Russia – Egypt: pending large joint projects

There are several global players who are interested in stronger economic ties with Egypt. Even though the internal political turbulence in that Arab republic has not yet been fully overcome, the Egyptian authorities have managed to localize the protests of their “Islamic street” opponents, and this is giving confidence to certain foreign investors and their governments.

It was not hard for Russia to win Egypt’s favor given the contradictions Cairo has had with western capitals, first of all, Washington, since the counterrevolution of July 2013. As of today, the United States and Egypt have already removed many of the barriers put by Barack Obama when a military regime came into power in Egypt. During the 69th session of the UN General Assembly in Sept 2014 the U.S. president met with his Egyptian counterpart. And a few days ago, the sides finalized the deal for supply of ten Apache helicopters to Egypt. On Dec 18, the Americans sent to Cairo a new ambassador (who replaced the one that left Egypt in Aug 2013 due to “expired term of office”). But it still seems to be hard for the sides to restore the confidence they had in each other before.

It would be too simple to say that the only reason Egypt is developing relations with Russia is to show to the Americans that it has an alternative to them. Although such elements can certainly be seen in Egypt’s foreign policy, the Egyptians’ relations with the Russians are self-sufficient enough to have no dependence on their ties with the West.

Since the collapse of the Soviet Union Russia and Egypt have had no single big economic project that could stimulate their political ties. In 2007 the sides faced such a chance, when former Egyptian President Hosni Mubarak said that the Egyptians wanted to have an own nuclear power plant. Four years ago Russia confirmed its commitment to bid for the project. By late 2010 the Russians said they would prefer not to be involved in competitive selection. This might be the well-known “build-own-operate” scheme – the approach Russian is currently applying to the Akkuyu project in Turkey. In 2013 the Egyptians made its goals known: 4GW of nuclear reactors by 2025 but since 2010 they have made little progress in this field.

The tender has not yet been announced. The decision on Rosatom’s non-competitive selection has not been even considered. Currently the Egyptians are examining several proposals by foreign and Russian partners. The possibility to carry out the biggest Russian-Egyptian project in the 21st century has been discussed at all possible levels of late. During his last meetings with Russian President Vladimir Putin (in Novo-Ogaryovo on Feb 13 2014 and in Sochi on Aug 12 2014), Egyptian President Abdel Fattah el-Sisi invited Russia to bid for projects to build nuclear reactors and to develop uranium deposits in Egypt.

The nuclear issue was mentioned again during the Cairo visit of Russian Deputy Prime Minister Arkady Dvorkovich. The sides are negotiated a plan to build a 1GW-1.2GW nuclear power plant in Ed Dab’a, 150 km west of Alexandria. Egyptian Investment Minister Ashraf Salman said after the talks that the Egyptian authorities needed some time to consider the technical and financial aspects of that project, but he confirmed that the Russians would become their key partners as soon as they decided what they needed.

Here we can draw some parallels with another big Russian energy project in the Middle East. In Rosatom’s project to build two nuclear reactors with a total capacity of 2,000MW in Jordan there is much more clarity than in the Egyptian one, but here too the Jordanians are going slow and have just said that they prefer a contact with Rosatom’s subsidiary, Atomstroyexport.

Unlike Jordan, Egypt is not a net importer of energy, but in recent years its oil and gas export capacities have been running low. According to the Egyptians, they can exhaust their gas fields if they continue increasing their gas consumption. Recently the Egyptian Environment Minister warned that if Egypt continues consuming 6.5% more gas each year, in 13 years it may run out of gas. Today 95% of oil and gas used in Egypt is extracted inside the country. This year the Egyptians faced many-hour rotating outages, caused mostly by worn-out equipment. Growing energy demand has caused a 5MW shortage in Egypt this year. This is equivalent to annual consumption in a small European state. During the same period gas production in Egypt dropped by 14% resulting in a slump in gas exports.

All this is urging the 87 million Egyptians to actively consider ways to ensure their energy security in the years to come. The Russians can help them not only by building a nuclear power plant and training operators for it – now that they in Cairo are considering ways to import LNG, the Russians can outrun their potential rivals. During Dvorkovich’s visit the sides agreed to negotiate in early 2015 the possibility of Russian LNG supplies to Egypt. In May 2014 the Egyptian Petroleum Ministry signed contracts with Gazprom and EDF of France on delivery of twelve LNG carriers to Egypt. Each carrier can hold 170,000 c m, so, Egypt may receive a total of 2mn c m. In Sept we received reports about seven shipments, with the first one to be carried out by the end of this year.

As you may see, with Gazprom the Egyptians are at the same stage as they are with Rosatom. The only difference is in intensity of the talks.

Today, Russian-Egyptian relations are experiencing one of their most dynamic periods. The sides enjoy confidential political contacts and have signed multi-billion arms deals. Trade and economic ties are beginning to develop. The closest goal is $5bn annual trade turnover. According to Russia’s Economic Development Ministry, the Egyptian market is historically adaptive to a whole number of Russian vehicles and machines: VAZs, cranes, helicopters, hydro power units. The sides are planning to create a free trade area. But without big joint projects, they will hardly be able to capitalize on this progress. With all of its competitive advantages in nuclear energy, fuel supplies and oil and gas technologies, Russia has what to offer to Egypt.