On the Verge of an Industrial Leap

CAIRO - 21 August 2018: Egypt’s industrial sector is gearing up for a breakthrough as the country is building its largest petrochemical complex in the Middle East, with investments of $10.9 billion.

Tahrir Petrochemicals Corporation (TPC), which will be built on 5 million square meters in Ain Sokhna, comprises 11 factories and is set to provide 48,000 jobs.

The world-scale petrochemicals facility is expected to yield $8 billion in projected annual exports and to produce raw materials that can be used in a variety of industries, within around four years. TPC will feature an ethylene cracker with a capacity of 1.5 million tons per year (t/y), and a polyethylene facility with a capacity of about 1.4 million t/y. Once completed, the facility will become Egypt’s first and the world’s largest naphtha cracker plant.

Head of the Suez Canal Authority and Economic Zone (SCZone) Mohab Mamish signed the project’s contract with CEO of the privately-owned Carbon Holdings Basil el Baz, on the fifth anniversary of the June 30 uprising.

The project is scheduled to be finalized within 41 months, the shortest possible time frame for the implementation, according to a Cabinet statement.

“The complex is the largest petrochemical project in the MENA region and it is funded by various international institutions, marking a strong return for foreign investments and international financing for Egyptian projects as the political leadership managed to restore confidence in the economy,” Mamish said.

TPC is financed by a $5.4 billion debt package, through institutions such as UK Export Finance, the US Overseas Private Investment Corporation and Germany’s Euler Hermes.

TPC is expected to reach a financial close in the third quarter of 2018. Construction is scheduled to begin by the end of the year, and should be completed four years after the initial funds are transferred. TPC trial operations are scheduled to kick off 38 months after construction starts.

Petrochemicals have become substantial for several industries, as well as our day-to-day lives, as they are used in the manufacturing of plastics, cleaning agents, lubricants and more. Developing the petrochemical industry will lead to an improvement in the plastics and fibers industries, and other related industries.

Plastic products, in turn, are used in almost all other industries, starting from ready-made clothes, to packaging, home appliances, electronics and automotives. All these industries will therefore benefit from the new petrochemical facility, which will help decrease prices in the local market.

Chairman of Chemical Export Council Khaled Abu El Makarem is confident the initiative will be one of the biggest and most important industrial projects in the petrochemical sector, especially as new gas discoveries push Egypt forward to become an energy hub.

“The whole industrial sector will benefit from this petrochemical project in general, but the plastics industry is seen as the biggest beneficiary of this project since manufacturers [who are currently] importing around 70 percent of production materials will secure all their needs from the domestic market,” says Abu El Makarem.

Predicting that the world-scale facility will produce 3 million tons of raw materials related to the plastics industry, Abu El Makarem adds, “This will help promote domestic output and will definitely decrease imports of raw materials, increase exports’ competitiveness, cut the trade deficit and ease pressure on the exchange rate by reducing demand on hard currency needed for imports.”

Former Deputy Head of the Egyptian General Petroleum Corporation (EGPC) and international energy expert Medhat Youssif says the petrochemical facility will create a new export gate to Asian markets as the bulk of Egypt’s petrochemical factories are located in or near Alexandria on the Mediterranean, except for a propylene plant in the Suez Gulf that was shut down because it was depending on imported raw materials and therefore not feasible economically.

“This unit will be included in the new complex, and will restart operations on local components,” says Youssif.

“Egypt is almost self-sufficient in polyethylene and polypropylene, and there is a surplus for export. The new facility is mainly aimed at exporting, which will bring in much-needed hard currency depending on the local component, mainly naphtha produced from Suez refineries and natural gas from the national network.”

Youssif adds that a lot of small and medium industries as well as integrated industries that depend on petrochemicals are expected to open new factories near the new facility. “This new facility will be a real added value, since it will run on globally priced natural gas and will not be subsidized at all,” he concludes.

The project is expected to have a significant strategic impact on the Egyptian economy, since the petrochemical sector is seen as a key driver of economic growth in Egypt.

According to a report by the Organization of Arab Petroleum Exporting Countries (OAPEC), Egypt’s petrochemical industry shapes around 3 percent of gross domestic product (GDP) and 12 percent of the industrial sector. The complex will lead to a significant industrial leap in Egypt, and will have a direct impact on boosting exports.

Egypt’s 20-year national strategic plan for petrochemicals targets the establishment of 14 complexes to produce a total of 15 million tons annually by 2022, with a total investment cost estimated at $20 billion.

Earlier in 2018, the government announced that it would support state-owned companies working in the petrochemicals sector to boost their production. Minister of Petroleum Tarek El-Molla said that petrochemicals were a top priority in the ministry’s strategy aiming to enhance the value added of petroleum products. He further noted that Egypt has all the potentials for a strong petrochemical industry.

Thanks to the liberalization of the exchange rate in November 2016, exports of chemical industries have jumped more than 36 percent. Exporters have tapped into new markets to utilize increasing competitiveness as local products became more attractive to foreign markets.

In 2017, plastic exports surged to $1.5 billion, up from $1.16 billion a year earlier. The exports of the first five months of the year (from January to May 2018) marked positive indicators, registering $676 million compared to $652 million during the same period last year.