Morsi's Failure in Egypt: The Impact of Energy-Supply Chains

On January 14, 2011, thousands poured into Habib Bourguiba Street, the symbolic heart of Tunis. They streamed in front of the Interior Ministry and broke through security barriers as they raced through downtown streets. Chanting and waving placards, they denounced the security forces and the party that had been in power since Tunisia's independence from France in 1956. The protesters called for karama (dignity), for hurriyyah (freedom) and for President Ben Ali to step down. By late afternoon, Ben Ali and his family had taken the presidential plane to Saudi Arabia, leaving the country in chaos and the government in shambles.

A few days later, on January 25, a similar scenario unfolded in Egypt. Young protesters communicating via social media agreed that, if sudden change was possible in Tunisia, it might also be possible in Egypt. Hundreds of thousands of protesters poured into Tahrir Square, the symbolic heart of Cairo, and many other regions in Egypt. Chanting and waving, they denounced President Hosni Mubarak, who had been in power since October 14, 1981, and called for his resignation. Mubarak made three speeches stating that he would not leave, but would die on Egyptian soil.¹ Protesters paid no attention, labeling his words a hoax designed to help him stay in power. In a state-televised broadcast on February 1, 2011, Mubarak announced that he would not seek re-election in September but would like to finish his current term. He also promised constitutional reform. The protesters did not accept this compromise, and violent demonstrations broke out in front of the presidential palace. On February 11, Vice President Omar Suleiman announced that Mubarak had resigned and that power would be turned over to the Egyptian military.

Mohammed Morsi, who had initially been nominated as a backup candidate, emerged as the new Muslim Brotherhood choice for president after the well-known frontrunner, Khairat El-Shater, was disqualified. In the first round of Egypt's first post-Mubarak presidential elections, Morsi obtained 25.5 percent of the vote. He was officially announced as president on June 24, 2012, following a run-off with former, Mubarak-era Prime Minister Ahmed Shafik. Morsi won 51.73 percent of the vote.

The last months of Morsi's presidency a year later were plagued by recurrent fuel shortages, power cuts and low levels of public service. Prices, unemployment and the public debt all increased, while the local currency decreased in value. The budget deficit grew worse, Egypt's credit rating declined to unprecedented levels, and the country failed to obtain loans, private foreign aid, or assistance from the International Monetary Fund.

In early July 2012, less than one year after Morsi's election, the energy crisis fueled the nation's frustration over what was perceived to be the government's inefficiency. A study of the energy supply chain reveals that the energy crisis seems to have been the spark that led to the coup de grace of the Morsi presidency.² I will try to unearth the truth that lies in the facts of the matter. How did Egypt go from having long lines for gasoline to having such an abundant supply that the lines disappeared one day after the army jailed Morsi? This simple fact indicates there are fundamental problems that need to be investigated.

LITERATURE REVIEW

The few existing academic studies that have dealt with Morsi's presidency were conducted before Morsi was ousted by the army. Özhan studied the impact of three decrees issued by President Morsi:³

(1) The decree of August 8, 2012, which removed the chief of the intelligence service, Mourad Mowafi, and forced the top names in the Supreme Council of the Armed Forces (SCAF) and intelligence to resign. From that time on, in its battle against the tutelage of the SCAF, President Morsi struggled not only to come to power but also to remain in power.

(2) The decree of October 12, 2012, which called for Egypt's prosecutor general, Abdel Meguid Mahmoud, to resign from office. Mahmoud was then appointed Egypt's ambassador to the Vatican, but refused his appointment with the encouragement of the Egyptian Judges' Club, which boasts a number of pro-Mubarak jurists, along with other opposition groups. He stated that "according to Egyptian law, a judicial body could not be dismissed by executive authority," and also said that "he would remain in office" in defiance of Morsi's orders.

(3) The decree of November 22, 2012, which divided the Egyptians. With it, Morsi granted himself broad powers and took advantage of his new authority to order the retrial of Mubarak. The opposition claimed that the edict violated the principle of the separation of powers and opened the door for a "new dictatorship to emerge." It was, they believed, harmful to democracy and the stability of the country. On the opposite side, Morsi supporters claimed that this edict was issued in the same spirit as the moves that sent the military back to their barracks in August 2012: it was issued with the aim of realizing the goals of the revolution. Even though this decree stopped the de facto state of coup that had been maintained by the military and judiciary, it received strong reactions.

Ahmed Abd Rabou analysed the situation at the beginning of Morsi's presidency.⁴ According to Rabou, Morsi was torn between the constitutional and revolutionary sources of his legitimacy and, as a result, needed to make compromises to satisfy all parties involved.

Mohammed Ayatollahi Tabaar analysed three dilemmas: security, governance and the security sector.⁵ The Egyptian state, Tabaar claims, will dissolve into a condition of anarchy, giving rise to a security dilemma and a spiral of violence toward large-scale, sustained collective violence. Morsi failed to manage a series of state crises effectively. Consequently, opposition to Morsi's rule began to coalesce among a wide array of activists from groups as diverse as the April 6th Youth Movement, liberal political parties, the Coptic Church, the Grand Sheikh of al-Azhar, the salafist al-Nour party, and even remnants of the Mubarak regime. Tabaar noticed that Egypt's state security apparatus has remained intact and largely unreformed during the change in regime, which means that there has been little opportunity for the development of competition (and associated violent confrontation).

THE ENERGY SUPPLY CHAIN

Oil and Gas Extraction

According to the 2012 BP Statistical Energy Survey,⁷ Egypt had proven oil reserves of 4.3 billion barrels at the end of 2011, equivalent to 16 years' worth of current production. Egypt is an important non-OPEC energy producer, possessing the sixth-largest proven oil reserves in Africa. Over half of these reserves are offshore. Although Egypt is not a member of OPEC, it is a member of the Organization of Arab Petroleum Exporting Countries. The largest number of onshore oil fields lie to the west of the Nile River, the largest number of gas fields to the east (Figure 2). Approximately 50 percent of Egypt's oil production comes from the Gulf of Suez.

As of 2005, the country's reserves of natural gas were estimated at 66 trillion cubic feet (tcf), the third-largest supply in Africa. Other probable reserves have been placed at or above 120 tcf. Since the early 1990s, significant deposits of natural gas have been found in the Western Desert, the Nile Delta and offshore from the delta. Domestic consumption of natural gas has also risen as a result of thermal power that has converted from oil to natural gas. As of 2010, Egypt's production and consumption of natural gas were estimated at 2,200 and 1,600 billion cubic feet (bcf), respectively (Figure 3). The difference, about 600 bcf, was exported.

Transportation from the Fields

In Egypt, crude oil is transported by a 666-kilometer pipeline. Gas is also transported by pipeline from the field of extraction to consumption centers. Egypt in addition exports LNG (liquefied natural gas), with a capacity of 268 bcf per year. The Spanish firm Union Fenosa was involved in this project, constructing a two-train liquefaction facility at Damietta, which shipped its first cargo in January 2005.

Oil Refineries in Egypt

Egypt is the major refining center in Africa after South Africa. It's nine refineries, concentrated in the northeast (Cairo, Alexandria, Suez), have a total capacity of 677,300 barrels per day (b/d). The Egyptian General Petroleum Corporation (EGPC) operates all but two, the MIDOR and El Mex Refineries in Alexandria. Their capacities, according to Mbendi information service, are as follows:⁸

1. El Mex refinery in Alexandria, which is operated by the Alexandria Petroleum Company, has a capacity of 100,000 b/d, and 22,500 b/d of vacuum distillation capacity. In addition, it has a lube-base oil-manufacturing plant and a bitumen unit.

2. Cairo Petroleum Refining Company in Mostorod, near Cairo, has a capacity of 145,000 b/d.

3. The El-Nasr Petroleum Company near Suez has a capacity of 99,300 b/d. It has a 35,000 b/d hydrocracker and a bitumen unit.

4. The Amiriyah Petroleum Refining Company in Alexandria has a capacity of 78,000 b/d and a 15,000 b/d vacuum distillation unit. It has a 9,000 b/d alkylation unit, and a 2,000 b/d lube-base oil-manufacturing unit.

5. The Suez Petroleum Processing Company near Suez has a capacity of 66,400 b/d and a 9,500 b/d vacuum distillation unit. It has a 16,400 b/d delayed coker and a 1,000 b/d lube-base oil unit.

6. The Asyut Petroleum Refining Company near the center of Egypt has a capacity of 47,000 b/d. This simple refinery has a small naphtha reformer and is designed to supply product to the central and southern regions of the country.

7. The Tanta refinery near Port Said, which is operated by the Cairo Petroleum Refining Company, has a capacity of 35,000 b/d. Other than a small hydro-treating unit, it has no upgrading capacity.

8. The El-Nasr Petroleum Company, which operates the small Wadi Feran refinery on the Red Sea in the Gulf of Suez, has a capacity of 7,000 b/d and was designed for servicing operations related to the Suez Canal.

9. The Middle East Oil Refinery (MIDOR), which was completed in 2002 in the Amiriyah Free Zone, Alexandria, has a capacity of 100,000 b/d, a 35,000 b/d hydrocracker, a 22,800 b/d coker and a 10,700 b/d isomerization unit. This is the only privately owned refinery in Egypt. It was originally a joint Egyptian/Israeli venture, but the Israeli shareholders sold out to the Egyptian National Bank in 2001.

It is important to mention that retired military officers manage some of these refineries.⁹

Transporting Product

A 596 km pipeline facilitates the transportation of petroleum products from the refineries to distribution centers. The transportation from distribution centers to gas stations is undertaken by trucks owned by Misr Petroleum, a publicly held company responsible for the distribution of petroleum resources across Egypt.

Gas Station Network

Wataniyya, a company under the control of the Egyptian army, owns numerous gas stations. There are also government and private stations. There is no available data regarding the number of gas stations in Egypt and how they are distributed across the country. In Cairo, there may be 2,480 gas stations, according to Khalid El Shamy, a member of the rebel movement, who cited the number in a July 2013 expose of the disappearance of gasoline stations.¹⁰

Furthermore, according to Effat Mostafa,¹¹ the Supreme Committee for Fuel in Egypt indicated at the beginning of 2013 that it was necessary to know how petroleum products are distributed within Egypt. In an effort to ensure the legal and legitimate delivery of petroleum products to distribution outlets as well as commercial and industrial companies, the committee has been working for months to analyze the total number of gas stations in Egypt. The committee, in cooperation with the inspection team of the Ministry of Supply and the Ministry of Interior, is working to secure the distribution channels and processes. This information, provided by Mostafa, indicates that authorities in Egypt do not have a clear idea how the distribution activities are being carried out.

ANALYSIS

Morsi won a hard-fought election and was then expected to deliver what he had promised to the Egyptian people, whose patience was limited due to years of oppression under a government that rarely kept its promises. The first elected leader was faring well when he vowed to stamp out corruption and remove some powerful military personnel from his administration in an effort to strengthen democracy. He also, in consultation with the United States, successfully brokered a ceasefire between Israel and the Palestinians in Gaza.

A 20 Percent Shortage

During the last 10 days of Morsi's presidency, Egypt witnessed an energy crisis of unprecedented magnitude that caused endless lines at gas stations in various parts of the country. The city of Cairo was paralyzed, its traffic virtually at a standstill.

According to a Facebook site (https://www.facebook.com/MorsiFirstYear) built to celebrate Morsi's 360 days in office, the causes of the crisis were the ongoing smuggling operations and the refusal of warehouses and gas stations to enforce the new distribution laws. These laws implemented the use of "smart cards" for the distribution of benzene and diesel to reduce smuggling and enforce government subsidies. Furthermore, the Egyptian presidency reported that the fuel crisis was partly due to an "increased market demand for natural gas, and smuggling operations, which amounted to 380.5 million liters of diesel and 52.1 million liters of gasoline in the period from June 2012 to May 2013." Other former officials of the Ministry of Petroleum said that the significant shortfall in supply was due to technical malfunctions in the two largest oil refineries in Egypt.¹²

In an article in the Daily News,¹³ Sherif Haddara, the last minister of petroleum in the Morsi cabinet, stated that additional quantities of diesel were pumped at the time of the crisis (June 20 to July 1). The amount of diesel pumped increased by 7 percent (to 37,000 tons a day). The amount of diesel or gasoline pumped increased by 20 percent, which amounted to an average of 17,000 tons per day, compared to the usual 15,500 tons. Despite an increase in pumping, the crisis worsened.

However, according to Najim Abdoul-Ilah,12 Mahmoud Latif, former minister of petroleum, claimed that the technical malfunction of two refineries, Mostorod and Amiriyah, in the north of Egypt, caused a dramatic 20 percent shortage in stock in both warehouses and gas stations.

Despite the many official statements released during the crisis, Khalid El-Shamy's conclusions on the matter ring true:10 of the 2,480 gas stations around Cairo, the 400 state gas stations had only one pump; privately owned gas stations had multiple pumps. The multi-pump stations, which are owned by supporters of the former regime, had an interest in prolonging the crisis: they were able to sell their fuel on the black market at a significant profit.

According to former Prime Minister Hisham Qandil,¹⁴ Egypt was producing about 85 percent of its own gasoline and 55 percent of its own diesel fuel as of the end of June; this meant that its import of foreign gasoline was relatively minimal. This should have confined the crisis to diesel consumption, but since all sectors were affected, there was, without doubt, some sort of fraud involved.

Repeated Power Outages

Many sources indicate that the proportion of the electrical power deficit in the period from June 2012 to June 2013 amounted to 25 percent, or 5,000 megawatts. The country was, for the first time, witnessing frequent power outages during the winter, not just in the hot summer. In a public speech, the ousted president stated that the power outages were due to use of an additional 7 million air conditioners because of the high temperatures.

The Ministry of Electricity attributed the frequent power outages to shortages in the fuel that was used in the gasoline- and diesel-operated electricity-generating plant.¹⁵ Stations eventually had to start using their safety stock in order to operate. In some cases, a station's safety stock would allow for 15 days of use but was reduced due to the crisis to only one day. This was exemplified by the cases of Karimat and Tabin, south of Cairo, and Echabab in Ismailia.

The crisis started in the summer of 2010, which saw a 15 percent deficit in supply. By the following year, the crisis was said to have subsided because of the revolution in January. The activities of the industrial and tourism industries decreased in 2011; and since the industrial sector had consumed about 35 percent of the generated power prior to the revolution, the drop in activity also meant the demand for power fell.

People thought the revolution of 2011 had resulted in a conclusion to the crisis. Reality, however, demonstrated that the crisis had simply been postponed; there was no investment made to increase production after the 15 percent deficit of 2010. After the three free elections of 2012, Morsi became president on July 1, and economic activities seemed to return to full operation. Tourism improved, but soon the energy crisis began. With tourism at its peak in the summer, power outages became a problem and the energy shortage a looming threat. Waiting for the crisis to "magically disappear," the government failed to act swiftly and effectively. This gave the impression that it was idle and incompetent, a conclusion drawn from videos posted on Aljazeera, thousands of comments posted by people on online news sites, and thousands of reactions to the newspapers Elshaab, Alquds-Al-Arabi, Aljazeera, Freedom and Justice Gate, and Masralarabia.

Therefore, the general consensus on President Morsi is that the pressing economic issues that Egypt faced during his presidency caused his fall. His inability to present the people with a comprehensible solution to problems that affected the nation as a whole resulted in mass frustration. Upon his election, Morsi had promised to resolve in days the problems that plagued the daily lives of Egyptians, including the shortages of oil and gas and the heaps of garbage that littered the country. He called his program an "Egyptian revival of an Islamic base."¹⁶ However, a program that should have rebuilt the country simply served as a reminder of Morsi's unfulfilled promises. The eagerness of the media to portray the Morsi government in a bad light added fuel to the fire. Morsi simply could not deliver on the things that he had promised to an already incredibly impatient populace, thus giving ammunition to his adversaries. Some eagerness to oust the president was fueled by a yearning for the "old days," marked by corruption but also by a lack of information. This resulted in some of the nation's indifference towards the government's activities.

Morsi's fall gave hope to those who wanted to restore the old regime and a golden opportunity to the ambitious few who saw themselves as potential leaders of the nation. The turmoil that resulted from the deposition of the president simply served as a means of highlighting ever-increasing problems: unemployment rates at their peak, increasingly frequent power outages, and an on-going fuel-supply crisis. The immediate future of Egypt was, at best, discouraging.

Many Egyptians were frustrated that the uprising that ousted Hosni Mubarak in February 2011 had not yielded the economic growth they had expected. Furthermore, the energy crisis was a coup de grace for the Morsi presidency.

Military Involvement

The economic activities of the Egyptian army are rarely observed in other countries. This situation was analyzed recently by Yezid Sayigh,a researcher at the Carnegie Middle East Center. According to him, the officers' republic manages its own official military economy. The income generated does not go through the public treasury. A portion is spent on officers' allowances, housing and other improvements to living standards. The remainder is either reinvested or used to complement spending on maintenance, operations and procurement not covered by the defense budget or U.S. military assistance.

"From needles to rockets" is the common phrase used in Egypt to describe the Army's involvement in the economy. "The question isn't what sectors do they invest in, but rather: is there a sector that they don't invest in?" said Robert Springborg, an expert on Egypt's armed forces and a professor in the Department of National Security at the Naval Postgraduate School in Monterey, California.¹⁷ Thus, the Egyptian army has been involved in all the activities of the energy-supply chain: oil refineries, distribution and the gas-station network.

An article by Mike Giglio of the Daily Beast details the extent to which the youth rebel group Tamarod and the Army collaborated in the period leading up to the coup.¹⁸ According to Giglio, in the days and weeks before the protests, Waleed al-Masry, a central organizer, was in regular contact with a group of retired military officers. These officers, Masry says, promised to protect the protesters who showed up on June 30. They said they were reaching out on behalf of the Army's current commanders. "We didn't ask them for help. They just offered it," Masry says. "And we welcomed that."

Masry was a key figure in Tamarod, whose campaign to collect signatures against Morsi snowballed into the protests that sparked his ouster. The army was not happy with a civilian president in office. Signatures mean little, and this increased the desire to push the president to step down. The army encouraged an intensified street-protest plan, supporting the very actions it cited as the justification for a coup. "The armed forces couldn't plug its ears or close its eyes as the movement and demands of the masses [called] for them to play a national role," Egypt's army chief, Gen. Abdel Fattah Al-Sisi, said as he announced Morsi's removal on July 3.

Moheb Doss, one of Tamarod's cofounders and main organizers, says the group's leaders received communications from the Army and other state institutions that had turned on Morsi in two ways. First, he says, they hinted at their intentions via media statements that all Egyptians could see: "The country's institutions — the police, the Army, the judges — were clear from their messages in the media that they were in favor of getting rid of Morsi," he says. The second way, Doss adds, "is individual communications between Tamarod people and state institutions."

Another Tamarod organizer recounts that he took part in a meeting with colleagues and former military officers in the basement of a popular Cairo restaurant the week before the protests: "[The officers] were the bridge between us and the Army during the preparations for June 30."¹⁹ At this meeting, the organizer says, the former officers promised security on June 30. "They told us, 'you are forbidden from chanting against the military or police. Only focus on Egypt, and we will help you,'" Adel says. A former general, Abdul Rafe Darwish, was one of the key organizers of the protest. Although retired for 23 years, he says, "I still have connections with the commanders here." Darwish, who heads a small political party, says he helped protesters with security. "I protected them in Tahrir and in other governorates," he explains, though he declined to detail how. He adds that he advised protest leaders to stay peaceful: "I told them no fighting. No weapons. No violence. Everything peacefully." Darwish says he acted as a link between protest leaders and military officials, claiming that he "conferenced" between the two sides.

It is clear that, to help Tamarod organizers, the Army fueled the energy crisis. To most Egyptians, it was also clear who was to blame for this mess: President Mohamed Morsi and his Muslim Brotherhood. The short supply of energy initiated a power crisis. In some areas of Cairo and in many provinces, the electricity supply failed every day for 12 hours straight. And because there was no electricity and not enough fuel for adequate transportation, the supply of bread and food was also scarce. On June 30 and the days following, hungry people who on top of everything did not agree with the political style of the Brotherhood revolted in a very angry manner.

The evidence was the sudden end to Egypt's "crippling energy shortages," as reported by Ben Hubbard and David D. Kirkpatrick in The New York Times:²⁰ The Muslim Brotherhood and Morsi's supporters say the sudden turnaround proves that their opponents conspired to make Morsi fail. Not only did police officers seem to disappear, but the state agencies responsible for providing electricity and ensuring gas supplies failed so fundamentally that gas lines and rolling blackouts fed widespread anger and frustration.

The journalist Geoffrey Ingersoll reported that according to Naser el-Farash, who served as the spokesman for the Ministry of Supply and Internal Trade under Morsi, "This was preparing for the coup," while "different circles in the state, from the storage facilities to the cars that transport petrol products to the gas stations, all participated in creating the crisis."²¹

In many ways, President Morsi was responsible for his own demise, but in others, everyone from young rebels to police to the military to even the people managing the oil supply conspired to degrade and ultimately overthrow Morsi. The sudden turnaround in the energy crisis proves that his opponents conspired to make Morsi fail. It seems apparent that organized groups put a stranglehold on an already ailing system. That organization was staggeringly complex and detailed.

Since the military ousted President Morsi, the waiting lines at gas stations have disappeared, power cuts have stopped, and the police have returned to the street. The apparently miraculous end to the crippling energy shortages and the re-emergence of the police lead to the conclusion that the army was involved in the crisis. It is impossible to resolve a capacity problem, if it is real, in just 24 hours. What happened is that after ousting the president, the army injected a large quantity of gasoline into the market to fix the shortage, which it had deliberately created through the many companies that it controlled.

CONCLUSION

A few weeks before President Morsi was ousted, it was the rule for motorists to go to the gas pump, open the hood, position the hose, and prepare for a long wait. It was not a comfortable or productive time. About 24 hours after Morsi was ousted, the situation changed dramatically. It was even possible to choose the natural-gas dispenser at any gas station.

I have attempted to verify two hypotheses: first, the energy crisis in Egypt and the dislocation of the gasoline supply chain created a coup de grace for the Morsi presidency. Second, the Egyptian army backed the energy crisis, and when Morsi was ousted, it resolved the problem.

After analysing the testimonies of many players involved in the Morsi ouster, reported by many national and international journalists, the two hypotheses have been verified.

Six months after the president's ouster, the situation in Egypt remains critical. Every day, protesters defy the authorities; police violence has increased significantly. At least 54 people were reported dead in clashes with anti-government protesters on the third anniversary (January 25, 2014) of the uprising that culminated in the overthrow of President Mubarak. This research may be updated when more documents become available and the members of Morsi's cabinet and government are free to provide their accounts of the events that unfolded during the last months of Morsi's presidency.