Petrochem companies to be subject to 20% on profits in Egypt as per new legislation

30-Aug-08

The change in legislation of Egypt's energy sector strategy has perplexed the major international oil companies. Among other sector companies, petrochemical companies will be subject to a 20% tax on profits as per the change in legislation in Egypt. Moreover, these companies will also have to shell out roughly twice the amount for their gas supplies relative to what paid before this change. Reliance Industries' plan to set up a petroleum refinery and petrochemical complex along with Essar at an investment of US$13.5 bln had been reconsidered recently by the investing companies. Also, one company planning to set up a multi billion plant in Egypt has withdrawn its proposals and several others are still mulling over their spending proposals. Nevertheless, the Egyptian government is set to make amends by agreeing to pay energy companies a higher price for the natural gas they find in a new licensing round in the Mediterranean Sea after repeated appeals by the oil companies. The new legislation for the energy sector included an immediate levying of tax and rise in prices for the natural gas in Egypt's free trade zone. Previous to this unwelcome change in Cairo's energy sector, the nation enjoyed a long term economic growth and investments form a number of oil companies. In 2007, Cairo attracted more than US$11 bln in foreign direct investment, a figure that is expected to rise to $15 bln this year. However, the change in legislation for energy sectors is expected to be a slow down the FDI inflows into the nation. While, the oil companies may still continue to invest in Cairo, other sectors including petrochemicals will have apprehensions to do the same.