A prime example of the difficult financial and economic circumstances that the new Egyptian government faces is the billions of dollars it owes foreign oil companies.
The Oil Ministry is in the midst of negotiating new payment deals with the companies, which are among the leading investors in the country, oil executives say. Industry executives estimate that the government is $6 billion to $7 billion behind in payments to the companies for oil and natural gas they have produced and delivered to the state-owned Egypt General Petroleum Corp.
The companies are supposed to be paid within two months, but the government has been delaying payments to conserve cash.
“It’s a burden largely shared across all the oil companies,” said Nick Dancer, country manager for Egypt at Dana Petroleum of Britain.
The company received 78 percent of overdue debts by April, a company financial statement said. But it is still discussing “different forms of repayment schedules” with the E.G.P.C.
“While we don’t want to maintain this position long-term, we have every confidence that the E.G.P.C. will bring us back to normal,” Mr. Dancer said.
Dana Petroleum, like the other foreign operators in Egypt, including BP of Britain, Eni of Italy and Repsol of Spain, forms joint ventures with the E.G.P.C. to explore for oil and natural gas. The discoveries are then shared between the state and the company.
Despite the problems, companies that are able to withstand higher levels of debt are still attracted by Egypt’s oil and gas potential. For instance, BP decided in September to invest $11 billion in an Egyptian gas project that is expected to produce 40 percent of the country’s natural gas output when completed.
In February, the U.S. oil producer Apache agreed to spend $1 billion developing Egyptian hydrocarbons over the next two years.
Because its domestic consumption is rapidly growing, Egypt winds up using its share of production locally rather than earning much-needed revenue from exports.
The country has shifted from being a net exporter to a net importer of oil over the past decade.
In a rare peek into Egyptian petroleum finances, Hani Dahi, head of the E.G.P.C., told the government-owned newspaper Al Ahram that the organization had paid off $9 billion in such arrears to the foreign companies in the fiscal year that ended June 30.
A central problem is Egypt’s longstanding practice of importing oil and gas at international market prices and selling locally at subsidized prices. This not only encourages waste but means that the state oil industry is now operating at a loss.
Much of Egypt’s spending on subsidies goes to keeping the price of natural gas below market rates. Egypt has the cheapest fuel in the Middle East, with a liter costing as little as one Egyptian pound, or 16 cents.
Not surprisingly, the state bill for energy subsidies has climbed to almost $16 billion a year, representing about a fifth of the government’s entire budget. The cost of imported petroleum products was $5 billion in the fiscal year ended in June.
Egypt’s financial supporters, including the International Monetary Fund, which is considering a $4.8 billion loan for the country, are calling for cuts in these subsidies.
The government has promised to phase out subsidies and begin a coupon system that would distribute subsidies to the neediest. So far, none of these overhauls have been implemented because the government worries about angering a population that no longer fears to express itself.
On Wednesday, Oil Minister Osama Kamal said that Egypt was holding off on reform of the state energy subsidy regime until it completed more studies and held a “social dialogue” on the issue. But he also said that Egypt would have a major economic problem until the subsidies bill, which represent about a quarter of state spending, is cut. “Every day we delay restructuring subsidies bleeds state resources,” he said, though he declined to say when the subsidy regime would be reformed.
“The burden has become very high on the Egyptian government,” said Magdi M. Nasrallah, a professor at the Department of Petroleum and Energy Engineering at American University in Cairo, and a consultant to energy companies operating in Egypt. “It has become dangerous because Egypt is buying the share of the joint ventures at international prices and selling this share on at subsidized prices.”
The E.G.P.C. has had to renegotiate contracts with several oil companies whose concern about mounting debt is threatening one of the country’s most lucrative industries, he said.
BG Group, a natural gas producer based in Britain, is among those exposed to Egypt’s debt problem and is talking with the government about repayment. The company, which has invested more than $10 billion in Egypt over 23 years, said it had agreed to “a mechanism with the Egyptian government that will allow the company to recover all outstanding receivables.”
“We remain committed to Egypt and are in the process of delivering or considering opportunities which will require a further multibillion-dollar investment,” the statement added.
BG’s financial statements show that in 2011 the company refinanced $590 emillion of overdue receivables that are scheduled to be fully repaid by the end of 2014. The company declined to comment on whether this amount relates to BG’s operations in Egypt.
Another company that has engaged with the Egyptian government on overdue payments is Dana Gas, which has no affiliation to Dana Petroleum.
Dana, based in the United Arab Emirates, was owed $198.5 million by Egypt as of June 30, according to its half-year results. The company received $117.3 million from Egypt during the first six months of the year.
Transglobe of Canada, whose activities are concentrated in Egypt and Yemen, said it collected $41.4 million in receivables outstanding from E.G.P.C. at the end of June 30, without disclosing the total amount owed.
Meanwhile, Circle Oil, an Irish energy company with interests in Egypt, said in its latest financial statements that its E.G.P.C. receivables had been “reduced since year-end despite higher sales revenue.”
Thomas Voytovich, local general manager of Apache, Egypt’s biggest foreign investor, said the company had not been hurt as much as others by payment difficulties because 80 percent of Apache’s revenue in Egypt came from oil rather than gas.
Companies who earn most of their revenue from gas have been most affected because of Egypt’s artificially low prices for natural gas.
“Most of our revenue comes from oil, which gives us some optionality,” Mr. Voytovich “The companies that are most reliant on natural gas, that’s an animal of a different color.”
He said Apache’s operations, in remote areas of the Western Desert in Egypt, had continued uninterrupted.
The company’s annual statement shows that it has an insurance policy with the Overseas Private Investment Corp., an arm of the U.S. government, which covers nonpayment by the E.G.P.C. of amounts owed on past dues.
“I won’t say they don’t owe us money, because they do, but the amount of past due receivables that Apache has is not materially different that it has been for many years,” Mr. Voytovich said.