Cablegate: Egypt Monthly Economic Report: March and April 2005

This record is a partial extract of the original cable. The full text of the original cable is not available.

221638Z May 05

UNCLAS SECTION 01 OF 04 CAIRO 003889

SIPDIS

STATE FOR NEA/ELA, NEA/RA, AND EB/IDF
USAID FOR ANE/MEA MCCLOUD
USTR FOR SAUMS
TREASURY FOR MILLS/NUGENT
COMMERCE FOR 4520/ITA/ANESA/TALAAT

E.O. 12958: N/A
TAGS: ECON EFIN ETRD EINV ENRG EWWT SENV EG
SUBJECT: EGYPT MONTHLY ECONOMIC REPORT: MARCH AND APRIL 2005

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Summary
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1. (U) In this edition:

Banking and Finance: Parliament considers amendments to the
Banking Law and the first foreign medical insurer enters
Egypt's market.

Telecom and IT: The Government of Egypt (GOE) announces
plans for a public offering of shares in Telecom Egypt,
while the Minister of Communication and Information
Technology leads a delegation to the CeBit exhibit in
Germany. Alkan Holdings sells part of its stake in
Vodofone, Raya announces a public offering, Inmarsat
introduces Regional Broadband Global Area Network technology
to Egypt, Bank of Alexandria concludes a deal for an IT
upgrade, and Egypt hosts a "smartcard" technology
conference.

Energy and Oil: Parliament approves deals in the energy
field, British Petroleum announces a new gas discovery,
while British Gas begins delivery of gas to a new processing
facility. Russian firm Gazprom signs a cooperation
agreement with the Egyptian Gas Holding Company.

Transportation: A new airport opens in Al Alamein, and Suez
Canal revenues reach $260.8 million in February 2005.

Environment: Researchers discover new fossils in the Valley
of the Whales, Ethiopian Prime Minister Zenawi praises the
current status of the Nile Basin Initiative, and Egypt and
the EU sign an agreement for tourism development in the
south Sinai. End Summary.

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Banking and Finance
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2. (U) In mid-April the GOE referred to the Shura Council
and People's Assembly a bill amending Banking Law 88 of
2003. The amendments will: 1) allow banks to establish
credit bureaus; 2) prohibit bank managers from managing more
than one bank under the CBE's supervision, which will remove
most public banks chairmen from the boards of joint venture
banks; 3) exempt securities issued by the CBE from taxes and
fees; 4) facilitate banks' foreclosure on real estate used
as collateral for loans; and 5) reduce the minimum capital
requirement for foreign exchange bureaus from LE 10 million
to LE 5 million.

3. (U) In April the British "BUPA" medical insurance
company received a license to operate in the medical
insurance market. BUPA is the first foreign company to
acquire such a license. The company will operate under BUPA
Egypt Insurance, with an authorized and issued capital of LE
100 million and LE 30 million, respectively. The company is
expected to start operations in July 2005.

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Telecommunications and Info Tech
---------------------------------

4. (U) Minister of Communication and Information Technology
Tarek Kamel, on a visit to London in March, indicated that
Telecom Egypt (TE) would sell 20% of the company in a public
offering by the end of 2005. In TE's last two bond
issuances, demand substantially exceeded the initial offer,
raising LE 3.38 billion and LE 2 billion respectively.
Foreign investment funds from the U.S., UK, Belgium and the
UAE participated in the two previous bond sales. Press
reports indicate that France's Orange Telecom has offered to
purchase a majority stake in TE for $5 billion. TE
representatives have indicated that the GOE is likely to
accept the French company's offer, seeking to complete the
sale by December 2005. Contacts in the telecom sector have
expressed skepticism, however, that the deal could be
completed by the end of the year.

5. (U) Also in March, Kamel led a delegation of 19 Egyptian
telecom and IT company representatives to the annual CeBIT
Information and Communication Technology exhibition in
Hanover, Germany. The delegation reportedly concluded
several deals with foreign firms, valued at $1.2 million.
Egyptian firm SoftLock signed three agreements with Byte
University (UK), the Taiwanese company JPCC Link and the
German firm Aiexistance. The Ministry of Communication and
Information Technology (MCIT) also signed an agreement with
a leading French telecom company to invest $50 million in
Egypt's IT sector. Kamel announced at the exhibition that
Egypt would host an Arab-African preparatory meeting for the
second conference of the World Summit on Information
Society.

6. (U) In mid March, the Egyptian conglomerate Alkan
Holdings announced the sale of part of its stake in Vodafone
Egypt. The Chairman and founder of Alkan Holding, Mohamed
Mahmoud Nosseir, indicated that proceeds from the sale would
be used to finance new tourism projects. The sale will
reduce Alkan's overall stake in Vodafone to 5 percent.
Vodafone recently announced profits of LE 777.9 million for
the first nine months of FY 2004/05, a 4.6% decrease from
the same period in FY 2003/04.

7. (U) On March 28, Inmarsat Ltd, a global satellite
communications provider, announced that it would begin
marketing its Regional Broadband Global Area Network
(Regional B-GAN) services in Egypt. Regional B-GAN will
offer mobile data communication to industries operating in
remote areas where telecommunication and/or high-speed data
communication are not currently available. R-GAN services
operate at twice the speed of current terrestrial General
Packet Radio Service (GPRS) services.

8. (U) In late March, the state owned Bank of Alexandria
concluded a deal worth LE 23.7 million with Infosys
Technologies, an Indian IT Company, to computerize and
improve the bank's operations, including electronic banking,
and customer relations management, among other things. Bank
of Alexandria is undergoing management and operational
restructuring, in anticipation of privatization by the end
of 2005.

9. (U) In April, the Egyptian firm Raya announced it would
hold an initial public offering (IPO) of LE 400 million.
Raya conducted a promotional road show for the IPO in the
Gulf region during the second half of April. Bahraini firm
Biltone Securities and Investment will manage the IPO. In
2004, Raya expanded its operation in the Gulf region,
Algeria and the U.S., recording profits of LE 29 million
pounds, up from LE 4.9 million in 2003.

10. (U) On April 11, the third international conference and
exhibition for "smartcard" technology was held in Cairo.
International experts discussed the challenges facing the
Egyptian banking sector, particularly switching from
magnetized to smartcard technology for credit and debit
cards, in line with international standards. Use of
smartcard technology in e-government transactions was also
discussed.

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Oil and Energy
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11. (U) In the second week of March, British Petroleum (BP)
Egypt announced a new gas discovery in the Ras El Barr
concession in Egypt's Nile Delta region. The announcement
indicated that a new well, 70 kilometres northeast of
Egypt's Mediterranean city of Port Said, had tested at 22-
million cubic feet per day. It added that the natural gas
was of high quality with no impurities. Hesham Mekawi,
President of BP Egypt, indicated that the proximity of the
discovery to existing infrastructure would allow for quick
development of the new well at minimal cost. A joint
venture company, Gupco (grouping BP and the state-owned
Egyptian General Petroleum Corp), will operate the
development.

12. (U) In late March, Aleksei Miller, head of the Russian
natural gas monopoly Gazprom, signed a cooperation agreement
with the Egyptian Gas Holding Company EGAS. The agreement
serves as the basis for the further development of bilateral
cooperation in the exploration, processing and
transportation of gas. According to Miller, a special
Russian-Egyptian group will be set up to devise specific
projects for gas cooperation.

13. (U) Also in late March, the Shura Council Committee for
Industrial Production and Energy approved measures taken by
the Minister of Petroleum to conclude two new oil and gas
exploration agreements and to amend four additional
agreements comprising a total investment of $843 million.

14. (U) In mid April, British Gas (BG) and partners
PETRONAS and the EGAS delivered the first gas shipment from
the offshore Simian Sienna fields to the liquid natural gas
(LNG) processing center at Idku. Also in mid-April, BG and
partners Edison International and EGAS delivered the first
gas shipment from the Rosetta Phase Two operation to the
Egyptian domestic market. BG Group's Executive Vice
President and Managing Director Stewart Fysh indicated that
both events were significant developments in Egypt's energy
sector. Gas from the Simian Sienna fields would eventually
be shipped to high value markets in Western Europe and the
U.S., while gas from the Rosetta Phase Two operation would
fill Egypt's growing domestic demand. Gaz de France has
signed a 20 year sales and purchase agreement for Egyptian
LNG, much of which will be shipped from the Idku production
facility starting in June 2005.

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Transportation
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15. (U) In late March, the second "Build, Own, Operate, and
Transfer" private airport in Egypt started its commercial
operations at Al Alamein on Egypt's north coast. A charter
flight arrived from London on March 21, the same day the
airport was inaugurated by the Ministers of Tourism and
Civil Aviation. Reports indicate that weekly charter
flights between Italy and Al-Alamein will also be scheduled.
KATO Group, chaired by Egyptian businessman Ibrahim Kamel,
is the largest shareholder in the airport.

16. U) Suez Canal revenue reports for February were issued
in early March. Revenues increased by about 9% to $260.8
million in February 2005 compared to February 2004. A 3%
increase in tolls came in force on February 1, 2005.

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Environment
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17. (U) During the first week of April, the press reported
discovery of a 15-meter long, 40 million year old whale
fossil in the Valley of the Whales northwest of Fayoum oasis
in Egypt's Western Desert area. Dr. Philip Gingerich,
Professor of Geology and Director of the Museum of
Paleontology at the University of Michigan, is the head of
the research team that made the discovery. According to
Gingerich, the fossil is the best-preserved remains of the
"King Lizard" whale. The fossil will be shipped to the U.S.
for further study and then returned to Egypt. An MOU was
also signed between the University of Michigan and the
Egyptian Environmental Affairs Agency to cooperate in
finding ways to protect the Valley of the Whales, including
possibly declaring it a natural heritage area and/or
developing a scientific/tourist facility at the site.

18. (U) At an April 17 meeting between Ethiopian Prime
Minister Meles Zenawi and President Mubarak in Cairo, the
two leaders discussed, inter alia, the Nile Basin Initiative
(NBI). Zenawi expressed satisfaction regarding the current
status of NBI discussion. Zenawi had earlier criticized
Egypt's Nile water policy and its negative effect on
Ethiopia. Also during Zenawi's visit, the Egyptian and
Ethiopian foreign ministers signed two agreements relating
to the standards for importation of meat from Ethiopia and
training of Ethiopian nationals in the management and
tourism fields.

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Tourism
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19. (U) During the first half of April, the EU and Egypt
signed a regional development project agreement under which
the EU will provide LE 460 million for development of
infrastructure and tourism facilities in the south Sinai
area.

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Economic Statistics
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20. (U)

Exchange Rate:
(03/31/05) (04/30/05)
Egyptian Pounds/$ Buying Selling Buying Selling
Avg. Bank/Bureau Rate 5.788 5.815 5.786 5.811

Capital Market:
(03/31/05) (04/30/05)
Capital Markets Authority Index 1528 1619
Hermes Financial Index 32650 36251
EFG Index 17182 19313
Value of Traded Securities 13414 7894
(LE millions/month)
Volume of Traded Securities 394.8 166.6
(million shares/month)
Interest Rates:
(percent, monthly comparison)

Interbank Overnight 9.8 10.8
T-bills (182 days) NA NA
T-Bond (maturing 01/06) No Trading No Trading
T-Bond (maturing 04/09) No Trading No Trading

Foreign Reserves:
(US $ billion, official gov't figures)

(02/2005) (03/2005)
17.230 18.043

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