WORKING PAPER 2016-1

Case study: The Egyptian Refining

Company project in Cairo
Authors: Stephanie Searle, Chris Malins
Date: 29 January 2016
Keywords: low-sulfur diesel, fuel quality, refinery upgrade, refinery financing, air quality

1. Introduction (Crude Oil Peak, 2013). In this context, increased supply of

domestically refined diesel could potentially have positive
Egypt has made advances in fuel quality over the past
economic benefits.
decade by introducing unleaded gasoline, but like many
countries in Africa still supplies diesel with very high The Egyptian Environmental Affairs Agency, within the
sulfur content, up to 10,000 ppm or higher. Starting in Ministry of State for Environmental Affairs, is the main
2017, Egypt will be improving the quality of its fuel mix agency responsible for fuel quality regulations and coordi-
and reducing imports of refined diesel with the Egyptian nates with the Ministry of Petroleum. Egypt regulates the
Refining Company (ERC) project in Cairo. The ERC quality of gasoline in the country at about 500 ppm sulfur
refinery, currently in the early phases of construction, is (International Fuel Quality Data Center and Hart Energy,
scheduled to begin production in 2017. ERC’s refinery 2009, as quoted by Asian Clean Fuels Association, 2010)
will process low-quality residual fuel oil from the older and has made significant progress in switching from
Cairo Oil Refining Company (CORC) into higher-value leaded gasoline to unleaded; 95% of the country’s gasoline
products, including 2.3 million tons per year of 10ppm is now unleaded (Egyptian Environmental Affairs Agency,
diesel. The ERC has successfully attracted equity and debt 2009). The Egyptian Government’s current main strategy
financing from a number of international investors and to address poor urban air quality is to encourage a broad
banks, including the World Bank’s International Finance transition to vehicles operating on compressed natural gas
Corporation and other development banks. (CNG) for city vehicles, and through financial incentives
for taxis and private car owners. The government is also
introducing a ban on high-polluting two-stroke motor-
2. Fuel quality regulations and history cycles (Egyptian Environmental Affairs Agency, 2010).
Much of the diesel and gasoline consumed in Egypt is
supplied by refineries within the country, which have a Egypt does not regulate the sulfur content of diesel, and
total capacity to refine around 730,000 barrels of oil per the actual sulfur content of diesel supplied in the country
day (Oil & Gas Journal, 2012) producing about 40,000 is not well documented and may reach 10,000 ppm,
barrels of diesel per day (ICCT estimate)1. Egypt imports although 5,000 ppm diesel may be available (USEPA,
about 70% of its diesel (Financial Times, 2013), on the 2012). The Egyptian Environmental Affairs Agency’s future
order of 90,000 barrels per day. 2 Information on the plans to reduce vehicle emissions include a goal to “work
actual quality of fuel supplied does not appear to be on improving quality of diesel fuel used in Egypt and reach
reported by the Egyptian Environmental Affairs Agency its content of sulfur to 2% [sic]” (Egyptian Environmental
or readily available through other sources. Egypt has Affairs Agency, 2010). This goal of 2% sulfur equates to
recently experienced diesel shortages, with bus and 20,000 ppm which does not appear to be an improve-
truck drivers waiting hours in line at fueling stations ment on the status quo. Nonetheless, reducing diesel
sulfur content appears to be on the agenda in Egypt.

1 Calculated from the ERC refinery’s expected diesel output of 2.255

million tons of diesel per year, expected diesel import displacement of
50% (Citadel Capital, 2012), and estimate that 70% of Egypt’s diesel
3. Refinery capacity overview
consumed in the country is imported (Financial Times, 2013).
Egypt has nine refineries in five locations around the
2 Calculated from the ERC refinery’s expected diesel output and import
displacement as above.
nation and these facilities are aging: Only three of the nine

The work for this project was generously funded by the Climate and Clean Air Coalition to Reduce Short-Lived Climate Pollutants.

© INTERNATIONAL COUNCIL ON CLEAN TRANSPORTATION, 2016 WWW.THEICCT.ORG

CASE STUDY: THE EGYPTIAN REFINING COMPANY PROJECT IN CAIRO

have been constructed since 1973 and the second-largest driver of the decision to produce Euro V fuel (Tom
facility was built in 1913 (Citadel Capital, 2012). Thomason, personal correspondence).

There is one major initiative that will increase the flow ERC has the backing of the EGPC, a state-owned entity
of low sulfur fuel in Egypt: a new facility planned by the that administers the industry under the Ministry of
Egyptian Refining Company (ERC). The ERC was incorpo- Petroleum. All feedstock utilized by the ERC refinery will
rated in July, 2007, and its refinery will be a major upgrade be provided by CORC, and EGPC will purchase all refined
to the existing Cairo Oil Refinery Company (CORC). CORC products. Coke and sulfur, byproducts of the refining
is the nation’s largest refinery, located near Cairo. It has process, will be sold on the open market. The facility will
been in operation since 1969 and is relatively inefficient in also produce reformate and naphtha which EGPC will
terms of producing diesel and gasoline: 67% of its output is blend into existing stocks to increase the quality of other
fuel oil. The ERC refinery will take straight run atmospheric products, primarily gasoline (Citadel Capital, 2012). Initial
residue from CORC—this is essentially low quality fuel oil work on site preparation began in July 2012, and the
that CORC does not have capacity to upgrade—and refine project manager, is currently mobilizing subcontractors
it into diesel and other higher-value products. The total to start construction. Operations are scheduled to begin
expected production of the ERC refinery will be about in early 2017 and continue for 25 years (Egyptian Refining
4.5 million tons of refined products and byproducts per Company, 2011; Oil & Gas Journal, 2014).
year. Of this, 2.255 million tons will be Euro V diesel, 599
thousand tons jet fuel, 522 tons reformate (a blending
component of gasoline), 336 tons naphtha, 315 tons fuel 5. Refinery financing
oil, and 79 tons LPG annually. The refinery is also expected ERC was incorporated in 2007 for the sole purpose of
to produce 453 tons of coke and 96 tons of sulfur as constructing and operating this refinery. The company is
byproducts of the refining process. The refinery will have owned 82% by Orient Investment Properties Limited, 15%
a hydrocracker (capacity of 40,800 barrels per day, with by EGPC, and 3% by other investors (IFC, 2014).
hydrogen produced onsite), delayed coker (25,000 bpd),
diesel hydrotreater (32,100 bpd) and naphtha hydrotreater At a total expected cost of 3.7 billion USD, ERC’s refinery
(22,600 bpd) (Citadel Capital, 2012; GS E&C). is financed by a number of international investors and
development banks. $1.1 billion in equity was provided
by EGPC, Qatar Petroleum International (QPI), Citadel
4. Refinery project overview Capital (owns 11.7% of the project), the World Bank
While the ERC project has been developed in close coop- affiliated IFC (3% share), the Dutch and German develop-
eration with the Egyptian Government, the initial impetus ment banks FMO and DEG, InfraMed Fund, and investors
for the project came from the private sector (Citadel from Egypt and Gulf Cooperation Council countries
Capital). The opportunity for developing the ERC project (Citadel Capital, 2012; IFC). The remaining $2.6 billion
comes from the large local supply of low-cost fuel oil needed for the project was secured in a debt package
feedstock, and the context of Egypt’s increasing demand provided by a number of private and development banks,
for diesel and dependence on diesel imports, which has including: Japan Bank for International Cooperation and
enabled Government support. While there are environ- Nippon Export and Investment Insurance (JBIC and NEXI,
mental side benefits, primarily producing ultra-low sulfur providing 0.9 billion USD combined), Export-Import Bank
diesel at 10 ppm (Citadel Capital, 2012; Egyptian Refining of Korea (KEXIM, providing 0.8 billion USD), European
Company, 2011), fuel desulfurization is not seen as a Investment Bank (EIB, providing 0.5 billion USD), African
primary driver of the project. The capacity being built Development Bank (AfDB, providing 0.2 billion USD),
for the ERC project consists entirely of complex refining with the remainder of debt provided by Mitsui & Co, Bank
units able to upgrade fuel oil. These units generally have of Tokyo-Mitsubishi, HSBC, Calyon Credit Agricole, and
the highest operating margins (IEA, 2014). By separating CIB (Citadel Capital, 2012; Korea Investment & Securities
high-margin complex refinery units (coker, hydrocracker Co., Ltd, 2012). $2.35 billion of this debt package is
etc.) from the lower-margin simple refinery units operated senior debt, or debt for which the lenders have priority
by CORC, the ERC project is able to offer better returns to in repayment, and $225 million is subordinated debt, for
investors than would be possible if building entirely new which lenders do not have priority in repayment (Citadel
refinery capacity including atmospheric distillation. Capital, 2012; Egyptian Refining Company, 2011). This
major debt package was completed in August, 2010
The Egyptian Petroleum Corporation (EGPC) will blend (Citadel Capital, 2010).
clean fuel produced at ERC with lower quality fuel from
other refineries, which will improve the overall quality of The project’s developers took several measures to
the fuel mix in Cairo. The opportunity to deliver improved improve the environmental footprint of the refinery
local air quality through improved fuel quality was one in order to facilitate financing with international

2 INTERNATIONAL COUNCIL ON CLEAN TRANSPORTATION  WORKING PAPER 2016-1

 CASE STUDY: THE EGYPTIAN REFINING COMPANY PROJECT IN CAIRO

institutions such as the European Investment Bank. of Beijing, where the city government secured mainland
The decision to produce Euro V fuel was made partly China’s first supply of 50 ppm and later 10 ppm sulfur
for this reason. As another example, CORC will switch diesel, later followed by national commitments to follow
to using natural gas in its on-site operations that had these standards (Transportpolicy.net, 2014), and Bogota,
previously burned high sulfur fuel oil, one of a handful which spearheaded the adoption of 50 ppm sulfur diesel
of measures that will improve local air quality (Tom for the city’s bus fleet, which has been followed by a 50
Thomason, personal correspondence). ppm nationwide standard for Colombia (UNEP, 2012;
Minambiente, 2014).
ERC will sell diesel to EGPC at a 1% discount on market
prices for ultra low sulfur diesel. This discount, combined
with savings to the Government due to lower transporta- 7. Conclusions and lessons learned
tion costs and with various fees paid by the ERC, will
The ERC project suggests a pathway towards fuel desulfur-
deliver approximately $300 million savings annually for
ization for countries with existing low-complexity refinery
the Egyptian Government (Citadel Capital, 2012; Tom
capacity, but which are not producing low-sulfur fuels.
Thomason, personal correspondence). Note that while
Complex, high-conversion refinery units (such as cokers
this arrangement will deliver savings to the Egyptian
and hydrocrackers) deliver better margins than simple
Government as compared to importing the equivalent
refinery units such as atmospheric distillation. By creating
volume of fuel, the Egyptian Government currently
in ERC a separate financial entity operating only the high-
subsidizes fuel by buying and selling petroleum at below
margin part of the refinery business, financing was made
international market prices (African Economic Outlook,
2013), while ERC will be allowed to sell its products to much more viable. Upgrading high-sulfur fuel oil to diesel
EGPC at market price (Citadel Capital, 2012). This context and other higher-value products allows the quality of road
is starting to change, and the Egyptian Government fuel to be improved while reducing industrial emissions.
recently reduced the subsidies for liquid fuel and natural
This project demonstrates that major refinery upgrades
gas, increasing fuel prices at the pump by more than 70%
can make economic sense at a national level, even ignoring
(Reuters, 2014).
environmental benefits, if they allow the production of
more valuable fuel and alleviate import dependence (and
6. B
 arriers/opportunities to low sulfur reduce the risk domestic fuel shortages in this case). ERC
also demonstrates that with a solid and environmen-
fuel adoption
tally responsible plan, it is possible to attract sufficient
The development of the ERC project has withstood a financing through a combination of different types of
global financial recession (starting in 2008) as well as a financial institutions.
revolution (2011) and ongoing political crisis. In particular,
there were concerns about the validity of the Egyptian
Government’s guarantee status for lenders following References
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