From the Editors
In part one we saw how exceptional heat wrecked havoc on Egypt this summer, as it supposedly increased demand for electricity beyond the national generation capacity. This prompted the authorities to cut power off whole cities and neighborhoods for long durations everyday to bring demand down to a level within the network’s capacity. As we have seen, the social and economic cost of doing so have been plain huge. And as such, they signalled the state’s failure to all. But the reason why all of this happened remained a matter of speculation, as people explaining it in terms of increased demand only failed to hold any water. Thus the question remained, why did this collapse take place?
On 17 August, the Holding Company for Electricity issued a statement that put an end to this speculation: the collapse resulted from a big shortage in the gas delivered to the electric generation units. According to the statement, most of Egypt’s power stations are designed to operate with natural gas as primary fuel and diesel as reserve fuel. Until recently they operated at 98 percent gas, as they should. But the ministry of petroleum gradually held back their gas until it dropped to 76%. This forced them to operate with the suboptimal diesel much more than they should, which reduced their generation efficiency below national demand. Using diesel also clogs their gas-based fuel injection system frequently, resulting in many breakdowns. It’s quite certain too that using diesel instead of gas has reduced the lifetime of their generation equipment; they probably destroyed a good part of their assets’ life and worth. While no one talks about this last point, the damage to the power generation machinery is probably to be measured in billions of dollars.
This is how the Ministry of Electricity finally cleared its name, which only begged the question, why is the ministry of petroleum withholding the needed gas? (Note that we are talking about home pumped gas here). A senior official in the ministry of electricity then explained that the ministry of petroleum started withholding their gas when it started exporting gas to Israel. In other words, Egypt has been withholding the gas marked for electric generation to give it Israel, to the extent that it compromised its electricity system, economy, and the welfare of its people so much. Such was obviously very embarrassing news. Thus Mubarak responded by holding an emergency meeting with the ministers of electricity and petroleum the very next morning. He instructed them to solve this problem at once without touching Egypt’s “international obligations” and “the needs of the Egyptian citizen.” This is another way of saying: solve it without touching Israel’s gas deliveries—“how?” is the question.
The following day the ministry of irrigation started releasing 35 million cubic-meters of water more than scheduled for that time of the year from Lake Nasser. That way they’d generate more electricity from the High Dam without consuming gas. But this also means depleting Egypt’ strategic water reserve. Such is a very sad development given the grave sacrifices that went into saving this water. One immediately recalls the 1956 tripartite war that Britain, France, and Israel launched on Egypt when Nasser nationalized the Suez Canal to build the High Dam that now saves this water; the massive national resources that went into building it; the forced migration of the Nubian villages to make space for the lake; and more. Put succinctly, every drop of this water came at a huge national cost. In light of this, dispensing with it to avoid withholding Israel’s gas share is a big insult to Egypt’s national history—not only because of the cost that went into saving it, but also because of the party that it’s being wasted for.
More recently, for almost a year now Egypt has been facing a big rebellion from Nile basin countries, which demand redistributing the Nile water in ways that will highly reduce Egypt’s share of it. They have actually set up a treaty for that end that Egypt and Sudan refused to sign. Granting their legitimate needs, this rebellion came with much Israeli intervention and influence. So soon after signing this treaty we see Israel offering to help Egypt overcome the rebellion that it instigated, in exchange for a share of Egypt’s water. In other words, Israel has been manipulating Nile basin countries to blackmail Egypt for a cut of its water. In response to Israel’s offer President Mubarak declared, “The Nile will never leave Egypt.” This was generally portrayed as a strong response by a regime that values and defends its water. Meanwhile, the regime began to invest more in reviving its image as the guardian of this water. Hence, they started boasting about the water savings that they made by, for example, cutting down rice plantation (high water consumption crop). Then, by twist of sad irony, we see the same state very willing to waste the very water that Israel is trying to kidnap to stay exporting gas to Israel.
And there is more to this sad irony. At first, the ministry of irrigation tried not to waste the water in this way. So they opened the High Dam to release the extra water but closed the Aswan Reservoir-Dam to collect the same water behind it. This raised the water level between the two dams to a level that could have compromised the High Dam’s turbines. It took some serious emergency work to readjust the water to a safe level again. Since then we stopped hearing about attempts to save the water.
Seeking to reduce to the gravity of the scandal, the minister of petroleum tried to market an alternative explanation for this crisis. He proposed that gas deliveries to the power stations dropped because the heat reduced the efficiency of gas the pumping stations. It was the joke of town, of course, because the same heat failed to affect the pumping to Israel. The following day the press said that the ministry of petroleum finally decided to increase its gas deliveries to the power stations by reducing the quantities marked for the private sector and export to Jordan. Although Jordan pays much more for the gas, Israel remained untouchable. Nonetheless, at the end they didn’t even honor this solution, as the ministry of electricity stated that the gas never came. So we are now back to square one: electricity cuts and their associated costs are still on. Sadly this is how far Egypt is willing to avoid even reducing its gas exports to Israel.
Noteworthy here is that Egypt is not so determined to export its gas to Israel because of some profit incentive: ditching highly subsidized local sales for foreign currency market prices. To the contrary, Egypt loses a lot of money on its gas sales to Israel. Initially the 2005 gas treaty between Egypt and Israel required Egypt to supply Israel with 200 million feet of gas daily for the following15 years at a price that “ranges between 70 cents and $1.5 per BTU (British thermal unit),” to be fixed throughout the treaty’s lifetime. So we’re selling this gas at a tiny fraction of its market price, which ranges between $8-$12 per BTU. To be exact, the government refuses to declare its selling prices to date. We know about them from leaked documents and the famous court case that former ambassador Ibrahim Yusri filed to cancel this capitulation treaty, which exposed much of its dirty linen.
Yusri based his case on roughly two main points. The first was that Egypt was selling its gas at a much lower than market price, adding up to an annual subsidy to Israel of roughly $5 billion. Shocking as it may sound, the government signed this deal at the time when it was reducing energy subsidies in Egypt. Yusri’s second point was that Egypt’s gas reserves are too limited to accommodate such exports without compromising local needs in the imminent future. We now know that he was right on this point too. In the end, the Administrative court upheld the state’s right to export gas to Israel but ruled the treaty illegal on the basis of its ridiculous pricing mechanism, but the state never honor the ruling. Where Egypt to end up importing gas to cover its growing local needs, it will shamefully buy it at about $10 a BTU to sell it to Israel at $1.5, or even 70 cents.
There’s one more feature of this agreement that analysts seldom stop at. The Egyptian side had initially designed it as a business deal between a private company created for this purpose and its Israeli clients, but former Israeli prime minister Ariel Sharon refused to have it unless the Egyptian government guaranteed it in person. The Egyptian government rejected this at first but eventually succumbed to Sharon’s conditions. As such, “honoring” this treaty is now the direct responsibility of the Egyptian state, not the export company. This might partly explain why the regime is willing to accept all of the costs above to avoid touching Israel’s gas share; remember that we are talking about a regime that has a long history of dealing with its colonial treaties in very legalistic ways.
The opposition here offered many explanations as to why the Egyptian regime fell so low, which range from corruption to all sorts of conspiracy theories. Two of them are worth noting here. The first sees the treaty as part of a general Egyptian strategy to heat up Egypt’s cold relationship with Israel in order to improve its ties with Washington. Remember that they signed it in 2005. Hence, it was probably envisioned as an idea for the first time in maybe 2004, or late 2003—that is, at the peak of Bush’s belligerence in the region, which forced most Arab regimes to appease Washington in everyway possible. Recall, for example, how the Saudis donated $50 million for the London Zoo to bring London on its side, or more seriously, their Arab Peace Initiative—both coming months after September 11. In this vein, this treaty and its siblings become gifts of good intentions from a scared client-regime to avert the wrath of its irrational overlord.
The second explanation focuses more on developments within Egypt. Back then, Gamal Mubarak had just emerged as a power to be reckoned with, forming with his clique of business tycoons what the press dubbed the “new guards,” which replaced the symbols of the “old guards” –Hosni Mubarak’s “men”- within most of the influential institutions (except the security apparatus.) It was his “new guards” that negotiated and signed the capitulation treaties that were sealed with Israel then, including our gas treaty. To be exact, these treaties were among the very first things that they undertook. Their network of business friends and acquaintances also happen to be the main, if not sole, beneficiaries of warmer relations with Israel. This is quite clear in the main beneficiaries of the QIZ treaty, signed a year before the gas agreement. Seen as such, these treaties become Gamal Mubarak’s dowry for Presidency—paid to Israel to appease Washington, and also to serve his camp with new business opportunities. Such is currently the most widespread interpretation for this treaty among Egyptian opposition. And there is no reason why it cannot be harmonized with the previous one.
It’s thus ironic to see Gamal Mubarak’s fans launching his first succession campaign at the backdrop of the power cuts. The more we knew about the scandalous outcomes of this treaty, the more Gamal Mubarak Presidency campaigns we got. We now have at least three of them, all competing with each other. Roughly one came out when the power cuts was about increased consumption, another when they were linked to Israel, and a third when the Nile water was wasted.
This campaign has been thus far enigmatic; no one knows who lies behind it. The one name that was mentioned as its donor is Ibrahim Kamel. Although Kamel denied these reports, he remains its main symbol. He is the only party official (a senior member in the Policies Committee of the ruling party: the platform that Gamal Mubarak heads and uses to wield political power in Egypt), actually the only official of any sort, to declare that Gamal Mubarak will be the ruling party’s nominee for the next elections. He declared it in a press interview weeks before launching the first campaign; then reiterated it in a talk-show two weeks after it was launched. Thus, whether he funded it or not he remains its main symbol.
Kamel is a billionaire who operates in many industries, also Gamal Mubarak’s business partner. Moreover, he is the main businessman dealing with Israel in Egypt. His dealings go well beyond the known trade-based normalization to investing in Israeli firms and partnering with Israeli businessmen in Egypt. In short, he’s an icon of normalization and has benefited personally from Egypt’s relations with Israel.
Thus, the dowry story makes a full circle: the emergence of the Gamal Mubarak camp leads to striking several deals with Israel; the business members of this camp benefit from these deals; eventually the gas deal blows its cover and causes extreme hardship in Egypt; while the camp that benefits most from deals with Israel is pushing for Gamal Mubarak’s presidency; then the hardship caused by this collapse occupies the minds of the people to the extent that they cannot follow any circles. Thus ends the circle.
The Egyptian regime has obviously gone very far for the love of Israel here—and guess what? It worked as it was designed to. Israel has just attained record electricity use levels because the “heat wave” that wreaked havoc on Egypt pushed Israel’s electricity consumption up too. In their case the increased demand went smoothly without any of the loss and agony that Egypt experienced. Clearly that is to be expected from a country with such secured fuel supply—so secured that no one dares touch it. Still, there were a few gas issues that Israel pondered on during our story period. For reasons that I don’t quite know, the Israeli government wanted to raise the retail price of natural gas. This angered some Israelis who took the street to protest the price hike. Outrageous as this may sound, they protested this endeavor by waiving Egyptian flags. It’s unclear why they did so, for the Egyptian press sufficed with publishing their photos while waving the flags. Nevertheless, it shows that our flag has become a symbol of cheap gas in the Israel—very cheap, I must add.
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