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Market Overview

The size of the petrochemical industry in Egypt was estimated at $310 million (revenue basis) and 510,000 tons of production in 2003. The U.S. Embassy in Cairo estimates growth in this industry of 6 percent in the next 3-5 years. With natural gas production reaching 60 trillion cubic feet in June 2003, the Government of Egypt has announced an ambitious 20-year strategic plan to produce petrochemicals to meet local market demands, and serve major export markets to generate hard currency. The plan will be executed in three phases at an estimated cost of $10 billion - the first phase alone has a budget of $3.1 billion with an expected completion date of 2008. Opportunities for U.S. industry are very significant as American technology is in great demand; for example, the majority of existing petrochemical plants in Egypt are producing under license from U.S. companies. Polypropylene is produced under license from Union Carbide, polyvinyl chloride from Oxy-Vinyl, and 80,000 tons annually of alkyl benzene will soon be produced under license from Universal Operations Project (UOP Oleflex; the plant should be operational in late 2006). (Note: BP was recently awarded a major ethylene/polyethylene project in Alexandria.)

The Egyptian Petrochemicals Holding Company (ECHEM), under the umbrella of the Ministry of Petroleum, currently manages and supervises the establishment of most petrochemical project in Egypt. The Government of Egypt plans to complete major new projects for linear alkyl benzene, propylene/polypropylene, ethylene/polyethylene, styrene/polystyrene, and methanol between 2004 and 2009. Other opportunities lie in establishing an acrylic fiber plant, expansion of a PVC project, and production of polyester and ammonia/urea. Feasibility studies for a $250 million, 80,000 metric ton per year linear alkyl benzene plant (expected online in 2006) and a styrene/polystyrene project are complete; the first by Fluor Daniels of the U.S. and the second by a Spanish company (both were financed by grants from their respective governments). At present, the bulk of the current petrochemical industry in Egypt consists of five petrochemical plants operating under ECHEM and one private sector plant. The existing plants produce a total of 510,000 metric tons (MT) of material generating $310 million in revenue annually:

・60,000 MT polyvinyl chloride (PVC K70 and K67)
・230,000 MT polyethylene (high density and linear low density)
・40,000 MT linear alkyl benzene
・30,000 MT butamine (sheets, for cable coating, and ceiling and wall insulation)
・150,000 MT polypropylene (for producing raffia and for packaging purposes).

Strategic Environment
In January 2002, the Ministry of Petroleum established the Egyptian Petrochemicals Holding Company, or ECHEM, as an independent entity to manage and supervise the establishment of a developed petrochemicals industry in Egypt. ECHEM’s mandate is to create a petrochemical master plan and follow-up on its implementation. ECHEM’s strategy is based on developing a competitive petrochemicals industry based on local human and natural resources using state-of-the-art technology. A 20-year master plan has already BEEN prepared and comprises 24 world-scale projects. This plan, when completed, will see an estimated 15 million tons of production worth at least $7 billion annually. With an estimated budget of $10 billion, ECHEM’s ambitious plan also targets imports of $3 billion per year and exports of $4 billion per year in three phases:

・Phase 1 2002-2008
・Phase 2 2009-2015
・Phase 3 2016-2022

In addition to the larger projects, Phase 1 also consists of smaller projects in response to known market demand as follows:
・Acrylic fibers 36,000 MT/year
・PVC expansion 80,000 “
・Polyester 250,000 “
・Ammonia/urea 600,000 “

U.S. technology in the petrochemicals sector has an excellent reputation. Producing under license from U.S. companies assures high quality, which enables local producers to export their products to Europe without the need for an ISO certificate. The U.S. has prepared or funded a large number of feasibility studies; however, European competition exists. Feasibility studies are normally partially funded by a foreign government grant, which is often cost-shared by a company from the same country.

Best Prospects
Propylene/Polypropylene:
Egypt consumes approximately 300,000 tons of polypropylene annually, and annual growth is about 6 percent. Usage is about 58% for fiber, 19% films, 19% injection molding, 1% blow molding, and 3% other.
A single private sector company is now producing 130,000 tons of polypropylene under license from the U.S. company Union Carbide -- 60% of its production (90,000 tons) is consumed by the company’s carpet factories, while the balance (60,000 tons) is sold to the local packaging industry. The company imports propylene for its polypropylene production plant.

Polypropylene has had the highest demand growth of all of the polyolefins in recent years, driven by low prices. Its lower density compared to HDPE is a contributing factor to its low cost position, and as a result polypropylene has replaced HDPE in many injection molding applications and polystyrene in selected thermoforming applications.

The U.S. Company Nexant/Daniels recently prepared a feasibility study for ECHEM’s propane dehydrogenation plant near Damietta. The plant is proposed to have a propylene production capacity of 400,000 metric tons per year. The Egyptian Gas Holding Company (EGAS) has agreed to deliver propane to the proposed facility. Industry sources anticipate that EGAS will supply this propane from its United Gas Derivatives Company’s plant in Port Said.
The Oriental Petroleum Company (OPC), which operates Egypt’s only polypropylene plant with a capacity of 150,000 tons, is expected to be the primary propylene off-taker for half of the production from this project, while the other half will be exported. OPC is expected to expand its factory and produce an additional 160,000 tons/year of polypropylene (OPC currently produces 130,000 tons). Hence, Egypt’s total production of polypropylene will reach 310,000 tons per year. The cost of this project is estimated at $400 million.

Styrene and polystyrene:
Egypt imports approximately 71,500 tons of general purpose, high impact, and expandable polystyrene. General-purpose polystyrene is brittle and generally used for manufacturing low-end products. High impact polystyrene is more rigid and is imported in large quantities into Egypt, much of it for the manufacturing of items such as yogurt cups. It has now replaced engineering plastics for many applications and is being used in the manufacture of television and VCR body frames due to its lower price, while expandable polystyrene is used in foam covers and insulation. Due to a growing demand for polystyrene, ECHEM is interested in expanding the production of styrene/polystyrene, under license. A feasibility study for this project has already been awarded to a Spanish company, and when the project is completed, it would produce 300,000 tons of styrene and 200,000 tons of polystyrene per year.

PE:
Egypt consumed approximately 416,500 MT of polyethylene in 2003 as follows: 155,000 MT of low density polyethylene (LDPE) used in the manufacture of agricultural film, packaging items, and small jars, and 192,000 MT of high density (HDPE) used in the manufacture of containers of up to 200-liter capacity, boxes, plastic kitchen appliances, electrical wires, nylon bags, and water and gas pipes. Linear Low Density (LLDPE) consumption in 2003 was estimated at 70,000 MT and was used in the manufacture of packaging closures and lids.

About two-thirds of all polyethylene used in Egypt is for film, with the balance used for injection molding 16%, blow molding 10%, extrusion 4%, and pipes 3%. Egypt produces 120,000 tons of polyethylene film for injection and for roto-molding applications under license from BP.
ECHEM plans to produce 1 million tons of ethylene and 300,000 tons of polyethylene in a project estimated at $1.6 billion (although the feasibility study has not yet been prepared). A local company in Port Said is also preparing a feasibility study to produce ethylene dichloride to provide ethylene. Regarding a proposed methanol project, ECHEM is interested in producing 1 million tons of methanol per year in a project estimated at $320 million. The feasibility study for this project has likewise not yet been prepared.

The petrochemical industry is in an excellent position to accept U.S. feasibility studies, technology transfers, project and equity participation, investment opportunities, and long-term product off-takers. Equipment for petrochemical factories has historically been imported primarily from the U.K., Italy, and the Far East in addition to the U.S., often depending highly upon feasibility study requirements and/or recommendations. Egypt’s ambitious plans for the petrochemical industry open the door for numerous opportunities for U.S. businesses in coming years. With the Egyptian government hoping especially to increase exports, the petrochemical industry’s long-term goal is to produce quality products with 75% going to export markets, and 25% to offset increased local demand.


Market Access
Egyptian law requires that in the case of public tenders, foreign companies retain Egyptian commercial agents. Foreign firms are not required to have an agent while bidding on USAID tenders or when dealing with the military. It is not required by law that foreign companies appoint an agent in Egypt; however, most foreign companies have found it beneficial to engage a local agent to handle issues associated with communications, bureaucratic procedures, local business practices, and marketing. Based on geographical location or product basis, a firm often finds it useful to appoint multiple agents in Egypt.

Tenders of the magnitude generally seen in the petrochemical industry frequently call for the supply of an extremely wide variety of goods and services (that a single U.S. firm may not be in a position to provide). A consortium of U.S. companies, however, can offer a bid package. The Italians, Germans, French and Japanese have successfully used this technique in Egypt. Egyptian buyers prefer a single bid for an entire tender to having to piece together bids for each component.

Customs tariffs for petrochemical reactors and equipment range between 5% and 30%, in large part depending on the site. If the project is established in an industrial zone, the tariff is 5%. If established in a non-industrial zone, the tariff rate can reach 30%. A 10% sales tax also applies. Although agent commissions vary with services provided and the amount of individual contracts, agents generally charge a commission ranging from 1 to 2 percent.

Government-owned companies purchase commodities through calls for international tenders. These are announced in the daily Egyptian press, or on ECHEM’s website. U.S. firms must use an Egyptian agent to purchase tender documents from the issuing public sector entity; the U.S. Embassy can assist. Public sector companies may request credit in their procurement tenders. While suppliers offering credit will generally have a much better chance of winning bids, sales without credit are sometimes made since other factors such as price, quality, and delivery schedule may be of greater importance. Public sector companies generally also require a performance bond equal to 10% of the contract, releasable upon completion of the contract. To avoid delays in obtaining release of the performance bond, the contract must be formally amended if the buyer requests any change in delivery terms or specifications.

U.S. firms should be aware that when making a purchasing selection, an entity may simply accept the lowest bid meeting specifications, or it might attempt to bargain with one or more of the low bidders to negotiate better terms. Therefore, U.S. firms should be prepared to empower their agents to do so if necessary. On major contracts, it is advisable to have an American representative conduct such bargaining.

There are no language requirements in Egypt. Although Arabic is official, English is often acceptable. The country uses the metric system of measurement, but bids will not be rejected if another system is offered unless the tender specifically requires metric measurements (note: as a general rule, this is usually the case).

This report was prepared by Commercial Specialist Heba Abdel-Aziz of the U.S. Commercial Service in Egypt. CS Egypt can be contacted at: Cairo.Office.Box@mail.doc.gov