Comments Off on Paying for Protection Is Part of the Cost of Doing Business for Oil and Gas Firms in Egypt

From the frequent breakdowns in security to successive governments’ non-payment of company dues, oil and gas firms in Egypt have had a rough ride over the past few years. But for those operating in the country’s sparsely populated interior, no chore has proven as taxing as satisfying the Sahara Desert’s native inhabitants.

For centuries, roaming Bedouin tribes levied tribute from passing camel caravans to guarantee their safe passage, and in its modern guise, this habit has translated into demands for “protection money” from businesses whose property lies within their arid turf. (See related story: “Can Egypt’s Crisis Help Clean Energy Gain Traction?”)

Sixteen out of Egypt’s 20 cement factories pay large annual sums to prevent the vandalism of their facilities, according to a senior cement executive, and most energy firms feel themselves similarly ill-placed to reject these overtures. Their operations are often in isolated areas far from the buzzy population centers, while their expensive equipment and large indefensible fields make them extra vulnerable to exploitative local clans.

The Foreign Corrupt Practices Act legally prevents US companies from doling out bribe money, but the expense of dealing with disrupted drilling and exploratory work has compelled them to reach an alternative settlement.

No US firm will speak publicly of the measures they take to avoid open appeasement of Bedouin claims, but in private conversations, employees of American and European oil giants have spoken of hiring tribesmen for non-existent or unnecessary jobs. Usually they’re listed as security guards or dump truck drivers ferrying sand and gravel, but they seldom turn up to except to collect their monthly salaries.

This arrangement has afforded most energy firms a largely hassle-free hand to work in the vast, poorly policed expanses that flank the Nile river. On occasion, however, inter-tribal tensions, which have been compounded by suspicions over uneven payments to each clan, have overflowed into pitched fighting on oil company land. Two rival families are said to have fired rockets and automatic weapons at one another during a territorial dispute outside one of the Texas-based Apache Corporation’s compounds.

But this largely cozy relationship really hit the rocks during the security vacuum that followed the toppling of Egypt’s longtime dictator Hosni Mubarak in early 2011. Bedouin tribes were seemingly emboldened by the security forces’ retreat and confinement to their barracks, and hiked their demands for increased salaries and perks accordingly (it’s because of inflation, the companies were half-jokingly informed).

Egyptian firms are not bound by anti-bribery legislation, and they’re said to receive additional protections from sympathetic police, but one domestic oil logistics company found itself in a tough position after tribesmen in the Sinai Peninsula took advantage of the post-revolutionary flux to quadruple the fee they charged to admit trucks onto the company’s base.

The resource-rich Sinai remains the scene of the Egyptian oil world’s greatest challenge. An existing underwater pipeline, which once delivered gas to Israel and Jordan and may soon begin transporting fuel from Israeli offshore fields to Cairo, has been attacked on least 27 occasions since 2011, and government approaches to local tribal sheikhs have yielded few results so far.

Elsewhere in Egypt, energy workers say the situation with the Bedouin has stabilized since the military’s return to power in a coup last summer. Many clans have tempered their demands, and become less assertive in their negotiations as the security services re-impose their will. But the murder of 23 Egyptian soldiers by suspected jihadists in July not far from some of the Western desert’s most developed oil fields has heralded the arrival of a new security menace.