Egypt is relying increasingly on large Swiss trading houses for fuel supplies as it struggles to avoid energy shortages and unrest, while smaller players cut back on deliveries for fear of non-payment.
Egypt‘s finances have been crippled by a fall in tourism revenue since the 2011 revolution, a weakening of its currency and a rise in fuel subsidies, which account for one fifth of government spending. It owes over $5 billion to fuel suppliers.
Traders such as BB Energy, AOT Trading, Eminent, Augusta and Sahara have almost completely stopped supplying Egypt, leaving big players – such as Vitol, Glencore, Gunvor, Trafigura, Litasco and Mercuria – to dominate the market.
“We’re not looking at Egyptian tenders any more,” one trader at a small firm said. He was burned last year when Egypt‘s financial difficulties delayed its payment for cargoes, leading to demurrage charges. He then spent months trying to recoup those charges.
All the trading houses declined to comment.
The dominance of major traders mirrors events in Greece last year during the peak of its financial troubles, when its largest refiner Hellenic had to rely on Vitol and Glencore for oil supplies after it could no longer receive bank guarantees.
Like Hellenic, Egyptian state oil firm EGPC has to pay hefty premiums to secure supplies as traders face additional shipping and credit expenses.
In Egypt‘s latest and biggest tender to buy gasoil, the premiums it paid over regular Mediterranean prices amounted to $17-$23 a tonne, up from the already high $16-$19 premiums at the end of 2012.
Vitol, Litasco and Glencore will supply around $1.7 billion worth of gasoil to Egypt, or 55 out of around 70 cargoes, to the ports of Alexandria, Dekheila and the Red Sea port of Suez in the six months from July through December.
Gasoil is essential to help meet peak summer fuel demand for harvesting crops, travel and air-conditioning.
Litasco, the trading arm of Russian oil firm Lukoil , is emerging as the biggest supplier of gasoil for the second half of 2013 after having little presence previously, according to information on major 2012 and 2013 tenders.
Vitol held a significant position in 2012 and holds an even larger one in 2013. Glencore, dominant in 2012, has been less important this year. BP was the only Western major to supply significant volumes of gasoil over both years.
Egypt, which produces its own energy, became a net oil importer in 2008 as its population grew fast and fuel subsidies mushroomed. It is also moving rapidly to become a net importer of natural gas after years of being a large exporter.
But it has been slow to pay for fuel imports, and suppliers face consistent discharging delays, which leads to high demurrage charges.
“The cost of doing business has gone up. Tankers sometimes sit for a long time before discharging, and this incurs additional costs,” a source at a trading house said, explaining one of the reasons that traders expect Egypt to pay hefty premiums.
The hurdles have discouraged some big companies such as Shell and BP, which have cut back steeply on fuel oil deliveries, traders say. BP and Shell declined to comment.
“Traders are dominating the picture, although I do not think majors have completely given up,” one trading source said.
Cairo is seeking a $4.8 billion loan from the International Monetary Fund, which wants Cairo to reform its fuel subsidies, but the government has been hesitant due to fears that such a move could trigger public discontent.