Egypt’s oil company arrears settlement seen encouraging investment, Standard Chartered says
Egypt’s settlement of all outstanding arrears owed to international oil companies is a positive development that could encourage greater domestic energy production and ease pressure on the country’s external accounts, a senior Standard Chartered economist said on Wednesday.
Bader Al Sarraf, Associate Director and Economist for the Middle East and North Africa at Standard Chartered, said the move should help attract additional investment from energy companies operating in Egypt at a time when the country has become a net importer of energy.
“Before starting this trip, we had an estimation that IOC arrears were around $500 million,” Al Sarraf told a media roundtable.
Egypt’s Minister of Petroleum, Karim Badawi, announced earlier on Wednesday that total arrears owed to foreign oil and gas companies had fallen to zero after a series of payments aimed at restoring investor confidence in the energy sector.
“For us, that’s extremely positive,” Al Sarraf said, adding that settling the dues could incentivise international energy firms to increase domestic production.
“The strategy in Egypt has been that if we pay all these arrears, we entice these energy players to produce more domestically,” he said. “That helps us to export more rather than import more.”
The comments come as Egypt seeks to reverse declining natural gas output and reduce its reliance on energy imports, which have weighed on the country’s current account balance.
Al Sarraf said higher global oil prices could still pose challenges for Egypt’s petroleum trade balance in the short term. However, increased domestic production would help cushion the impact over the medium term.
“If they switch on the tap domestically and produce more domestically, that alleviates or cushions the impact from a current account balance perspective,” he said.
He added that despite regional tensions and inflationary pressures, investor sentiment toward Egypt remained broadly supported by monetary policy stability and positive real interest rates.
“If inflation goes higher but you don’t see a very large volatility, I think investors remain comfortable,” Al Sarraf said.
Attribution: Amwal Al Ghad English