EIPR report reveals $10 billion lost in corrupt gas contracts, as daily blackouts spread

Thursday 13 March 2014

Egypt lost $10 billion in gas revenues from 2005-2011, according to a report launched yesterday by EIPR. Contracts signed during the Mubarak years allowed the export of billions of cubic metres of underpriced gas to Jordan, Spain and the Israeli state.

Some of the individuals behind these deals were convicted of corruption. EIPR's new report uses court data to quantify the revenues lost to Egypt by exporting under-priced gas. One of the report’s findings is that during the six year period (2005-2011) of selling gas abroad for a very low price, Egypt lost more than double the country's annual health expenditure. Instead, it effectively subsidised the Spanish, Jordanian and Israeli economies.

Egypt is now facing a drastic energy shortage, with daily blackouts interrupting the lives of millions. Negotiations have begun over importing gas from Israel and the Gulf states, at many times the price it was previously exported. The seeming shortage of indigenous energy resources is leading to controversial proposals to import coal, build nuclear plants or expand hydraulic fracking for shale gas.

Structurally, the same conditions that allowed the problematic contracts to be signed in the first place remain today: oil and gas contracts remain secret and confidential; public oversight and accountability is non-existent; and there is no public debate over import or export prices of gas.

A panel discussion titled “Fuelling corruption: Gas and Reconciliation” took place yesterday to explore how Egypt's economy is affected by the report's findings. The panelists were political economist at Stanford University and report co-author Dr Amr Adly, energy expert, author of The Oil Road and report co-author Mika Minio, and economic researcher and journalist in al-Shorouk newspaper Wael Gamal.  The panel was chaired by EIPR’s research director Abdou al-Bermawy.

Dr. Adly explained that  this research started in 2011, but the report's launch  was repeatedly postponed following the discovery of new evidence and documents when the “Mubarak black box” was open in the aftermath of the 2011 revolution. “One of the court cases we examined included over 2500 pages of difficult-to-read handwritten testimonies.”

Mika Minio-Paluello, co-author of the report, said “I've analysed oil and gas contracts from Uganda, Kazakhstan and Congo, and I've never seen a country ripped off this badly. The Egyptian people are paying for elite corruption with blackouts, blackmarket fuel and a collapsing economy. The solutions lie in democratic accountability over all contracts and a rapid transition to renewable energy.”Minio added “The same situation continues today. The contracts remain secret. Accountability still does not exist. In the past we accessed some information  through court cases brought by third parties. But  the new amendments to the investment law undermine citizen engagement by  restricting the right to challenge contracts in court.”

The report highlights failures in Egyptian oil and gas contracts regarding sovereignty, resource conservation and the environment. It makes proposals for energy and revenue reform, to prevent future corruption, energy failures and mismanagement of natural resources.

Wael Gamal explained that the energy issue will be a major cause of suffering in Egypt in the future. Although the main controversy over gas exports focused on Israel because of the political sensitivity,  Egypt had lost more money through exports to Spain. Gamal added that “despite the importance of having a figure for losses which this report provides, the real cost  of corruption in gas deals will exceed the $10 billion.” Gamal argued that when  Egypt has a government  willing to carry out real development projects, it risks facing a lack of energy resources

To read the full report (Arabic): Click here

To watch a video summary: Click here