Legal Landscape of the Collaboration between Eni and the Egyptian Government
Author: Amr Reda Abdullatif , LL.M
Eni, an Italian energy giant, has been operating in Egypt since 1954 and is the leading producer of hydrocarbons in the country. Eni’s most notable discovery was the Zohr Gas Field in 2015, which enabled Egypt to achieve gas self-sufficiency by 2018. Eni and the Egyptian government have been collaborating on various projects to develop the energy sector and position Egypt as an energy hub. However, this collaboration has also faced some legal challenges and disputes, which have been recently resolved through a new agreement.
One of the main legal issues that arose between Eni and the Egyptian government was the compensation claim by Union Fenosa Gas (UFG), a joint venture between Eni and Naturgy of Spain, regarding the Damietta liquefied natural gas (LNG) project. UFG operated the Damietta LNG plant, which had an annual capacity of 7.56 billion cubic meters of gas, but the plant was shut down in 2012 after the Egyptian government diverted the feedstock gas to domestic customers due to the decline in production. UFG demanded compensation from the Egyptian government for the loss of operations and filed a case at the World Bank’s International Center for Settlement of Investment Disputes (ICSID) in 2014. In 2018, ICSID awarded UFG $2 billion in damages, but the Egyptian government appealed the decision and the parties continued to negotiate a settlement.
At another level :
Bracewell (UK) LLP represented IEOC Production B.V., a subsidiary of Eni S.p.A., on its sale of a package of interests in onshore upstream oil and gas concessions in Egypt to Apex International Energy. The assets include interests in the Ras Qattara, West El Razzak, East Kanayis, East Obaiyed, South West Meleiha and West Abu Gharadig concessions.
Alastair Young, who led the Bracewell team on the transaction, commented: “We were thrilled to assist Eni’s team on this transaction. It was great to work with Eni in Egypt again, having first worked with Eni in Egypt on its successful sales of interests in the supergiant Zohr gas field in 2016. We wish Apex all the best as it continues to develop its business in Egypt.
Bracewell lawyers involved in the transaction include:
Partners: Alastair Young and Adam Blythe
Senior Counsel: Nicholas Neuberger Senior Associate: Catherine Todd
In December 2020, Eni announced that it had reached a dispute settlement agreement with the Egyptian government and Naturgy, which involved the following terms¹²:
– UFG would waive its compensation claim and withdraw from the Damietta LNG project, transferring its 50% stake to Eni and its 10% stake to the Egyptian government.
– Eni would increase its stake in the Damietta LNG project to 50%, while the Egyptian Natural Gas Holding Company (EGAS) would hold 40% and the Egyptian General Petroleum Corporation (EGPC) would hold 10%.
– Eni would restart the Damietta LNG plant and export LNG cargoes to Europe and Italy, in line with its strategy to reach net-zero emissions by 2050.
– Eni would optimize its exploration and production activities in Egypt and valorize the Egyptian gas reserves by increasing the jointly operated gas production.
– Eni would acquire new exploration rights in the Nile Delta, Eastern Mediterranean and Western Desert regions.
The agreement was finalized in March 2021, and the Damietta LNG plant resumed production in February 2021, exporting three cargoes so far³. The agreement was hailed as a win-win solution for all parties, as it resolved the long-standing dispute, enhanced the cooperation between Eni and the Egyptian government, and promoted the Egyptian gas export to Europe.
Another legal aspect of the collaboration between Eni and the Egyptian government is the regulatory framework that governs the energy sector in Egypt. According to a report by Eni, the main laws and regulations that apply to the oil and gas industry in Egypt are:
– Law No. 66 of 1953, which established EGPC as the state-owned entity responsible for the exploration, production, refining, transportation and distribution of oil and gas in Egypt.
– Law No. 86 of 1956, which granted EGPC the exclusive right to explore and exploit the hydrocarbon resources in Egypt and to enter into concession agreements with foreign companies.
– Law No. 217 of 1958, which established EGAS as the state-owned entity responsible for the natural gas activities in Egypt, including the planning, development, operation and management of the gas infrastructure and facilities.
– Law No. 4 of 1994, which established the Egyptian Electric Utility and Consumer Protection Regulatory Agency (EgyptERA) as the regulatory authority for the electricity sector in Egypt, including the licensing, tariff setting, quality control and consumer protection.
– Law No. 102 of 1986, which established the Egyptian Environmental Affairs Agency (EEAA) as the environmental authority in Egypt, responsible for the formulation and implementation of the environmental policies, standards and regulations.
Eni, as a foreign company operating in Egypt, has to comply with these laws and regulations, as well as the terms and conditions of the concession agreements it signs with EGPC and EGAS. Eni also has to adhere to the international standards and best practices in the oil and gas industry, such as the health, safety and environmental (HSE) guidelines, the corporate social responsibility (CSR) principles, and the anti-corruption and anti-bribery measures.
In conclusion, the collaboration between Eni and the Egyptian government has been fruitful and beneficial for both parties, as it has contributed to the development of the energy sector and the economic growth in Egypt. However, the collaboration has also faced some legal challenges and disputes, which have been resolved through a new agreement that enhanced the mutual trust and cooperation. The legal landscape of the collaboration is shaped by the national and international laws and regulations that govern the energy sector in Egypt, as well as the contractual obligations and commitments that Eni and the Egyptian government have agreed upon.
Source:
(1) Eni and EGAS agree to increase Egypt’s gas production and supply. https://www.eni.com/en-IT/media/press-release/2022/04/eni-and-egas-agree-increase-egypt-s-gas-production-and-supply.html.
(2) Italian giant Eni settles Egyptian LNG dispute | Upstream Online. https://www.upstreamonline.com/lng/italian-giant-eni-settles-egyptian-lng-dispute/2-1-978355.
(3) Eni in Egypt. https://www.eni.com/assets/documents/eni_egitto_2016.pdf.
