Egypt pound hits record low under new currency regime

Updated 31 December 2012
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Egypt pound hits record low under new currency regime

CAIRO: The Egyptian pound hit a record low against the dollar yesterday as worried Egyptians shifted their money out of local currency after the central bank introduced a new currency regime to protect foreign reserves.
The new regime, announced on Saturday and which includes regular currency auctions, seemed to represent a controlled shift toward a free float after the central bank spent more than $ 20 billion in reserves over the past two years to defend the pound, according to bankers.
The currency crisis underlines the scale of the economic challenge facing President Mohamed Mursi, whose administration has been grappling with the fall-out of a political crisis ignited by his move to drive through a constitution written by his allies.
The shift to a freer floating currency raised fears the pound could fall further or the government could impose more capital controls, prompting Egyptians to shift into the dollar when the market opened yesterday.
Prime Minister Hisham Kandil told a news conference that the economy was in "a very difficult and fragile" situation, adding that he expected talks with the International Monetary Fund on a $ 4.8 billion loan to resume in January.
Egypt won preliminary approval in November from the IMF for the loan, but delayed seeking final approval until January after it suspended implementation of a series of tax increases to allow the government more time to explain the heavily criticized package of economic austerity measures to the public.
The central bank, which had previously allowed the pound to move within a tight range against the dollar, has spent more than $20 billion in foreign reserves to support the currency since a mass uprising against Hosni Mubarak in early 2011 chased away tourists and foreign investors.
At the maiden auction of the new currency regime yesterday, the central bank sold virtually all of the $ 75 million it had offered, with the lowest price of pounds at 6.2425 to the dollar, down from 6.185 earlier in the day.
The pound subsequently weakened on the interbank market to about 6.30, a fall of 1.8 percent from the morning, smashing through a previous low in October 2004.
The auction system means the price of the Egyptian pound will begin to reflect supply and demand more closely, bankers said. The central bank is expected to hold the auctions daily.
"The arms of central bank that used to be there will not make (the) market anymore, so it is for first time a real free market," said one banker who works in a treasury room.
Kandil announced a national economic initiative at his news conference yesterday, which he described as an effort to build consensus around the government's economic program.
He said the government would seek to engage society so the state's economic plan "really is a national plan". He said the government's program could be amended to reflect other views.
"We hope that there will not be any fundamental changes in our plan with the IMF because we will summon them in January so we resume discussions to go forward in the matter of the loan," Kandil said.
Analysts said it was not yet clear if the new currency regime would stem the run on the pound and how much of its foreign reserves the central bank was prepared to spend to continue defending it.
The central bank also imposed a series of measures to dampen demand for foreign currencies, at least in the short term, including limiting corporate clients from withdrawing more than $ 30,000 in cash per day and charging individuals who buy foreign currencies a 1-2 percent administrative fee, bankers said.
Egyptian banks will also not be able to hold long positions in US dollars of more than 1 percent of their capital, down from a previous 10 percent, the bankers added.
In a note, Pharos Research forecast a forecast a free float with the Egyptian pound weakening to 6.50 to the US dollar from about 6.185 now.
Under the new regime, withdrawals by individuals will continue to be limited to $ 10,000 a day. All transactions will continue to be monitored to make sure they are for "legitimate" needs and do not involve speculation, bankers said.
The interbank market will continue to operate alongside the auction system, with banks allowed to quote slightly wider spreads.


Exxon faces setback in Iraq as oil and water mix

Updated 20 April 2018
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Exxon faces setback in Iraq as oil and water mix

  • Exxon’s talks with Iraq on water project hit problems
  • Losing the contract could deal a blow to Exxon’s broader Iraqi plans

LONDON: Talks between Exxon Mobil and Iraq on a multibillion-dollar infrastructure contract have reached an impasse, Iraqi officials and two industry sources said, in a potential setback to the oil major’s ambitions to expand in the country.

More than two years of negotiations on awarding the US firm a project to build a water treatment facility and related pipelines needed to boost Iraq’s oil production capacity have hit difficulties because the two sides differ on contract terms and costs, the officials and sources told Reuters.

Unless the differences can be resolved, the project could be awarded to another company in a tender, the officials said, without elaborating on the points of dispute.

Losing the contract could deal a blow to Exxon’s broader Iraqi plans, as it would be handed rights to develop at least two southern oilfields — Nahr Bin Umar and Artawi — as part of the deal.

Exxon declined to comment.

Further delays to the project could also hold back the oil industry in Iraq, OPEC’s second-largest producer; the country needs to inject water into its wells or risk losing pressure and face severe decline rates, especially at its mature oilfields. As freshwater is a scarce resource in Iraq, using treated seawater is one of the best alternatives.

The Common Seawater Supply Project (CSSP), which would supply water to more than six southern oilfields, including Exxon’s existing West Qurna 1 field and BP’s Rumaila, was initially planned to be completed in 2013 but has now been delayed until 2022.

“The CSSP would be expensive and challenging but there’s opportunity here (for Exxon) ... to get access to resources on a very large scale and to achieve something and really make a difference to its own business,” said Ian Thom, principal analyst at consultancy Wood Mackenzie.

Many of the world’s biggest oil companies, such as BP, Total, Royal Dutch Shell and Eni, have operations in Iraq, where a low-return environment and strict contract terms have squeezed returns in recent years.

With total oil production at West Qurna 1 at around 430,000 bpd, Exxon’s presence in Iraq is small compared with dominant player BP whose Rumaila oilfield accounts for around a third of the country’s total production of about 4.4 million bpd.

While the Texas-based firm is looking to grow in Iraq, its geographical focus remains on the Americas, including US shale fields and Brazil, in contrast to rivals such as France’s Total and Italy’s Eni who have been significantly expanding their activities in the Middle East in recent years.

The talks between Iraqi authorities and Exxon are still ongoing, according to the industry sources and officials from the Iraqi oil ministry.

However the state-run Basra Oil Company (BOC), which is overseeing the project, said it could now tender the project this month in a parallel process with the aim of completing a first phase by 2022.

“We have this one approach but we can have another approach as well,” Abdul Mahdi Al-Ameedi, head of the Iraqi oil ministry’s licensing and contracts office, told Reuters.

Iraq chose Exxon to coordinate the initial studies of the CSSP in 2010. At the time, Baghdad aimed to raise its oil production capacity to 12 million barrels per day (bpd) by 2018, rivalling Saudi Arabia. That target has been missed and been cut to 6.5 million bpd by 2022 from around 5 million bpd now.

Negotiations with Exxon fell through in 2012 due to red tape and cost disputes. In 2015, the company re-entered talks with the oil ministry, this time in partnership with China’s CNPC and with the CSSP folded into a much bigger development project known as the Integrated South Project. 

CNPC did not reply to a request for comment.

For Iraq, going down the non-Exxon route raises two major concerns: How to integrate the project between the water treatment facility and the oilfields and how to finance the project, Thom said.

Two Iraqi oil sources told Reuters that taking the non-Exxon path would raise financing concerns for Iraq.

Projected costs of the scheme have not been disclosed, but engineering studies have put the cost of treating 12.5 million bpd of seawater transported to six oilfields at $12 billion.

The capacity has been revised downwards, with the first phase set to have a 5 million bpd of water, and in the second phase an additional 2.5 million bpd of water will be added for additional fields.