* Banks increasingly reluctant to open letters of credit
* Crude oil, fuel tenders cancelled
* Egypt's pool of suppliers shrinking
By Jessica Donati and Patrick Werr
LONDON/CAIRO, Aug 23 Egypt is finding it
increasingly difficult to import fuel as foreign banks and
traders pull the plug on credit and charge high premiums due to
concerns over its financial and political stability, trading and
banking sources said.
Sporadic international loans have so far helped, and the
country requested up to $4.8 billion from the International
Monetary Fund (IMF) on Wednesday, but without such ad-hoc
interventions, Egypt could quickly end up like debt-stricken
Greece, dependent on a narrow pool of traders charging richly
That could put a dangerous strain on Egypt's finances, which
are already under pressure from high fuel subsidies it can ill
afford to maintain but dare not cut in the precarious first
months of new Islamist President Mohamed Mursi's tenure.
Since the election of Mursi in June this year following the
overthrow of Hosni Mubarak in 2011, the number of suppliers has
shrunk as oil traders are struggling to secure letters of credit
"As soon as they changed the president, banks raised the
costs of letters of credit involving EGPC," one trader involved
in supplying Egypt said, referring to Egyptian General Petroleum
A spokesman for Egypt's oil ministry declined to comment and
asked for queries to be directed to EGPC. No one at EGPC was
available for official comment on Wednesday and Thursday.
Mursi took the world aback when he dismissed top generals
earlier this month, raising fears that the army, from which all
Egypt's presidents had come for six decades after ousting the
monarchy, might retaliate, though they have so far raised no
In the strongest evidence to date of rising fuel import
difficulties, traders said Egypt had to cancel a tender to buy
crude earlier this month after receiving no bids, and also had
to scrap parts of a gasoline import tender because the prices on
offer were too high.
"The costs that banks apply to any transaction involving
EGPC are now double that of a normal transaction," another
trader said. Some tenders have been relaunched with new terms.
An official at EGPC, who declined to be named because he is
not allowed to speak to the press, confirmed that some tenders
had been delayed for a few days but declined to discuss reasons
Egypt has already been struggling to maintain its massive
oil subsidies since the revolution last year, as oil prices
soared. The subsidies ballooned by 40 percent to almost $16
billion for the year ended June 30, about a fifth of its entire
Egypt's economy grew 2 percent in the 2011/12 financial
year, down from 5 percent or more in previous years, as the
revolution frightened away tourists and foreign investors and
sparked a wave of strikes.
Cutting fuel subsidies would be a hard policy to swallow for
Egyptians expecting a higher quality of life since the end of
the authoritarian Mubarak's 30-year reign.
LACK OF TRUST
Problems began building in May, when Egypt struggled to
obtain timely letters of credit from major banks, which
guarantee that a buyer's payment to a seller will be received on
time and in full. As a result, traders delayed discharging
Since last year, Egypt has tried to do deals on a higher
risk and more expensive open credit basis, usually given to a
buyer without security.
But many traders were left in financial difficulties when
state oil company EGPC took many months longer than expected to
pay the bills, several traders said.
EGPC remains behind on payments. One trader said his company
was owed demurrage - the charges paid by a charterer for keeping
a vessel longer than the agreed unloading period - as a result
of the shipping backlog in May. Vivo, a downstream branch of
trading major Vitol, is also believed to be owed a large sum for
fuels, another trader said. Vitol declined to comment.
EGPC's latest attempt to go back to open credit failed.
The company was forced to cancel a recent crude oil tender
after facing resistance to the terms and has reissued the tender
with the promise of a letter of credit.
"I would be very surprised if any company would deliver on
open credit these days after the experience of the last 12
months," one fuel supplier said.
Another trader said his company had to stop taking part in
EGPC tenders as European banks would not supply the credit.
Major trading houses Vitol and Glencore remain
consistent diesel suppliers because of their deep pockets and
their willingness to take risk.
"They use their own cash and they don't need credit lines
from banks to finance their cargoes. So this could be one of the
ways to exist," said one trader.
The development mirrors the situation in Greece, which also
survives on oil from the same traders.
RISK ON YOUR SHOULDERS
While the banks are still financing Egypt, rules are
becoming more stringent.
Though EGPC still gets letters of credit from banks, the
trader needs to have access to confirmation lines with a first
class European bank.
"These are very limited now unless you are taking the
Egyptian risk on your own shoulders," one trader said.
"The complication comes from some offshore banks when they
open letters of credit and they reduce the credit period from
the usual seven days to three days, and in some cases against
cash," said a source from a Cairo-based global bank.
Traders noted that recent influxes of cash into Egypt have
eased some worries.
Saudi-based Islamic Development Bank (IDB) provided $1
billion to finance energy and food imports in July, while Qatar
lent $2 billion last week.
The latest version of the revived crude tender offers a
letter of credit, but only from Egypt's national bank, which are
not acceptable to most traders.
The rest will have to decide whether to take the risk.
"People are just going ahead on gut feeling," one of the