Government negotiations to bring down Egypt’s $2bn fine for Union Fenosa

Compensation of partners to stop pumping of gas to Damietta LNG Plant with part of revenue: Source

The Egyptian government is nearing an agreement with Italian-Spanish Union Fenosa Gas (UGS) on dropping of the arbitration proceedings at World Bank’s the International Centre for the Settlement of Investment Disputes (ICSID) against the Egyptian Natural Gas Holding Company (EGAS), as the Damietta liquefaction plant gradually operates this year after a six-year hiatus.

A source in the oil sector informed Daily News Egypt that the ministry of petroleum is negotiating with UFG to settle the case with amounts deducted from EGAS’s share in the revenues of the factory’s re-operation, in return for waiving the international arbitration case filed against Egypt.

He added that the ministry is considering allowing the Damietta plant to export quantities of natural gas produced from Cyprus and Israel fields in the Mediterranean Sea, thus achieving economic returns in Egypt and ending arbitration disputes.

Furthermore, he pointed to the start of negotiations with foreign partners in the Damietta plant for the price of gas and fees for the use of the national network of gases, in return for the gradual re-operation of the plant and the export of quantities of natural gas produced locally.

A decision by an arbitration panel of the ICSID recently issued a majority opinion requiring the EGAS to compensate the UGS with an amount of $2bn.

The source pointed out that the foreign partners in the Damietta plant accused the state-owned EGAS that it had stopped supplying quantities of gas agreed upon in the gas sale and purchase contract between the Egyptian General Petroleum Corporation, EGAS and Unión Fenosa in 2000, which obliges EGAS to supply 750m million cubic feet of gas per day to the Damietta plant starting from January 2005.

Following the January 2011 revolution and subsequent crises, the gas supply to the plan reduced until stopping in December 2012 until now.

The source noted that the Italian Eni was approved to export part of the gas produced from the Zohr gas well through the Damietta plant if the local market does not need it.

The Damietta plant ownership is 26% owned by Italy’s Eni, 26% by Unión Fenosa and SEAGas, and 48% by the Egyptian government.