Fuelling an export crisis - Source Zawya News

Fuelling an export crisis

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Recent decisions aimed at saving much-needed fuel material are hindering chemical industry exports, reports Ahmed Kotb
Recurrent fuel shortage crises across the country, and their negative impact on daily life for millions of Egyptians from increased food prices to traffic jams and a flourishing black market, have led the government to take a controversial decision aimed at fighting subsidised fuel smuggling.

Two decisions issued last month stipulate that the customs authority should not allow any products manufactured with petroleum materials to leave the country without the permission of the Egyptian General Petroleum Corporation (EGPC). The decision followed on from ministerial decree number 770/2005, issued to curb the illegal smuggling of valuable assets. These include petrochemical products manufactured using subsidised fuel.

Although the decision was taken to help control different types of smuggling, it has caused confusion and has even harmed some exporters.

"We have been unable to export our products since the decision was taken at the end of last month," said Mohamed Shaaban, manager of Chemical Partners Egypt (CPE). His company manufactures alkyd resin, a raw material used in the paint, coatings, inks, chemical and construction industries. Shaaban added that approximately 60 per cent of the CPE factory productions are made for export, which amount to approximately $15 million annually.

"To date, production at our factory hasn't stop, and there 200 shipping containers filled with alkyd resin stored and ready to leave Egypt's shores," Shaaban said. However, production may come to a halt at any time because there is no space left for storage, and our clients are waiting for the current shipments before making any other deals."

The manager also disagreed with the way the decisions were drafted. "The two decisions are too general and have confused customs officials who refuse to allow our products to leave the country, even though they are not manufactured with subsidised petroleum raw materials," Shaaban noted.

He explained that CPE uses white spirit, a petroleum distillate, to manufacture alkyd resin and buys it at non-subsidised prices. Laboratory tests at the customs authority mistakenly identify white spirit as kerosene, which is a subsidised petroleum product, and accordingly refuse to allow CPE's alkyd resin to be exported.

Khaled Abul-Makarem, member of the Export Council for Chemicals and Fertilisers, says that most of Egypt's chemical industry exports are manufactured using subsidised petroleum products, but the proportions vary from one product to another. "Egypt's exports of chemical products -- such as paints and alkyd resin -- in 2011 were valued at LE27 billion. It is not good to risk that amount of money over such a vague decision," he said.

"Our total investments amount to LE150 million, with more than 400 workers," said Shaaban, adding that his company would not be able to handle the losses if the situation remains as is. "The customs authority must understand that we could lose our long-time clients, for good," he stressed. Besides, he added, "we suffer from delay penalties and storage costs. I expect that clients will cancel deals in the near future, and that will be disastrous for us, because it is hard to find alternate markets."

In general, it is hard to identify the proportion of petroleum products used in each chemical product, according to Abul-Makarem. Because of this, leaflets need to be modified and made more specific.

Ahmed Farag, head of the customs authority, was recently quoted as saying that the leaflets would be modified to ban only exports of subsidised raw petroleum. The idea behind that was to avoid any confusion with products like alkyd resin. But by the time Al-Ahram Weekly went to print, no such modification has yet been made.

© Al Ahram Weekly 2012 

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