planned by the authorities focus on improving the business climate, promoting investments and financial sector development, while addressing poverty and social gaps,” Mr Jarvis said.

“For the reform effort to succeed it will need to be pursued steadfastly.”

* with Reuters

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