Go inside the web of private operators who are helping turn Egypt into the region’s premier energy hub: Operators of Israel’s Leviathan gas field are finalizing an agreement with their Egyptian partner that would bring Egypt closer to its goal of becoming the export hub for natural gas from the East Mediterranean. The agreement, which will come through setting up multiple offshore companies, will kill two birds with one stone: Securing a 10-year, USD 15 bn agreement signed in February with Alaa Arafa’s Dolphinus Holding to export gas from Tamar and Leviathan to Egypt early next year — and cutting and spacing out arbitration rulings that have long held up any gas import agreement between Egypt and Israel.

The transaction — enter East Gas: Israel’s Delek, Noble Energy (Delek’s Texas-based partner on the Leviathan gas field in Israel) and Egyptian partner East Gas will acquire a 37% stake in the East Mediterranean Gas Company (EMG). EMG is held by, among others, businessmen Sam Zell and Yosef Maiman, people familiar with the matter tell Bloomberg. Delek and Noble are in the process of setting up a Cyprus-based joint venture, which would then partner with a Netherlands-based company set up by East Gas. This new partnership, also based in Holland, would buy the 37% stake in EMG.

The transaction would give the partners ownership of EMG’s pipeline, which links Israel to Egypt. Under terms of the agreement, Delek, Noble and East Gas, will finalize technical due diligence on the pipeline after the initial buyout agreement is signed. They would then transfer the money to the EMG shareholders involved, sources said, adding that the agreement would go through regardless of the condition of the pipeline. The companies are planning to start gas imports from Israel in the beginning of next year.

It is not yet clear who owns East Gas — their website appears to have been under construction since 2016 — but we wouldn’t be surprised to see Dolphinus in there somewhere.

Clearing arbitration cases: The buyout by the two companies and their Egyptian partner in effect settles three of the four arbitration cases that had blocked the gas-import agreement, sources told Bloomberg. The Egyptian government has reached an agreement to reduce the USD 1.76 bn international arbitration ruling against EGAS, EGPC and East Mediterranean Gas (EMG) for failure to supply Israel Electric Corporation (IEC) with gas in 2012.

The fine would be reduced to around USD 470 mn and would be amortized over a period of around 15 years, according to two of the people directly involved in the talks. Negotiations are ongoing over which which bank would issue a letter of credit, they added. IEC wants “a top-tier international lender,” while Egypt is pushing for the National Bank of Egypt. Either way, any resolution to the case clears the largest hurdle between a gas import agreement between Israel and Egypt. For years, the Ismail cabinet had made resolving this case a condition for the agreement.

What about the other arbitration cases? Maiman and other shareholders of EMG had also won USD 1.03 bn in damages from the state in a Cairo arbitration court back in February.The sources did not make clear how this case fators into the agreement. Also unclear so far is how the new partnership resolves a USD 270 mn arbitration case with Spanish Egyptian Gas Company (SEGAS), which runs the Damietta liquefaction plant and is 80% owned by Spain’s Union Fenosa. Union Fenosa Gas had filed a complaint with the ICC in 2013 alleging that “its state partner had failed to comply with contracts by halting gas supplies in 2012 and not making payments.”

EXCLUSIVE- Maait to private sector service providers: We have a piece of the IPO program for you. Finance Minister Mohamed Maait is reassuring private-sector bankers, lawyers and other advisers that they will have roles to play in the share sales of five companies piloting the state privatization program. The minister made the remarks in an exclusive interview with Enterprise. State-owned NI Capital will manage three of the five stake sales, he said, leaving the remaining two up for grabs by the private sector. The government will hold tenders for legal counsels and financial advisers for all five of the share sales, he noted. As we noted earlier this week, NI Capital had been tapped to manage share sales for Alexandria Container and Cargo Handling and Heliopolis for Housing and Development. We expect the third company in its roster will be Alexandria Mineral Oils Company (AMOC). Chemical Industries Holding Company (CIHC) Chairman Emad El Din Mostafa had said that NI Capital was organizing a limited tender for private sector banks to manage share sales for Eastern Company and Abu Qir Fertilizers.

Maait also noted that the government hopes this initial phase would bring in EGP 20 bn in new investment, with the treasury’s share of the stake sale looking to reach EGP 8-10 bn. The first of the offerings will take place in October, with Maait reiterating that shares in all five companies will be sold by December.

Did the IMF just call out Egyptian tax dodgers? IMF Executive Director Hazem El Beblawi scoffed at the notion that the IMF is against the Egyptian treasury increasing its annual tax haul. El Beblawi made the remarks in response to questions from Al Masry Al Youm at the annual meeting of the African caucuses for the World Bank and the IMF. The former prime minister pointed to what he sees as a large segment of society who evade taxes, particularly self-employed workers including doctors, lawyers, engineers, artists, and accountants.

IMF supports our strategy of long-term borrowing: El Beblawi also reassured the press that Egypt’s current external debt position isn’t anything to be worried about. The facilities are long-term and were necessary to achieve sustainable development goals.

Speaking of foreign debt, CBE Governor Tarek Amer said that Egypt will renew its USD 2.65 bn currency swap with China, which Egypt signed in 2016 as part of the USD 5.7 bn funding required to secure a USD 12 bn extended fund facility from the IMF. The move is part of a series of loans the CBE is looking to roll over, which include the USD 2 bn deposit from the UAE.

Foreign holdings of Egypt’s debt since the 2016 EGP float have reached USD 37-38 bn, Amer said at a conference of African central bankers in Egypt on Wednesday.

African central bankers renew hope in mythical single currency: The conference also appeared to revive the ludicrous (yet long-discussed) proposal to establish a single currency for the African Union. The AU commission is currently revisiting the proposal to establish a single “Africa zone” with its own central bank and a unified currency as part of the AU’s 2063 vision, AU Commissioner for Economic Affairs Victor Harrison told Enterprise. There are certain conditions that need to be met first, including requiring member countries to be guided by a single inflation target, and a single budget deficit target. Good luck: Our grandkids will be rooting for that.

One needs to only look at the West Africa single currency proposal to get an idea of why this knockoff of the EUR will not work. The implementation of that common currency for West Africa's anglophone countries, which was supposed to merge with the a currency union of francophone West African states, was postponed four times before finally being jettisoned. The main reason? Setting unified criteria akin to the ones proposed by Harrison. Talk of a West African monetary union was revived last year and could take place by 2020, according to CNN. Again, one is not necessarily advised to hold one’s breath.

Aton Resources could be the second licensed major gold producer after Centamin: The Egyptian Mineral Resources Authority (EMRA) accepted a declaration of commerciality from Canada’s Aton Resources on its Hamama West gold concession, according to a company statement. The move could open the door for the company to be the second major gold producer in Egypt after Centamin. “This is very exciting news for Aton as it allows us to move forward not only in developing our Hamama West Project, but in progressing our Rodruin exploration target,” said Aton CEO Mark Campbell. “We will now move to begin our next steps in advancing Hamama West and the first pass drilling program at the Rodruin prospect is set to commence shortly,” he said, adding that Aton will be looking for partners with whom to develop the project. The firm had submitted in June a declaration of commerciality on its Hamama Project by Wardell Armstrong International to obtain a 20-year license.

Aton is pleased with the direction gov’t reforms of the mining sector appear to be taking: The statement from Aton was filled with color on what Aton believes is the state of discussion of the government’s reform of the mining sector. Among them are believed to be proposals to scrap the oil-and-gas-style production sharing agreement and move to a tax, rent and royalty model — and eliminate the requirement of a 50:50 JV with EMRA completely. Aton also expects the government to allow exploration companies to acquire exploration ground without first acquiring exploration licenses. The changes are yet to pass the House of Representatives. “With all the signs are pointing towards the long awaited reform of the Egyptian mining sector and the speed that the Government appear to be moving at to implement these changes, leads us to believe that major positive changes for exploration companies, mining companies and the Egyptian Minerals industry overall is at hand,” said Campbell.

ECA to conclude investigation into Uber antitrust complaints “soon”: The Egyptian Competition Authority (ECA) is still looking into complaints brought against Uber by ride-hailing rivals Careem and Ousta, but the investigation should wrap up soon, according to an ECA statement out on Wednesday (pdf). Ousta and Careem had filed a complaint in December 2016 alleging that Uber engaged in monopolistic practices when it did not raise fares and temporarily stopped charging its drivers a 20% service fee through the end of January 2017. Former ECA boss Mona El Garf said in April of last year that the agency had begun investigating the matter.

Did the ECA leave a Singaporean Easter egg for us to ponder? The ECA began the statement by referring to a ruling by the Competition Commission of Singapore against a merger between Uber and its South East Asian rival Grab. Uber and Grab had reached an agreement in March whereby the latter would buy Uber’s regional business in exchange for Uber acquiring a 27.5% of Grab and a board seat. The ECA said it was studying the Singapore authority’s ruling.

In related news, Uber and Nacita AutoCare today launched the Rent to Own vehicle solutions program in Egypt to facilitate car ownership for Uber drivers renting their cars, according to an Uber statement (pdf). The program, which comes in partnership with the Investment and International Cooperation Ministry and has received EGP 45 mn in funding from the Saudi Fund for Development, will see qualifying drivers paying 5% interest on cars they are renting to purchase the vehicle after 36 months provided they pay 30% of the car’s sticker price.

Further afield, New York City on Wednesday approved legislation that would cap the number of licenses given to ride-hailing apps Uber and Lyft in what Bloomberg calls a political blow to the industry. The legislation also gives the city the right to set minimum pay standards for drivers.

EARNINGS WATCH- GB Auto reported a consolidated net profit of EGP 148.1 mn in 2Q2018, up 340.0% q-o-q from EGP 33.5 mn in the last quarter, according to a the company’s earnings release (pdf). Top line for the quarter rose 45.8% y-o-y to EGP 6.1 bn, up from EGP 4.8 bn in 2Q2017. “Market demand has by every measure surpassed our most bullish expectations during 2Q18, and we are seeing a strong recovery in the Auto and Auto Related businesses that is indicative of strong consumer resilience,” said GB Auto CEO Raouf Ghabbour. “Macro and market indicators today show a healthy economy that has turned a corner toward sustainable growth,” he added. Looking ahead, the company sees further improvements heading into 2H2018 during which demand is seasonally higher. “As this momentum continues, GB Auto stands as a transformed group with a leaner, more efficient operation that is ideally positioned to capture the upside,” Ghabbour said.

In other GB Auto news, the company’s board of directors approved plans to sell a 20% stake in its Netherland-based subsidiary MNT Investments BV, GB Auto said in a regulatory filing (pdf). The value of the transaction was not disclosed.

IFC funding to Egypt hits new record of USD 1.2 bn in FY2017-18: Funding to Egypt from the International Finance Corporation (IFC) reached a new record with USD 1.2 bn in new financing doled out in the FY2017-18 fiscal year, which ended in June, according to a statement from the IFC (pdf). Among the landmark funding last FY was its USD 653 mn in financing to the Benban solar park and USD 15 mn in EGP to polymer and construction companies — the latter being its first local currency loan. The IFC also provided an Islamic financing package of USD 75 mn to Almarai, a USD 135 mn facility to the Egyptian Fertilizers Company, and USD 100 mn facility to our friends in CIB for SME funding. “Our investments have been geared towards addressing the challenges facing the private sector — like power shortages, burdensome regulations, gender inequality, and difficulty in accessing financing. By tackling those issues, we can help lay the foundation for long-term growth and prosperity,” said Walid Labadi, IFC Country Manager for Egypt, Libya, and Yemen.

The IFC is committed to extending as much as USD 2 bn in funding to Egypt’s private sector until 2019 under the country’s cooperation framework with the World Bank Group, according to previous statements by IFC CEO Philippe Le Houérou.

US commits to providing Egypt with aid: The Trump administration is keen to ensure that the US aid to Egypt continue to flow, US Secretary of State Mike Pompeo told Foreign Minister Sameh Shoukry during the latter’s visit to Washington DC. This includes military, economic and development aid, Pompeo said, according to a statement from Foreign Ministry spokesperson Ahmed Abu Zaid. His pledge comes a few weeks after the US unfroze USD 195 mn in military aid it had suspended last year, ostensibly on human rights grounds.

It would appear that much of the conversation centered around regional crises, particularly Egypt’s effort to secure a peace agreement on Gaza, efforts to stabilize Libya and the Syrian civil war.

Speaking of the Gaza talks, the situation appears to be swinging from reproachment to conflict between Hamas and Israel, all in the same day. A Hamas delegation arrived in Cairo yesterday and is set to hold talks with Egyptian authorities, according to Al Masry Al Youm. An unnamed senior member of Hamas and top Israeli lawmaker both told Reuters that since peace talks have reached advanced stages, an end to the confrontations and threats is likely to take place. Later in the day, however, Gaza militants fired rockets into Israel prompting a response from the Israeli military on Wednesday, according to Reuters. Separately, Egypt will host Fatah-Hamas reconciliation talks next week, according to Ahram Gate.

MOVES- Our good friend Ramez Farag is becoming L’Oreal’s corporate affairs director for the Middle East and Africa, based in Paris. Farag takes on the new role after three years with Mars Inc. As corporate affairs director for MEA and developing markets. His tenure saw a period of expansion for the company, which doubled its investments in Egypt to transform its local manufacturing facility into the regional sourcing hub for the entire MEA region. The EGP 750 mn facility will be fully operational next year. Farag will be replaced by Wanja Mwangi. Ghada Fouad will become Mars’ regional head of communications.