Oil and Gas Procedures in Egypt22 Mar 2016 1922 Views
By: Sara A. Ahmed,LL.B, LL.M. Although Egypt is not one of the OPEC countries, it is yet considered the sixth largest oil producer in Africa. In 1908, Egypt discovered the first oil reservoir; in 2015 Egypt has witnessed the largest gas discovery in its history equaling to 30 trillion
cubic feet (Tcf) of natural gas, which roughly amounts to 5.5 billion barrels of oil.
Nowadays, the government is focused on oil discovery which is considered as one of the golden elements that would help to revive Egyptian economy. As the government is putting forth new blocks for biding in the Mediterranean and investors willing to participate in such, it is important to outline certain criteria and procedures set by the Ministry of Petroleum.
The Four Phases of Bidding
First phase: Announcement of the International Bid Round
- The bid round shall be announced by any and/or all the three entities internationally.The Egyptian government is represented by three entities (Egyptian General Petroleum Corporation (EGPC), Egyptian Natural Gas Holding Company (EGAS), and Ganope El Wadi Petroleum Holding Company (GANOPE).
- The announcement is to be published on the official website of the announced entity including all the data and the relevant terms including the prices of access to the offers or the purchase of the bid round requirements and specifications.
Second phase: Procedures of Submitting Technical and Financial Data
- The company (bidder) shall submit its offer in two envelopes, one for the financial offer and the other for the technical offer.
- The technical envelope shall include the following:
- A guarantee letter of value of approximately 100,000 USD is deposited at the Egyptian Natural Gas Holding company EGAS through an Egyptian bank. The said LG are valid for at least 6 months from the closing date of the bid, and these bonds will be given back to its unsuccessful owners upon the notification of the announcing entity; Within 15 days from the announcement of the winning bid, the value of the aforementioned guarantee will increase by 5% from the value of the minimum financial commitment at the first stage of exploration.
- Documents that state the past activities and prove bidder’s experience in the field of Petroleum exploration and production around the world including projects of development, oil reserve production, and the latest technology used, as well as submit the company’s annual financial report.
- The company’s Article of Incorporation, the Commercial Register, a copy from all the documents which prove the company’s legal existence and also the names of the company’s shareholders and their nationalities.
- Recent annual report and/or financial reports of the company-bidder.
- The financial envelope shall include the following:
- Company’s suggested terms and conditions and commercial proposal which shall include exploration plan, work plan, expenses to be incurred during the exploration period.
Third phase: Opening the Envelopes
- A committee formed by the concerned entity shall open the aforementioned envelopes.
- The technical envelope shall be opened first to check the conformity of the envelope’s content with the benchmark standard provided by the competent entity.
- The offers which do not comply with the technical terms shall be excluded.
- After selecting the best technical offer the financial envelope of the chosen companies shall be opened;
- Upon reviewing all the submitted documents the committee shall choose the best offer.
Fourth phase: The Award of the Bid Round
- Upon award granted to the technically and financially successful bidder; the bidder-company shall then submit the following documents (both in English and Arabic) to EGAS:
– Articles of Incorporation of the Bidder Company (ies),
– The Commercial Register of the Bidder Company (ies),
– The Bidder(s) company (ies), shareholders and their nationalities, and
– Valid Power of Attorney of the successful bidder’s representative, who is authorized to sign the original copies of the Concession Agreement. Such valid Power of Attorney shall be submitted directly to EGAS before the final signature and upon EGAS’s notification. All submitted documents should be notarized, authenticated and legalized by the competent authorities and the Egyptian Embassy or the Consulate General of the A.R.E. in the successful bidder’s country of origin and the Ministry of Foreign Affairs in Egypt.
- The successful bidder’s offer shall be presented to the Board of Directors of the entity that has announced the bidding.
- If approved by the Board it shall then be presented to the Minister of Petroleum.
- If approved, by the Minister of Petroleum the Concession Agreement shall be initially signed between the contractor (successful bidder), whether it is one company or more, on one side and the Arab Republic of Egypt and the Egyptian Holding Company which announced the bid on the other side.
- The Concession Agreement shall be presented to the Legal Advice and Legislation Department of the State Council.
- The Concession Agreement shall be presented to the Cabinet and then a decision by the Law shall be issued in the absence of the Parliament (House of Representatives), in the case of the existence of the Parliament the Concession Agreement shall be presented to it in order to issue a law.
- This agreement shall be published in the Official Gazette; in return, a signature bonus estimated at 80,000 USD shall be paid by the contractor.
- NB: The time span between the announcement of the bid round and the awarding is often close to one year.
Fifth phase: Signing the Concession Agreement
- A minimum of two original versions of the Concession Agreement shall be signed since there is a possibility of participation of more than one party (contractor) in the agreement.
- In case of the successful bidder failing to sign the Concession Agreement within six (6) months from the date of the relevant law issuance, the successful bidder has no right to participate in the awarding block and EGAS shall cancel the block awarding; The awarding block is a state-owned area and in case of failing to sign it becomes an open area and shall be offered through EGAS’ future bid rounds. EGAS shall also take all the necessary procedures with the competent authorities in order to cancel the issued relevant law.
Sixth phase: Implementation Procedures
Machinery, equipment, appliances and means of transportation imported by the contractor that are temporarily engaged in any activity pursuant to the operations which are the subject to the Agreement shall be cleared under the “Temporary Release System” without payment of customs duties, or fees of any nature. Such an exemption is possible upon presentation of a duly approved certificate, stating that the imported items are required for conducting the operations pursuant to the Agreement. This certificate should be issued by EGAS representative nominated by EGAS themselves for such purposes.
The expatriate employees of the contractor shall not be entitled to any exemptions from customs duties and other ancillary taxes and charges except for the charges set within the limits of the law provisions and regulations applicable in the Arab Republic of Egypt.
Contractor shall be exempted from all taxes and duties, whether imposed by the government or municipalities including Sales Tax, Value Added Tax and Taxes on the Exploration, Development, extracting, producing, exporting or transporting of Petroleum as well as any withholding taxes that might otherwise be imposed on dividends, interest, technical service fees, patent and trademark royalties, and similar items. Contractor shall also be exempted from any tax on the liquidation of contractor, or distributions of any income to the shareholders of contractor, and from any tax on capital.
Residence of expatriate employees:
The expatriate administrative, professional and technical personnel employed by contractor shall be granted a residence as provided for in Law No. 89 of 1960, as amended, and Ministerial Order No. 8180 of 1996, and contractor agrees that all immigration, passport, visa and employment regulations of the Arab Republic of Egypt, shall be applicable to all the foreign employees of contractor working in the Arab Republic of Egypt. Pertinent to the Ministry of Manpower and Immigration’s decision number 305 for the year 2015, regarding the work permits for foreigners, foreign workers can obtain work permit from Egyptian General Petroleum Corporation (EGPC).
Employment of the expatriate employees:
The percentage of expatriate labor shall not exceed 10% of the amount of the total number of Egyptian employees; the contractor presents requests to EGAS after which EGAS shall submit the work permit requests to the Ministry of Manpower.
Social insurance of the contractor employee shall be in accordance with the Egyptian Law of social insurance.
Establishment of an affiliate company of the successful bidder company in Egypt:
After the awarding the successful bidder shall establish an affiliate company in Egypt in order to facilitate all the procedures.
Seventh phase: Execution
- The duration of the first Exploration period shall be specified in the offer presented by the bidder and should not exceed six years from the Effective Date; and this period shall be divided into two exploration phases. (short Exploration period is preferred)
- Value of the letter of guarantee shall be increased to 5% of the minimum value of the financial obligation of the contractor as defined in the offer.
- The contractor shall begin exploration process in six months from the date on which the concession agreement entered into force.
- The Exploration work program and budget shall be reviewed by a joint committee to be established by EGAS and the contractor after the Effective Date of the Agreement. This committee, shall consist of six (6) members, three (3) of whom shall be appointed by EGAS and three (3) by the contractor. The Chairman of the Exploration Advisory Committee shall be appointed and chosen by EGAS from among the existing members. The Exploration Advisory Committee shall review and give advice with respect to the proposed Exploration work program and budget. Following the review by the Exploration Advisory Committee, the contractor shall make revisions and submit the Exploration work program and budget to EGAS for its approval.
- During any Exploration period (as it may be extended), the contractor shall submit to EGAS a certain amount of money in US dollars as specified in the offer as a training bonus to cover the training of EGAS’ employees at the beginning of each Financial Year.
- During any Exploration period, in case the contractor/contractor member assigns in whole or part of its rights, privileges, duties and obligations to any assignee other than an affiliate Company of the same, the contractor/contractor member shall pay to EGAS the sum equivalent to ten percent (10%) of the total financial commitment of the then current Exploration period during which the assignment is made and according to the assigned percentage.
- At the end of the Year the contractor shall relinquish to the government a total of a certain percentage (determined in the offer) of the original Area on the effective date of the agreement not then converted into a development Lease. Such relinquishment shall be in a single unit of whole Exploration Blocks or originally existing parts of Exploration Blocks not converted into development lease (unless otherwise agreed by EGAS) so as to enable the relinquishment requirements to be precisely fulfilled.
Eighth phase: Development
- Contractor shall give notice of a Commercial Discovery to EGAS immediately after the discovery is considered to be worthy of commercial development.
- An approval of the Minister of Petroleum shall be obtained in this regard and automatically that space shall be turned into a development area without the need to issue any other legal instrument or permit.
- After the approval of the first development lease the contractor and EGAS shall establish a company in Egypt to carry out operations and the name of the company shall be mutually agreed upon between EGAS and the contractor, and shall be subject to the approval of the Minister of Petroleum. The company shall be subject to all laws and regulations in force in the A.R.E. to the extent that such laws and regulations are not inconsistent with the provisions of the Agreement.
- The Commercial Discovery development period shall be twenty (20) Years from the Development Lease Approval Date plus the Extension Period of five (5) Years; provided that the duration of such Development Lease based on a Commercial Discovery of Oil shall not be extended beyond thirty (30) Years from the Development Lease Approval Date of such Commercial Discovery of Oil.
- The share from sale of the gas shall be divided between EGAS and the Contractor in accordance with the agreement.
- The contractor shall pay to EGAS a Development Lease extension bonus in U.S. Dollars on the approval date of entry into the five (5) Year Extension Period of each Development Lease.