CAIRO: Egypt Hydrocarbon Corporation (EHC), a petrochemical firm, signed a deal for a $298 million loan on Nov. 22 to expand operations in Ain Sohkna with a chemical complex
Financing for the project is now complete and work has begun on the complex, which will include both nitric acid and ammonium nitrate facilities and, more specifically, will produce a component used in the explosion process in the mining industry.
The deal, which took three years to conclude, “is the first of its kind at this scale and this capacity, and it is the first exporting plant in Africa,” EHC chairman and chief executive, Basil El-Baz, said Monday.
EHC, a subsidiary of El-Baz’s parent company, Carbon Holdings, said the facility is expected to begin operating in 2013.
Facilities in Australia, Western Europe and Africa have “typically” been supplied low-density ammonium nitrate, El-Baz said, and setting up operations south of the Suez Canal provides EHC an “advantage” over the competition.
Ibrahim Hamdy, EHC’s chief financial officer, explained that using low-density ammonium nitrate over similar products allows for a higher level of “precision and velocity in the mining process.”
Mining ores are now found at deeper levels under the earth’s surface and are harder to penetrate, Hamdy explained, as all of the earth’s surface areas have been fully exploited. Thus, the only direction is to dig deeper, requiring explosives using low-density ammonium nitrate.
After studying the market dynamics, the potential success for the firm’s product was “very encouraging,” Hamdy said.
To be sure, an EHC study concluded that supplies are diminishing and demand is increasing.
“There is a huge mining movement occurring in Egypt, with huge activity in the Western Desert region of the country as well as along the southern part of the Red Sea,” Hamdy said.
Egypt is currently drafting a new mining law which Hamdy says should be better suited to new market dynamics. In this context, the firm sees strong potential for robust local demand.
The firm will export to Southeast Asia as well given the high demand for raw materials emanating from the region to sustain high levels of economic growth.
Australia, Western Europe and even the United States, which is seeing growing demand, will also be destinations for the company’s product, he said.
In 2008, EHC inaugurated the undertaking for the construction of a Greenfield Olefins Complex and a Polyethylene Complex at Ain Sokhna, which was financed by the Export Credit Agency, US Exim.
To finance this latest project, EHC — rather than tapping into the pockets of international and European banks for set-up costs — realized that Egyptian banks were willing to step up to the plate, and deliver competitive loans.
Local banks offered interest rates that the big international banks could not match, Hamdy said, attributing this to the effects of the global financial crisis, which saw credit lines dry up in troubled markets as Egypt’s banks were flush with liquidity.
“Due to the crisis, most of the international and European banks were having liquidity issues, which resulted in excessively high interest rates, as well as longer tenors of up to 10 years,” he said.
Meanwhile, local banks, due to “their appetite” as well as changes that have occurred within the market, are becoming more familiar with project finance structure, which in EHC’s case, made it possible to finance the deal exclusively through Commercial International Bank, Banque Misr and Ahli United Bank.
El-Baz contends that his firm’s latest facility, while being a major first step in meeting the continent’s demand, will fall short; thus, requiring that EHC expand its current operations.
Already the firm is developing two other greenfield projects in the oil and gas sectors.
One project will be an olefins complex, which will produce plastics products and other oil and gas derivatives. Financing for this project is under discussions with US Exim.
EHC’s is also discussing the details for a methanol ammonia complex, and financing is being discussed with potential Japanese partners, such as Mitsubishi and the Japanese Export Import Bank.
Hamdy pointed out that discussions for such deals require between three to five years depending on the size of the deal; discussions for EHC’s most recent project kicked off in late 2007.
Talks over the methanol project should come to a close by 2012 and mid-2013 for the olefins project, Hamdy indicated.
Commenting on his firm’s approach to expansion plans, El-Baz simply stated, “We’ll take it one day at a time.”
