eatco_suez petrochemicals complex_gas to polyolefins

PB2001-102056

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EATCO - Suez Petrochemicals ComplexNatural Gas to Polyolefins Project (GTP)

Suez, Egypt

Final ReportVolume One - Project Information Memorandum

For:Egyptian Arab Trading Co. (EATCO)

Prepared by:

UOPLLC

&

Bank ofAmerica, N.A.Financial Advisor

Together with:

Kvaerner U.S. Inc.Engineering Consultant

CMAI Chemical Marketing Associates, Inc.Market Consultant

Nexant Inc.Environmental Consultant

This version ofthe feasibility study report excludes certain details that are provided only in the full confidential versionofthe report.

REPRODUCED BY: ~u.s. Department of Commerce

National Technical Information ServiceSpringfield, Virginia 22161

NOTICE

This document has been reproduced from the best copy furnished to NTISby the U.S. Trade and Development Agency. Although it is recognized thatcertain portions may be illegible, it is beingreleased in the interest ofmaking available as much information as possible.

Please direct questions about illegible pages to:

The LibraryU.S. Trade and Development AgencyTelephone: 703-875-4357

Thank you.

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Feasibility Study Report - Volume 1 of2EATCO - Suez Petrochemical Complex GTP ProjectSuez, Egypt

Important Notice

The intended purpose of this report is EATCO's evaluation of thefeasibility ofinstalling a GTP Plant only and it does not constitute asolicitation, or offer or invitation to EATCO or any third party tolend or invest or otherwise participate in the GTP Plant. This reportis not intended to provide the sole basis of any credit or otherfinancial or non-financial evaluation. Any potential joint venturepartner, lender, investor or other participant to whom a copy ofthisreport is furnished should determine for itself the relevance of theinformation contained herein and its interest in participating in theGTP Plant should be based upon such investigation, as it deemsnecessary andprudent. Neither UOP LLC nor its subcontractors norany of their respective directors, employees, representatives oragents makes any warranty, representation or guarantee what soever, express or implied, in respect to the correctness, and/oraccuracy of the information, conclusions, results, opinions and/orother data contained in this report and any reliance by any party onthe information, conclusions, results, opinions and/or other data inthis report is at the sole risk ofsuch party.

PROTECTED UNDER INTERNA TlONAL COPYRIGHTALL RIGHTS RESERVEDNATIONAL TECHNICAL INFORMATION SERVICEU.S. DEPARTMENT OF COMMERCE

ii

June, 2000

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This report was funded in part by Egyptian Arab Trading Company (EATCO), the Egyptian Sponsor. The opinions,fmdings, conclusions, or recommendations expressed in this document are those of the author(s) and do notnecessarily represent the official position or policies ofEATCO.

Egyptian Arab Trading Co. (EATCO), headquartered in Cairo, Egypt is a holding company for investments in theoil and gas industry in Egypt.

UOP LLC, headquartered in Des Plaines, Illinois, USA, is a leading international supplier and licensor of processtechnology, catalysts, adsorbents, process plants, and technical services to the petroleum refining, petrochemical,and gas processing industries.

BankofAmerica. ~~-

•Feasibility Study Report - Volume 1 of2EA TCO - Suez Petrochemical Complex GTP ProjectSuez, Egypt

Table of ContentsVolume I - Project Information Memorandum

iii

June, 2000

Preface page V

Participants in the Feasibility Study page VI

Contacts page VII

1. Executive Summary

1.1 Project Overview1.2 Project Technical Information1.3 Project Cost1.4 Financial Analysis Results1.5 Environmental Considerations

2. Project Information

2.1 Project Description

• 2.2 Location ofProject2.3 Project Ownership2.4 Status ofKey Elements ofProject Structure

3. Feedstock Supply & Product Off-take3.1 Feedstock Supply3.2 Product Offtake

4. Project Costs

5. Financing Plans5.1 Potential Sources ofFinance5.2 SPC Financing Plan5.3 Equity Funding5.4 Debt Funding

6. Risk Assessment & Risk Mitigation6.1 Risk Assessment6.2 Risk Mitigants

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Feasibility Study Report - Volume I of2EA TCO - Suez Petrochemical Complex GTP ProjectSuez, Egypt

• 7. Project Economics

7.1 Key Assumptions7.2 Base Case Results7.3 Sensitivity Analysis7.4 Economic Model

iv

June, 2000

8. Market Information

8.1 Market Study8.2 Polyolefm Market Overview8.3 Product Supply & Demand8.4 Product Prices8.5 Raw Material Prices & Availability8.6 Competition8.7 Market Share

9. Project Technical Information

• 9.19.29.39.49.5

Process DescriptionsProcess Flow Diagrams (Simple)Process Experience ListsOperating Costs & UtilitiesProject Implementation Schedule

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10. Preliminary Environmental Assessment

11. Project Sponsor Information

11.1 EATCO11.2 Kvaemer11.3 Ferrostaal11.4 Other Sponsors

12. Information Regarding Government ofEgypt

12.1 Commitment to Project12.2 Legal & Regulatory Environment12.3 Status ofGovernment Requirements12.4 Egypt Country Profile

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•Feasibility Study Report - Volume 1 of2EATCO - Suez Petrochemical Complex GTP ProjectSuez, Egypt

Preface

v

June, 2000

This feasibility study report was prepared for the Egyptian Arab Trading Company (EATCO), toevaluate the proposed installation ofa plant to convert natural gas to polyolefins. The plant is to belocated in the Suez region ofEgypt and will produce polyethylene and polypropylene.

The U.S. Trade and Development Agency and Egyptian Arab Trading Company funded thisfeasibility study with cooperation by UOP LLC, Kvaemer U.S. Inc., and Bank ofAmerica, N.A.

The feasibility study report is arranged as outlined below:

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Volume OneProject Information Memorandum

1. Executive Summary2. Project Information3. Feedstock Supply & Product Off-take4. Project Costs5. Financing Plans6. Risk Assessment & Risk Mitigation7. Project Economics8. Market Information9. Project Technical Information10. Preliminary Environmental Assessment11. Project Sponsor Information12. Information Regarding the Government of

Egypt

Volume TwoTechnical Information

1. Technical Summary2. General3. Process Descriptions4. Process Flow Diagrams5. Utility Flow Diagrams6. Consumption Data7. Equipment Information8. Preliminary Site Plan9. Preliminary Plot Plans10. Buildings11. Preliminary EPC Schedule12. Procurement Plan13. Cost Estimates14. Environmental Considerations15. Technology Information

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Participants in the Feasibility Study

vi

June, 2000

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Egyptian Arab Trading Company (EATCO) is a holding company for investments in the oil andgas industry in Egypt amongst others, headquartered in Cairo Egypt.

UOP LLC is a leading international supplier and licensor ofprocess technology, catalysts,adsorbents, process plants, and technical services to the petroleum refining, petrochemical, and gasprocessing industries, headquartered in Des Plaines Illinois USA.

Kvremer Group is a world-class Anglo-Norwegian engineering and construction Group,registered in Norway with a London based international headquarters.

The E&C business area ofKvrerner ASA specializes in the provision ofprocess technology, design,engineering, project management, procurement and construction to a number of industrial sectorson a world-wide basis: chemicals and polymers, pharmaceuticals, oil and gas, water, energy,nuclear, minerals, mining, steel and transportation.

Bank ofAmerica Corporation, with $656 billion in total assets, is one ofthe largest banks in theUnited States. Bank ofAmerica provides fmancial products and services to 30 million businesses,as well as providing international corporate financial services for business transactions in 190countries.

According to the Project Finance International league tables Bank ofAmerica was the 2nd largestglobal arranger ofproject fmance in 1999. Bank ofAmerica is ranked as one of the top four GlobalProject Finance Advisors every year since 1992 by Project Finance International.

Chemical Market Associates Inc. (CMAI) is a petrochemical consulting firm which services awide range ofclients throughout the world through its offices in Houston, TX, Miami, FL, Londonand Singapore. Since its founding in 1979, CMAI has been recognized as providing accurate,timely consulting services for the worldwide petrochemical, plastics, fibers and cWor-alkaliindustries.

Nexant LLC is a Bechtel Technology & Consulting Company, providing services inenvironmental compliance, environmental impact assessment, sustainable development, energyutility services, advanced energy technology, oil and gas, interactive energy systems, and energydelivery and management. Nexant is comprised ofover 150 engineers, scientists and staff, and isheadquartered in San Francisco, with key offices located in Washington, DC, London, Cairo, Abujaand New Delhi.

Business contacts for each of the above companies are provided on the next page.

BankofAmerica. ~~-

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Feasibility Study Report - Volume 1 of2EA TCO - Suez Petrochemical Complex GTP ProjectSuez, Egypt

Contacts

Egyptian Arab Trading Co. (EATCO)27 Abdul Hamid Badawi St.El Nuzha, HelioloisCairo-EgyptContact: Mr. Yehya A. El Komi

Tel: 20-2-241-9535Fax: 20-2-243-0027

UOPLLC25 E. Algonquin RoadDes Plaines, IL 60017-5017 U.S.A.Contact: Mr. James M. Andersen

Tel: 847-391-2000Fax: 847-391-2253

Kvaerner E & C7909 Parkwood Circle DriveHouston, TX 77036 U.S.A.Contact: Mr. Dwane R. Stone

Tel: 713-988-2002Fax: 713-772-4673

Bank of America, N.A.1 Alie StreetLondon El 8DEUnited KingdomContact: Mr. Adriano Rossi

Tel: 44-20-7809-5272Fax: 44-20-7634-4976

Chemical Marketing Associates, Inc. - CMAI11757 Katy FreewaySuite 750Houston, TX 77079Contact: Ms. Debbie Rhoden

Tel: 281-752-3246Fax: 281-531-9966

NexantLLC1030 15th Street NW, Suite 300Washington, DC 20005Contact: Mr. Mark Hodges

Tel: 202-326-1611Fax: 202-326-1620

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June, 2000

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1. Executive Summary

Section 1 Page 1

June, 2000

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1.11.21.31.41.5

Project OverviewProject Technical InformationProject CostFinancial Analysis ResultsEnvironmental Considerations

page 2page 4page 6page 7page 7

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1.1 Project Overview

Section 1 Page 2

June, 2000

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The EATCO - Suez Petrochemical Complex project will produce polyethylene and polypropyleneto primarily supply the growing polyolefin market in Egypt. The project will reduce the dependenceon imports, which currently supply the entire polyolefin market in Egypt. The polyolefins will beproduced from natural gas feedstock, which helps to preserve Egypt's crude oil reserves whileadding value to Egypt's growing natural gas reserves. The natural gas will be supplied from theEgyptian Natural Gas Company (GASCO).

The project sponsor is the Egyptian Arab Trading Company (EATCO), which is a private Egyptiancompany managed and owned by Mr. El Komi. EATCO will be one ofthe major equityparticipants in the project. Kvaerner and Ferrostaal are also expected to be equity participants alongwith others.

The GTP facility will be a grass-roots construction comprising process plants supported by autilities/offsites plant to produce 400,000 MTA (metric tons per annum) ofbagged polyolefins,50% polyethylene and 50% polypropylene. The facility will be supplied with natural gas (forfeedstock and fuel), raw water, and electric power and will generate all additional utilities required.

Location ofProject

The proposed site is located in the North West Gulfof Suez Special Economic Zone, approximately40 km south of Suez City and 120 km east of Cairo City, close to the new port at Ain El Sukhna.The Gas to Polymers (GTP) facility will be located in the southern section of the zone in the areadesignated "Petroleum Section", which comprises an area ofapproximately 11.9 km2

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This location offers; a nearby port facility with good access to markets in Europe, U.S., Far East &Middle East, a ten year tax holiday with potential to be extended to twenty years with cabinetapproval, a unified customs duty rate of 5%, and the availability ofnatural gas, electricity, andwater, as well as roads, railways and telecommunications.

Gas to Polyolefins Complex Description

A simple block flow diagram of the complex is provided on the next page. Natural gas feedstock isconverted to methanol in a two-step process within the Methanol Plant. The first step ofmethanolsynthesis converts methane to syngas (carbon monoxide and hydrogen) and then the syngas isconverted to methanol. The crude methanol is subsequently fed to the MTO Plant where it isconverted primarily to ethylene and propylene. Byproducts from the MTO Plant include mixedbutenes, Cs+ hydrocarbons and water. The hydrocarbon byproducts are sent to the utilities andoffsites facilities where they are bumed as fuel and the water is recovered and purified for steamgeneration. The ethylene and propylene are sent to the polyolefms plant for conversion to

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polyethylene and polypropylene, respectively. The polyethylene unit can alternate between theproduction ofhigh density polyethylene (HDPE) and linear low density polyethylene (LLDPE).•Feasibility Study Report - Volume 1 of2EA TCO - Suez Petrochemical Complex GTP ProjectSuez, Egypt

Section 1 Page 3

June, 2000

EATCO - Suez Petrochemical Complex Project

•

Natural GasFeed &Fuel

2.79 MMNm3/Day104.1 MMSCFD

Electric Power42M'N

Raw Water1861 m3/Day

Natural Gas FuelNormally Nil

Seawater Supply ----'665,568 m3/DaySeawater Retum ~------'

Technologies

r-----------------------I 1I 1I II 1

I1I

Polyolefins Plant

PropyleneIIIII

I II I

:_---------------------~WasteWater908 m3/Day

Notes:Continuous Operation based on 8,000 operating hours per yearMTA = Metric Tons per Annum, MTD = Metric Tons per DayMM Nm3/Day = Million Normal Cubic Meters per Day

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The EATCO - Suez Petrochemicals Complex project is based on using the following processtechnologies:

• Kvaerner ReforminglICI Low Pressure Methanol Process

• UOPIHYDRO MTO Process

• UNlPOL PE Process

• UNlPOL PP Process

These processes offer world-class performance from reputable licensors and produce productsmeeting the highest quality standards.

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Advantages ofGas to Polyolefms Route

Section 1 Page 4

June, 2000

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The gas to polymers (GTP) approach using the UOPIHYDRO MTO process offers a new means toproduce polyolefins. The majority ofpolyolefins are produced from olefins derived fromconventional steam cracking ofethane or naphtha. While these and other options can offerprofitable means to produce polyolefins, they have product limitations and require differentfeedstocks that make them less attractive for the objectives ofthe SPC project. The GTP option isthe best choice for this project because;

• GTP is the only option that can cost effectively utilize lean (high methane content) natural gas• GTP offers the lowest costs ofproduction for producing both polyethylene and polypropylene.• GTP offers competitive economics at production capacities that are aligned with the sizes ofthe

domestic polyolefin markets in Egypt.• GTP does not depend on the development and growth of other markets such as refining,

aromatics, and butadiene.

1.2 Project Technical Information

The EATCO - Suez Petrochemical Complex will use natural gas as the feedstock. For thisfeasibility study, the hydrocarbon byproducts are utilized as fuel and effluent water is recovered andtreated to minimize raw material and utility consumption. A relatively small amount ofelectricpower is generated within the facility to fully utilize the fuel byproducts and keep the complex inbalance (no export of fuel), while slightly reducing the net consumption ofelectrical power. Theproject includes a closed-loop cooling water circuit exchanged against seawater. The facilities forseawater intake, circulation, and discharge are included in the project scope.

Plot Area

The facility will require a minimum plot area of371,520 m2 based on the preliminary site plandeveloped for this study. The site area is laid-out on a plot with dimensions of576 meters by 645meters. This site plan includes process units, control room, utilities, waste water treatment ponds,flare systems, warehouses, administration buildings, loading facilities, and parking.

Operating Costs

The consumption of raw materials, catalysts and adsorbents, chemicals, utilities, and the operatingcosts are summarized in the following table.

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Section 1 Page 5

June, 2000

Operating Cost Summary

(I) Natural gas pnce based on $1 per mIllIon B.t.u. and a gross heatmg value of 1062 B.t.u. per standard CUbIC foot.(2) Equivalent to $1 per million B.t.u.

Expected $/MTofRequirement Unit Cost $MM/Yr Polyolefm

Natural Gas 930.00 MMNm3Nr $39,630(1) $36.86 $93Copolymer Credit -22.55 MMNm3Nr $39,630(1) ($0.89) .ernNet Natural Gas 907.45 MMNm3Nr $39,630(1) $35.97 $91

Copolymers 9,701 MTA $724 $7.02 $17

Raw Material Cost -- -- $42.99 $108

Catalysts - SteadyMTO & Polyolefm Plants -- -- Included Included

Catalysts & Adsorbents- Periodic Replacement -- -- Included Included

Catalyst & Adsorbents -- -- $30.07 $75

Chemicals - -- $0.75 $2

Electricity 42.0MW $30/MW-h $10.08 $25Raw Water 77.5 m3/hr $0.60/m3 $0.37 $1Fuel nil $3.41/MW-h(2) $0.00 $0

Utilities Cost -- -- $10.45 $26

Labor 314 Employees -- $9.55 $24Maintenance & I08ur. -- -- $13.2 $33

Fixed Costs -- -- $22.75 $57

Total Cash Costs ofProduction -- - $107.01 $268

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Project Implementation Schedule

Section 1 Page 6

June, 2000

The preliminary project schedule is outlined below based on an assumed project kick-off date inJanuary ofyear 2001.

Key Milestones Estimated Date Elapsed Time

Project Kick-Off 2 January 2001 oMonths

Basic Engineering Completed 1 August 2001 7 Months

EPC Contract Awarded 2 January 2002 12 Months

Construction Started 2 September 2002 20 Months

Startup & Test Runs Completed 30 June 2004 42 - 48 Monthsto 31 Dec 2004

The following table shows the current estimates for the various components ofproject costs:

1.3 Project Cost

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SPC Complex ISBL & OSBLEPC ContingencylProfitConsultants

LSEPC CostSpares (Capital & Running)InsuranceLicense FeesCatalyst & Adsorbent InventoryLand, Import Duties, Development costs and other costs

SubtotalInterest During Construction & Finance Fees

Total Project Cost

US$ million704.2

IncludedIncluded

799.1IncludedIncludedIncludedIncludedIncluded

1,069.2184.8

1,253.9

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1.4 Financial Analysis Results

Section 1 Page 7

June, 2000

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The financial model uses the Base Case assumptions to calculate internal rates ofreturn (IRR) andnet present value ofproject cash flows for the assumed 25 year project economic life period anddebt service coverage ratios for the period during which debt is outstanding.

The Base Case model gives the following results:

ProjectIRR Equity IRR(pre-tax, (attributable CF,nominal) nominal)

:'... .·.···.·.······:i:.·.·\ > .......: 1'" ",O/,..•••••••••

23.8%. :.:.:

1.5 Environmental Considerations

The process technologies used for this facility are based upon proven operating plants around theworld and information gained from the operation ofthese plants will form the basis ofthe designand operation of the SPC complex.

The SPC complex is to be located in an industrial complex in the Suez region ofEgypt. Nearbyfacilities will include other petrochemical plants, the port ofAin EI Sokhna and the main highwayfrom Suez to Zaafrana. The preliminary plant layout takes into account the prevailing wind in theregion to minimize the effects of stack emissions on the facility.

No unique or unusual potential major hazards are associated with the installation and operationof the GTP complex. The design and layout of the facility will be so as to minimize inadvertentemissions to the atmosphere through the implementation ofcontrol safeguards as well as the useof well-trained operations and maintenance personnel.

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• 2. Project Information

Section 2 Page 1

June, 2000

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2.12.22.32.4

Project DescriptionLocation ofProjectProject OwnershipStatus ofKey Elements ofProject Structure

page 2page 5page 6page 6

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Feasibility Study Report - Volume 1 of2EA TCO - Suez Petrochemical Complex GTP Project

. Suez, Egypt

• 2.1 Project Description

Section 2 Page 2

June, 2000

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The EATCO - Suez Petrochemical Complex project will produce polyethylene and polypropyleneto primarily supply the growing polyolefin market in Egypt. The project will reduce the dependenceon imports, which currently supply the entire polyolefm market in Egypt. The polyolefins will beproduced from natural gas feedstock, which helps to preserve Egypt's crude oil reserves whileadding value to Egypt's growing natural gas reserves. The natural gas will be supplied from theEgyptian Natural Gas Company (GASCO).

The project sponsor is the Egyptian Arab Trading Company (EATCO), which is a private Egyptiancompany managed and owned by Mr. EI Komi. EATCO will be one ofthe major equityparticipants in the project. Kvaemer and Ferrostaal are also expected to be equity participants alongwith others.

The GTP facility will be a grass-roots construction comprising an inside battery limits (lSBL) plantsupported by a utilities/offsites plant to produce 400,000 MTA (metric tons per annum) ofbaggedpolyolefms, 50% polyethylene and 50% polypropylene. The facility will be supplied with naturalgas (for feedstock and fuel), raw water, and electric power and will generate all additional utilitiesrequired.

The ISBL complex comprises the following process units:

• Methanol Production Plant

• Olefins (MTO) Production Plant

• Polyethylene Production Plant

• Polypropylene Production Plant

The OSBL plant comprises the following systems:

• Raw Water Treatment System

• Firewater System

• Potable Water System• Stripped MTO Byproduct Water Treating

• Boiler Feedwater Treating

• -Condensate Polishing

• Deaerator and Condensate Return• Cooling Water Systems - closed loop circulation and seawater circulation

• Wastewater Collection and Treating

• HP Boilers• Plant Instrument Air Generation and Distribution

• • Nitrogen Generation and Distribution

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• Power Generation

• Flare Systems

• Offsites Storage

Gas to Polyolefms Complex Description

Section 2 Page j

June, 2000

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A simple block flow diagram ofthe complex is provided on the next page. Natural gas feedstock isconverted to methanol in a two-step process within the Methanol Plant. The first step ofmethanolsynthesis converts methane to syngas (carbon monoxide and hydrogen) and then the syngas isconverted to methanoL The methanol is subsequently fed to the MTO Plant where it is convertedprimarily to ethylene and propylene. Byproducts from the MTO Plant include mixed butenes, Cs+hydrocarbons and water. The hydrocarbon byproducts are sent to the utilities and offsites facilitieswhere they are burned as fuel and the water is recovered and purified for steam generation. Theethylene and propylene are sent to the polyolefins plant for conversion to polyethylene andpolypropylene, respectively. The polyethylene unit can alternate between the production ofhighdensity polyethylene (HDPE) and linear low density polyethylene (LLDPE).

Site Requirements

The facility will require a minimum plot area ofapproximately 371,520 m2 based on thepreliminary site plan developed for this study. The site area is laid-out on a plot with dimensions of576 meters by 645 meters. This site plan includes process units, control room, utilities, waste watertreatment ponds, flare systems, warehouses, administration buildings, loading facilities, andparking.

The proposed facility will be supplied with natural gas feedstock, raw water and electric power atthe 33 kV source leveL Steam, instrument air, plant air, and nitrogen will be generated within thefacility.

Cooling water for the facility will be provided via a closed loop cooling water circuit. Thecirculating cooling water will be cooled by seawater. Seawater will be used directly for somecooling requirements. In addition, air coolers will also be employed where applicable.

Infrastructure roads are provided within the facility boundary. Supply roads to/from the facilityfrom local highways are excluded from the scope ofthe facility.

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Section 2 Page 4

June, 2000

EATCO - Suez Petrochemical Complex Project

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Natural GasFeed &Fuel

2.79 MMNm3/Day104.1 MMSCFD

Electric Power42WNV

Raw Water1861 m3/Day

Natural Gas FuelNormally Nil

Seawater Supply -----'665,568 m3/DaySeawater Return .--------1

Technologies:

r-----------------------I II II II I

III

Polyolefins Plant

PropyleneIIIII

I II I

~----------------------~WasteWater908 m3/Day

Notes:Continuous Operation based on 8,000 operating hours per yearMTA =Metric Tons per Annum, MTD =Metric Tons per DayMM Nm3/Day =Million Normal Cubic Meters per Day

Methanol Plant:

MTO Plant:

Kvaemer Refonning/lCI Low Pressure Methanol ProcessNominal Capacity = 1,208,000 MTA of Crude Methanol

UOPIHYDRO MTO ProcessNominal Capacity = 204,000 MTA ofEthylene &

205,000 MTA Propylene

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Polyolefins Plant: UNIPOL PE ProcessNominal Capacity =

UNIPOL PP ProcessNominal Capacity =

200,000 MTA ofPolyethylene

200,000 MTA ofPolypropylene

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• 2.2 Location ofProject

Section 2 Page 5

June, 2000

The proposed site is located in the North West Gulfof Suez Special Economic Zone, approximately40 Ian south of Suez City and 120 Ian east ofCairo City, close to the new port at Ain El Sukhna.The Gas to Polymers (GTP) facility will be located in the southern section ofthe zone in the areadesignated "Petroleum Section", which comprises an area ofapproximately 11.9 km2

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NewPortFacility

Location of EATCOSuez Petrochemical Complex

• •Appx. 20 kilometers

~~4$'0J"

Cairo I Ein Sokhna - Highway ~'I>''§'Ii

",,<§"

Southern Part of "-,,,\C:JV

Gulfof Suez ~"'''''''''Special Economic Zone I .... "')

I JI ~

I. I

Petroleum Section ---,'~including EATCO - SPC

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This location is one ofthe Golden triangle ofdevelopment areas including the three governments ofPort Said, Ismailia and Suez. Port Said is planned to be a global distribution center. Ismailia isplanned to push forward into the information technology area Suez or more specifically the NorthWestern Gulfof Suez, is to develop a free industrial zone. Special economic incentives have beenestablished to promote development in this region. The advantages ofthis location can besummarized as follows:

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Section 2 Page 6

June, 2000

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• a geographical position with good access to markets in Europe, U.S., Far East & Middle East.

• a tax holiday for a period of ten year's starting the first financial year subsequent to beginningproduction, with potential to be extended to twenty years subject to the approval ofthe cabinet

• a unified customs duty rate of5% of the value ofgoods shall apply for all machines, equipmentand instruments imported as necessary for the establishment of the companies in this zone.

• availability ofelectricity and water supply as well as roads, railways and telecommunications.

• availability ofthe natural gas at Ras Shukair.

• availability ofa new modem port facility with a total area 25 K.m2 (under construction).

Other incentives include:

• It is allowed to setup "free trade zones" for projects in this area.

• The companies and establishments shall not be nationalized or confiscated or sequestered.

• No government intervention in the pricing ofthe establishment's products, nor in determiningtheir profits.

• The companies have the right to own building lands and real estate regardless of theirnationalities.

• The foreign investors have the rights to transfer without any restriction, their profits and hardcurrency to their homeland.

• The Zone will be connected with the program ofupgrading and updating industry, particularly,establishing twenty technological centers in all industrial sections as a base for offering thetechnological infrastructure and training requirements.

2.3 Project Ownership

The project will be owned and operated by the Suez Petrochemical Company ("SPC") (yet to beformed). Anticipated SPC shareholders include EATCO, Kvaemer, Ferrostaal, and others. Theproposed initial ownership structure of SPC is included in the confidential version of this reportonly.

2.4 Status of Key Elements of Project Structure

The project development status is included in confidential version of this report only.

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• 3. Feedstock Supply and Product Offtake

Section 3 Page 1

June, 2000

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3.13.2

Feedstock SupplyProduct Offtake

page 2page 2

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• 3.1 Feedstock Supply

Section 3 Page 2

June, 2000

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Egyptian Natural Gas Company (Gasco), the natural gas marketing ann of the state ownedEgyptian Petroleum Corporation (EGPC), has advised EATCO in a letter dated 20 October 1998 ofits ability to supply to the project a sufficient quantity oflean natural gas (i.e. methane rich) startingfrom 2004.

Egypt has abundant reserves of gas: as of early 1999, Egypt's total proven gas reserves wereestimated at 31.5 trillion cubic feet (Tcf), up 54% from 20.4 Tcfin 1997, and more than doublethe 15 Tcf of proven reserves in 1993. Reserves are expected to increase substantially in the nextfew years. Most of this increase has come about as a result of new gas discoveries in theMediterranean offshorelNile Delta region, and increasingly in the Western Desert.

3.2 Product Offtake

SPC's marketing plan is to maxmnze domestic sales and export the balance quantItIes ofproducts, to ensure that SPC will obtain the highest margins on product sales. Domestic marginsare expected to be the highest for SPC, given lower transportation costs and import duties of 17%imposed on imported polyolefin products (and directly passed onto consumers).

For export sales SPC will enter into long-term offtake arrangements with a leading internationalPPIPE distributor/seller. The CMAI report suggests that nearby markets such as Turkey, Israeland Morocco should be targeted for export sales.

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• 4. Project Costs

Section 4 Page 1

June, 2000

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4.1 Total Project Costs page 2

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• 4.1 Total Project Costs

Section 4 Page 2

June, 2000

The following table shows the current estimates for the various components ofproject costs:

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Methanol plantMTOplantPolyethylene & Polypropylene plantsTotal ISBLOSBL

SPC Complex ISBL & OSBLConsultantsEPC Contingency / Profit

LSEPC CostSpares (Capital & Running)InsuranceLicense FeesCatalyst & Adsorbent InventoryImport DutiesLandPre-operational Administrative CostsCommissioning & Start-upProject Management Consultant FeeN Development

SubtotalInterest During Construction & Finance Fees

Total Project Cost

US$ million188.3164.2136.9489.4214.8704.2

IncludedIncluded

799.1IncludedIncludedIncludedIncludedIncludedIncludedIncludedIncludedIncludedIncluded

1,069.2184.8

1,253.9

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SPC complex inside battery limits (lSBL) and outside battery limits (OSBL) costs have beenestimated by Kvaemer (see section 13 ofVolume 2). The costs for the methanol plant, the MTOplant, the polyolefins plant as well as the utilities and offsites are shown in above table.

The cost for license fees, catalyst and adsorbent inventory, capital and running spares, consultantsand insurance have been estimated by Kvaemer and UOP.

Import duties, land costs, pre-operational administrative costs, commissioning / start-up costs,project management consultant fees and N development costs have been estimated by EATCO.

Finance fees include front end fees, commitment fees on the Commercial and ECA Facilities andthe ECA premium on the ECA Facility. Finance fees and interest during construction are calculatedper the Base Case assumptions.

BankofAmerica. ~~-

FeasibUity Study Report - Volume 1 of2EA TCO - Suez Petrochemical Complex GTP ProjectSuez, Egypt

• 5. Financing Plan

Section 5 Page 1

June, 2000

•

•

5.15.25.35.4

Potential Sources ofFinanceSPC Financing PlanEquity FundingDebt Funding


BankofAmerica. ~~-


• 5.1 Potential Sources of Finance

Section 5 Page 2

June, 2000

International Commercial Banks

International commercial banks ("ICBs") include those banks active on the international project[mance markets with U.S. dollar long-term lending capabilities. Broadly speaking, ICBs' bases ofoperations are clustered in the North America, Europe and Japan.

Tenors offered by ICBs vary depending on a project's industry sector. In the power industry, ICBshave offered door-to-door tenors of more than 15 years; in the refining/petrochemicals industrytypical tenors are in the 10- to12-year range for appropriately structured projects. Repaymentprofiles also vary according to industry, but back-ended annuity profiles (as opposed to equalprincipal installment profiles) can be arranged. Tenors for loans from ICBs are also limited by thecountry risk considerations, ifnot mitigated by export credit agency support or political riskmsurance.

ICBs do require detailed technical, commercial and [mancial due diligence and monitoring,although they are less restricted by social or governmental policies that affect bilateral andmultilateral agencies. ICB documentation is custom-crafted and reflects the specifics ofthe project,although bank policies and precedent transactions do playa large role.

• The amount oftime required by ICBs to approve project financings varies greatly depending on thequality and level ofdetail of the project structure (including contractual, commercial and financialaspects) and risk profile presented in the request for [mance document. Typical times for internalcredit approval vary between four to eight weeks. The general syndication phase, during whicharranger banks invite other banks to join the financing, can vary between eight to eighteen weeks.

ICBs target internal minimum hurdle rates for accepted levels of return on capital; this effectivelytranslates into front-end fee, margin and [mal hold amount considerations for the proposed loan.However, ICBs will factor in client relationships and the potential for follow-on business, and canbe strongly influenced by competitive pressures to get attractive terms.

Leading international banks are able to underwrite and distribute significant amounts ofdebt, butmost prefer to keep the [mal amount of the loans actually held on their books to a small percentageofthe total underwriting commitment. This allows the banks to arrange and underwrite additionaltransactions, while minimizing the problems ofportfolio concentration.

•An issue concerning ICBs lending in Egypt is that ofwithholding taxes charged on interestpayments made to foreign banks. The full level ofwithholding tax is 32% ofthe interest payable onthe debt; a way to go around this problem is for ICBs to book the loan through jurisdictions thatavoid the withholding tax, such as Switzerland. However, this constraint makes the syndication ofthe loan considerably more difficult as it severely restricts the potential ICB candidates.

BankofAmerica, ~~-


Regional Banks

Section 5 Page 3

June, 1000

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•

Regional banks including Gulf-based financial institutions such as Apicorp, Arab BankingCorporation and GulfInternational Bank have typically been more constrained in their ability toprovide longer tenor facilities than the ICBs due to asset/liability matching issues. More recentlyregional banks have arranged and participated in longer tenors on project financings.

Regional banks have, in the recent past, offered extremely competitive pricing and have showappetites for larger final hold amounts than ICBs (primarily due to strategic and relationshipconsiderations and a need to build assets).

Local Banks

Local Banks have been active players in past project financings in Egypt lending on tenors in theregion of8 years (although a 15-yeartenor was achieved on a particular financing that involved aguarantee from the Central Bank ofEgypt). These banks include National Bank ofEgypt,Commercial International Bank, Banque du Caire, Misr Bank. However the local bank marketliquidity has been tightening in the past few months, both for domestic and foreign currency, due tothe growth ofthe economy and a consequent demand for credit.

Islamic Financing

Islamic fmancing institutions, such as the Islamic Development Bank, adhere to Islamic law,Shari'a, and are restricted to certain types of financing, especially, leasing and certain types ofinstallment sale that do not levy interest. Several financing in the Islamic world include anIslamic financing tranche because of investor appetite in the region. In project financings, due toproblems arising out of the sharing of security, it is generally preferable to utilise Islamicfmancing tranches for facilities that are distinct from the rest of the project such as housingmodules.

Export Credit Agencies

Export credit agencies ("ECAs") such as the Export-Import Bank ofthe United States ("U.S. Ex1m"), the U.K.'s Export Credits Guarantee Department ("ECGD"), and the Japan Bank forInternational Cooperation ("JBIC") are mandated to support exports from their home countries.ECAs offer support by extending insurance, guarantees, or in some cases direct loans to depending upon the program being used - an exporter, a purchaser, or the lenders. For this, ECAscharge a premium or other fees. Depending on the program ECAs may offer fixed interest ratesbased upon the Commercial Interest Reference Rate, CIRR, set by the OECD. The amount ofeligible fmancing is typically limited to the lower of85% ofthe value ofthe contract with theexporter or 100% ofgoods and services originating from such country. ECAs have different levelsofflexibility in incorporating local installation costs in the eligible fmancing.

BankofAmerica. ~~-

Depending on the country and the sector, ECA financings can offer longer tenors than financingsfrom ICBs and regional banks; the recently updated OECD guidelines for project fmancings permitrepayment periods up to a maximum of 14 years and tenors with average lives ofup to 7.25 years.ECAs can mobilize large levels of financing for a project by extending the amount ofICB debt thatwould be available. This is because banks typically do not count ECA-guaranteed or insured debtagainst their country limit exposure. In theory, ECA fmancing is not supposed to "crowd out"private sector lenders and the all-in cost ofECA financing is not necessarily more attractive thanuncovered fmancings. Egypt is rated as an OECD category 4 country, which establishes a minimumcountry risk premium for the OECD ECAs, as reflected in the fmancing assumptions in the basecase.


Section 5 Page 4

June, 2000

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Withholding tax considerations are less of issue on ECA guaranteed facilities as several ECAsqualify for a reduction or complete elimination ofwithholding tax.

Multilateral and Bilateral Agencies

Multilateral agencies, such as the International Finance Corporation ("IFC") of the World BankGroup, and bilateral agencies, such as the Overseas Private Investment Corporation ("OPIC") of theUnited States offer alternative sources of funding provided the project meets certain criteria. Thekey benefit ofthese agencies is to provide support for projects in countries perceived byinternational lenders to have a high degree ofcountry risk.

The IFC has been very active in Egyptian project finance transactions, in part because ofwithholding tax advantages for ICBs lending under the "B" loan ofthe IFC's "A"I"B" loanstructure. The IFC may be a potential source of funding for the SPC project. It should be noted,however, that IFC applies a rigorous and methodical approval process where projects must meetIFClWorld Bank guidelines on environmental issues and competitive bidding.

U.S. and International Debt Capital Markets

Limited distribution bond issues (such as bonds distributed under the U.S. SEC Rule 144a) havebecome an increasingly attractive source of finance for projects. However, the availability,amounts, tenors and pricing available from bond issues can fluctuate greatly depending on theconditions in the capital markets (which introduces higher uncertainty in the financing plan). Theproject bond market has been tapped for more than US$1 billion for certain projects, but generally aminimum ofUS$100 million would need to be raised to make a 144a bond issue cost effective.

Bond investors can accept substantially back-ended repayment profiles; bond covenants aregenerally less detailed or more objective than those for commercial term loans. Once the bonds areissued, a bond trustee represents investors. Unlike commercial term loans, it is difficult to getwaivers or amendments in a bond structure.

BankofAmerica. ~~-

Project bonds are generally restricted in distribution to more sophisticated institutional investors,such as insurance companies and investment funds. Although some investors are willing to takebelow-investment grade bonds, larger-scale distribution would require a rating agency (e.g.Standard & Poor's, Moody's) to have rated the bond issue as investment grade (BBB- or above forS&P's, Baa3 or above for Moody's).


Section 5 Page 5

June, 2000

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Egypt has a split rating with BBB- from S&P's and Ba1 from Moody's (the latter is one notchbelow investment grade). Export-oriented projects, with dollar (or other acceptable hard currency)revenues, strong offtake arrangements (mostly backed by long-term contracts), selling into theinternational markets and featuring revenues being deposited in offshore escrow accounts may beable to obtain a rating higher than the host country's sovereign rating (known as "piercing thesovereign ceiling"). SPC would need strong product export contracts for this to be possible.

Private Placement

In addition to investing in limited distribution bonds, certain institutional investors will directlyinvest in unrated debt securities. Liquidity on private placements may be extremely limited andinvestors will seek reasonable yield enhancement (i.e. higher interest rates). The size ofthe privateplacement marketplace ranges from US$l 00 million to US$350 million.

Subordinated and Mezzanine Debt

Subordinated debt is junior in its claim on cash flow and assets to other debt a project may have(i.e. repayable only after debts with a higher claim have been satisfied). Investors in subordinated ormezzanine debt include a subset offinancial institutions willing to take a secondary position for asubstantially enhanced return. Subordinated and mezzanine debt is exposed to the risk of longertenors or average lives compared to senior debt and greater uncertainty ofregularity ofrepayment.The risk ofnon-repayment in the case ofdefault (because of the junior claim on assets) is higher.Subordinated and mezzanine debt is sometimes referred to as "quasi-equity" and some investorsseek equity conversion rights to enhance their return in relation to the higher risk.

Third party subordinated debt may be attractive to the sponsors for additional "quasi-equity"support for the project. Also, Egyptian tax and accounting regulations may prompt use ofsponsorsub-debt in lieu ofequity.

5.2 SPC Financing Plan

Total project costs are currently estimated at US$ 1,254 million, which will be financed with atleast 30% equity and up to 70% debt. The Base Case assumes that a portion ofdebt is provided by aCommercial Facility and the remainder by an ECA Facility. These details are included in theconfidential version ofthis report only.

BankofAmerica. ~~-


• 5.3 Equity Funding

Section 5 Page 6

June, 2000

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It is intended that at least 30% ofTotal Project Costs will be funded by equity. Expectedcontributions ofshareholders are included in the confidential version of this report only.

5.4 Debt Funding

It is expected that no more than 70% ofthe Total Project will be financed by debt. The Base Caseassumes that debt comprises a combination of (i) a facility provided by commercial banks withoutthe support ofexport credit agencies or other political risk providers (the "Commercial Facility")and (ii) an export credit agency supported facility (the "ECA Facility"). The relative amounts of thefacilities are shown in the following table:

Debt Funding Amount Drawn(US$ million)

Commercial Facility ConfidentialECA Facility Confidential

Total 877.8

The actual export credit agency (or agencies) supporting the ECA Facility will depend on thecountry oforigin the goods and services employed in the construction of the complex. Possibleagencies providing support include US Ex-1m, IFC, JBIC, ECGD, Hermes, Sace and Coface.

SPC will approach the relevant ECA(s) for fmancial support for all content in the EPC Contractarising out ofthe relevant country oforigin and for eligible costs as estimated by spc. Soft costsand eligible costs include project management consultant fees, fmancing-related fees, ECApremium, interest during construction on the ECA facility and other eligible owner's costs.

It is expected that the ECA Facility will have covered for political risk and commercial risk for apercentage between 95% and 100% depending on the relevant ECA.

Debt Financing Assumptions

This information is included in the confidential version of this report only.

BankofAmerica. ~~-


• 6. Risk Assessment and Risk Mitigants

Section 6 Page 1

June, 2000

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6.16.2

Risk AssessmentRisk Mitigants

page 2page 3

BankofAmerica. ~~-


• 6.1 Risk Assessment

Section 6 Page 2

June, 2000

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The following section reviews the main risks to which the project will be exposed. Theseconsiderations are germane for both lenders and other project participants.

The contemplated financing strategy is based on a project financing approach. Project financingfundamentally relies upon expected future cash flows generated by a project or a project companyrather than exclusively upon the creditworthiness ofthe sponsors (or owners) of the project, andthus is considered to be limited recourse - i.e., with only specific, usually contingent, levels ofsupport from those sponsors.

These forms of limited recourse are usually offered by sponsors (and expected by lenders) to coverspecific risks that either (a) cannot be effectively managed or supported by the project company, (b)are better managed (or more efficiently managed) by the sponsors, or (c) are not able to beeffectively assessed and quantified by the projects financiers.

The SPC Project should pursue a strategy ofefficiently allocating risk among the projectparticipants. Risks to be allocated include:

• Construction and Completion risk;

• Technology risk;

• Operating Performance risk;

• Feedstock Supply risk;

• Margin and Price risk;

• Sales Volume risk;

• Environmental risk;

• Political risk; and• Interest Rate and Foreign Exchange risk.

The above mentioned risks may be defined as follows:

Construction and Completion Risk: the project is not completed on schedule or on budget, or itdoes not produce the expected quantity ofproducts, or the project as completed does not perform asefficiently as anticipated or designed.

Technology Risk: critical project technology does not perform effectively as anticipated ordesigned.

Feedstock Supply Risk: the project cannot source feedstock ofthe necessary quality and quantity.

Sales Volume Risk: the project is not able to distribute and sell the quantities of its products that itis producing.

BankofAmerica. ~~-


Section 6 Page 3

June, 2000

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Margin and Price Risk: in industries with cyclical or volatile product prices (or gross margins), theproject does not receive sufficient cash flow due to decreases in the product / feedstock pricedifferential (margin).

Operating Performance Risk: the project is not properly operated to maximize the productionpotential or it is not maintained efficiently.

Environmental Risks: the project, intentionally or unintentionally, discharges a contaminant inviolation ofapplicable environmental laws or public health and, as a result, incurs substantialliabilities or production stoppages.

Interest Rate Risks: rising interest rates jeopardize the project's ability to service its debt.

Foreign Exchange Risks: a devaluation ofthe currency ofthe project's revenue stream ifsuchcurrency is not aligned with the currency ofthe project's obligations, including debt service.

Political Risks: national or local authorities interfere with the project in a manner that frustrates itsability to perform as expected, or conflict or seizure threaten the project.

6.2 Risk Mitigants

Construction and Completion Risks

It is anticipated that the Project will be constructed under a date-certain, lump-sum, turnkeyEPC contract covering the full scope of the design and construction of the project.

It is anticipated that the EPC contract will include significant liquidated damages forcontractor-related completion delays.

Technology Risk

It is anticipated that the EPC Contractor will be required to demonstrate that each of theComplex's process units meets performance standards specified by the applicable processlicensor. Failure to meet specified design performance standards may be offset by EPCcontractor liquidated damages.

Kvaemer/lCI will supply the methanol technology. This technology is widely used inexisting operating plants; adequate performance guarantee will be provided.

BankofAmerica. ~~-

UOP will supply the Methanol to Olefins technology. The UOPlHydro technology has beentested in a demonstration unit in Norway and in pilot plants but is not demonstrated on acommercial scale. In order to mitigate the risks associated with this technology, UOP willprovide a performance guarantee with respect to feed consumption, olefins production ratesand quality with appropriate remedies and liquidated damages in case of under-performanceof the MTO unit. The process utilizes a fluidized bed reactor with a continuous fluidized bedregenerator; this technology is an extension ofUOP's FCC/RCC commercial experience.


Section 6 Page 4

June, 2000

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Union Carbide UNIPOL technology will be employed for the polyethylene andpolypropylene polymerization process; such technology is widely used in several existingoperating plants; adequate performance guarantee will be provided.

Operating Performance Risk

Personnel with substantial experience in the operation of petrochemical plants will berecruited by the sponsors. A comprehensive training programme will be offered by the EPCcontractor and the licensors.

Kvaerner has agreed in principle to perform the operation and maintenance of the SPCcomplex with the support ofUOP and Union Carbide.

In order for operating performance risk to be appropriately mitigated, the sponsorship shouldinclude a primary international company active in the petrochemical sector with strongexperience in operating and owning polyolefins plants.

Feedstock Supply Risk

It is anticipated that the feedstock for the project, natural gas, will be provided by Gasco (thegas marketing arm ofEGPC, the government owned oil and gas company) under a FeedstockSupply Agreement at an agreed price for the duration of the joint venture. Gasco has alreadyadvised EATCO that is able to deliver the required quantities ofgas (letter dated 20.10.98).

It is anticipated that such Feedstock Supply Agreement would include appropriate liquidateddamages payable by Gasco in the event of interruption in feedstock availability.

- Egypt has abundant reserves of gas: as of early 1999, Egypt's total proven gas reserves wereestimated at 31.5 trillion cubic feet (Tcf), up 54% from 20.4 Tcf in 1997, and more thandouble the 15 Tcf of proven reserves in 1993. Reserves are expected to increase substantiallyin the next few years. Most of this increase has come about as a result of new gas discoveriesin the Mediterranean offshorelNile Delta region, and increasingly in the Western Desert.

BankofAmerica. ~~-

•Feasibility Study Report - Volume 1 of2EATeO - Suez Petrochemical Complex GTP ProjectSuez, Egypt

Margin and Price Volatility Risk

Section 6 Page 5

June, 2000

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SPC would have the benefit of a low feedstock price relative to its naphtha-basedcompetition, providing additional margin during low cycles.

The flexibility to adjust the product mix between polyethylene and polypropylene wouldenable SPC to adapt to market changes in order to maximize margins. The production oflower value by-products is minimized compared to conventional cracking technologies.

Chemical Markets Associates Inc. (CMAI) has been retained as sponsor's market consultantto review the product markets, and has provided market price projections for the Productswhich have been used in the base case. The project is able to withstand the worst case marketprice scenario forecasted by CMAI with an average DSCR of 1.34x and a minimum DSCR ofl.08x (see section 7.3 Sensitivity Analysis).

Sales Volume Risk

Due to the tariff advantages, SPC will be a low cost producer for the growing Egyptianmarket and will therefore always be a supplier of choice in the market. SPC's marketing planis to maximise domestic sales and export the balance quantities of products, to ensure thatSPC will obtain the highest margins on product sales.

SPC is developing its marketing structure for sales in the Egyptian market; the personnel ofthis structure will have previous commercial experience in the polyolefins industry.

For export sales SPC will either enter into a long-term offtake arrangements for the quantitiesof products to be exported with a leading international PPIPE distributor/seller or includesuch entity in its ownership with a significant stake.

Environmental Risk

The EPC contract will require the EPC contractor to achieve applicable environmental andemissions standards.

An experienced international environmental firm, Nexant Inc., has been retained asEnvironmental Consultant to undertake a Preliminary Environmental Impact Assessment(PEIA or PEA) which has been completed. The preliminary finding of this PEA indicates thatthe environmental impacts of the proposed project will meet the requirements of the EgyptianEnvironmental Affairs Agency (EEAA) and comply with the guidelines of The World Bank(WB) Pollution Prevention and Abatement Handbook, 1997 (PPAH).

BankofAmerica. ~~-


Interest Rate Risk

SPC will put in place an interest rate hedging strategy to mitigate such risk.

Foreign Exchange Risk

Section 6 Page 6

June, 2000

Polyethylene and polypropylene prices are either denominated in, or linked to, u.s. dollars.

- It is expected that the EPC Contract will be predominantly U.S. dollar denominated as willproject operating costs (other than a 20% portion of Egyptian pound operating costs).

- There are no currency convertibility and profit repatriation restrictions in Egypt.

Political Risk

Egypt has demonstrated a high degree of political stability (rated BBB- by S&P and Bal byMoody's).

The state ofEgypt maintains good relations with regional countries.

• The government of Egypt is actively encouraging and supporting private sector industrialprojects, especially those utilizing the abundant domestic reserves of natural gas, such aspetrochemical and LNG projects.

The part of project costs to be funded by ECA facilities would benefit, among others, frompolitical risk coverage.

Other Insurable Risks

SPC will be covered by a broad insurance package during construction and operations,including contract works/property damage, delay in start-up, industrial all risks, businessinterruption, machinery breakdown.

•BankofAmerica. ~

~-

Feasibility Study Report - Volume 1 of2EATCD - Suez Petrochemical Complex GTP ProjectSuez, Egypt

• 7. Project Economics

Section 7 Page 1

June, 2000

•

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7.17.27.37.4

Key AssumptionsBase Case ResultsSensitivity AnalysisEconomic Model


BankofAmerica. ~~-


• 7.1 Key Assumptions

Section 7 Page 2

June, 2000

Based on infonnation currently available regarding selected Project variables (Project capital andoperating costs estimates, polyolefins market and price forecasts, finance plan assumptions,tenns of financing), an economic and financial model was constructed by Bank of America toevaluate the Project's viability.

7.1.1 Project Costs

Total Project Costs ofUS$ 1,254 million (including erected cost, license fees, catalyst andadsorbent inventory costs, land costs, start-up and commissioning costs, pre-operational costs,development costs and financing costs - see detailed breakdown in Section 4) are included in themodel.

7.1.2 Project Implementation Schedule

The following Project implementation timetable has been assumed in the Base Case:



• Basic Engineering Completed 1 August 2001 7 Months




Note that the above timetable is purely indicative and preliminary at this stage.

7.1.3 Polyolefins Market and Price Forecast

The findings from the CMAI report, including size of the local market, potential export markets,polyolefins prices for sales in Egypt and sales abroad, transportation costs, etc are reflected in themodel. Model assumptions that derive from the CMAI report are referenced to the specific pageof origin in the CMAI report. Market growth post 2010 is assumed to be equal to 5% p.a.

7.1.4 Operating Costs Assumptions

•The main operating cost parameters estimated by DOP and Kvaerner (based on the estimatedguarantee perfonnance rather than expected perfonnance) are summarized in the following table:

BankofAmerica. ~~-

Operating Cost Cost / Unit (1999 US$) QuantityNatural Gas US$ 1.00 I mm Btu 2.95 MM Nm3 I dayPower US$ 0.03 I kWh 45 MWh/hourWater US$ 0.60 1m3 2,000 m3 /dayCatalyst - steady consumption CONFIDENTIAL --Catalyst - periodic replacement CONFIDENTIAL --Chemicals US$ 0.75 mm I year --Maintenance and Other US$ 13.2 mm/ year Includes insurance costsManpower See model Total workforce of 314 units


7.1.5 Products

Section 7 Page 3

June, 2000

•

The production is assumed at the guaranteed production rate of400,000 MTA oftotalpolyolefms divided into 200,000 MTA of polyethylene and 200,000 of polypropylene. Ofthepolyethylene production, two thirds (i.e. 133,333 MTA) are assumed to be in the form of HighDensity Polyethylene (HDPE) with the remaining one third (i.e. 66,666 MTA) in the form ofLinear Low Density Polyethylene (LLDPE) in line with the recommendations of the CMAIreport.

7.1.6 Finance Plan

In accordance with the Finance Plan outlined in Section 5, the sources of finance are assumed tobe as follows:

Source ofFundsDebt

Commercial FacilityECA Facility

Sub-total DebtEquity

7.1.7 Economic Assumptions

Amount

ConfidentialConfidentialUS$ 877.8 mmUS$ 376.2mm

%

70%30%

VariableUS$ inflationUS$LIBORInterest earned on cash balances

Assumption (% p.a.)2.0%*6.94%

US$ LIBOR - 2%

•(*) All fixed and variable costs are indexed at the assumed inflation rate, which after an initialperiod of oscillation is assumed to reach a steady state at 2.0% pa by 2004.

As revenues and the most significant cost component, feedstock cost, will be denominated in USdollars, the financial projections are expressed in US dollars.

BankofAmerica. ~~-


7.1.8 Working Capital Assumptions

Section 7 Page -I

June, 2000

Inventory, accounts receivables and accounts payable have been accounted for as follows:

Working Capital AssumptionsInventoryAccounts ReceivableAccounts Payable

Days216045

•

•

7.1.9 Tax and Accounting Assumptions

• Corporate Income Tax: The standard corporate income tax rate in Egypt is 32%; a taxholiday of 10 years from the start of production is assumed to apply.

• Withholding tax: the model does not reflect the cost of withholding taxes ("WHT") onexternal interest payments, currently at 32% at the highest rate. The Egyptian parliament isconsidering proposals to eliminate WHT; if such proposal is not approved, the WHT could beeliminated or substantially reduced by booking loans in countries with favourable bilateraltax treaties (such as Switzerland) or through certain bilateral or multilateral organizations.

• Payment of taxes: It assumed that corporate income tax for each accounting year is paid atthe end of the same accounting year

• Accounting Period: The accounting period is the twelve months ending on 31 SI Decembereach calendar year.

• Depreciation: Assets are stated at cost less accumulated depreciation for wear and tear. Allcapital expenditures are depreciated using the straight line method over their estimated usefullife (20 years). Tax depreciation is assumed to be equal to book depreciation.

• Amortization: Capitalized interests and fees are amortized over a period of 10 years.• Dividend Policy: Dividends are declared at the end ofeach accounting period to the extent

that there is sufficient cashflow available from operations after the payment ofall expenses,taxes, debt service obligations and debt service reserve provisions and to the extent that therepositive retained earnings; no statutory reserve requirement is assumed.

7.2 Base Case Results

The Base Case Model uses the above assumptions to calculate internal rates ofreturn (IRR) and netpresent value ofproject cash flows for the assumed 25 year project economic life period and debtservice coverage ratios for the period during which debt is outstanding.

The IRR is calculated both for project cash flows and for equity cash flows both in nominalterms (money of the day) and in real terms (1999 US dollar), the latter to eliminate the effect ofinflation. No terminal value is assumed.

BankofAmerica. ~~.

Project IRR intends to reflect the economics of the project as a venture without taking intoconsideration the effect of financing on the cashflows. Project IRR is calculated both on a pre-taxand post-tax basis.Equity IRR intends to show the return to equity investors in the project; it is calculated on thebasis oftotal cash flow attributable to shareholders (i.e. cash flow post service of debt) and on adividend basis (i.e. dividend distributed to shareholders); note that the latter may vary ifalternative distribution mechanisms are put in place.


The Base Case yields the following results:

IRR Nominal

Section 7 Page 5

June, 2000

ProjectIRR

Equity IRR

Cash Flow pre-tax pre-fmance

Cash attributable to shareholders

16.6%

23.8%

•

•

7.3 Sensitivity Analysis

The following sensitivity analyses were performed. The results are included in the confidentialversion ofthis report only.

Case 1 - Worst Case Market Prices

• This case assumes the worst case market price scenario for the HDPE, LLDPE and PP as perthe CMAI worst case scenario for Western Europe.

Case 2 - Increased / Decreased Capital Investment

• In order to model the effect ofa potential cost overrun capital investment is assumed to be10% higher (i.e. pre-finance project cost increased from US$ 1,069.2 mm to US$ 1,176.1mm).

• In order to model potential reductions in construction costs, capital investment is assumed tobe 10% lower (pre-fmance project cost at US$ 962.3 mm) is also modeled.

Case 3 - Reduced Feedstock Cost

• The cost of feedstock (i.e. natural gas) is assumed to be at US$ 0.75 per million Btu which is25% cheaper than in the base case (US$ 1.00 per million Btu).

Case 4 - Increased Electricity Cost

• The cost of the electricity is assumed to be at US$ 0.08/kWh (rather than US$ 0.03/kWh inthe base case).

BankofAmerica. ~~-

Case 5 - Increased Production Capacity

• This case shows the impact of producing 450 kMTA ofpolyolefins (compared to the basecase of400 kMTA) in the same plant with no capital cost increase.


Section 7 Page 6

June, 2000

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Case 6 - Improved Performance• This case models the expected plant performance rather than the guarantee performance used

in the base case analysis. The expected performance requires only 2.79 MMNm3/day ofnatural gas, 1861 m3/day of fresh water, and 42 MWh ofelectricity.

BankofAmerica. ~~-


• 7.4 Economic Model

Section 7 Page 7

June, 2000

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The economic model is included in the confidential version ofthis report only.

BankofAmerica. ~~-

Feasibility Study Report - Volume 1 oflEA TCO - Suez Petrochemical Complex GTP ProjectSuez, Egypt

• 8. Market Information

Section 8 Page 1

June 1000

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8.18.28.38.48.58.68.7

Market StudyPolyolefin Market OverviewPolyolefin Product Supply & DemandPolyolefin PricesRaw Material Pricing & AvailabilityCompetitionProjected Market Share


page 12page 14page 27

BankofAmerica. ~~-


• 8.1 Market Study

Section 8 Page 2

June 2000

An independent polyolefins market study was perfonned by CMAI (Chemical MarketingAssociates, Inc.) for this feasibility study. The market study report includes the following sections:

• Executive Summary

• World Economic Outlook

• Polyolefin Supply/Demand Analysis

• Trade & Target Market Analysis

• Polyolefin Price History & Forecast

• Egyptian Polyolefin Market Analysis

• Egyptian Polyolefm Marketing Plan

• Olefms Production Technology Summary

• Raw Material Availability & Pricing

• Supply/Demand Balances for Polyolefins

• Capacity Tables for Polyolefms

The market study report analyzes a period from 1990 through 2020 with an emphasis on theEgyptian Polyolefin Market. The global and regional polyolefin markets are also considered in the

• analysis. The results ofthe market study confinn the following infonnation:

a) The global and Egyptian economies are doing well and GDP growth is expected to continue.

b) Global demand for HOPE, LLDPE, and PP is expected to continue to exceed GDP growthrates. Growth rates for these polyolefins in Egypt are even greater than the global growth ratesand the supply and demand balances indicate a need for an additional 640,000 MTA ofpolyolefin production in Egypt midway through the study period. This capacity is in additionto the planned production capacity that is currently under construction.

c) Raw materials are available for the project. Development ofEgypt's gas fields has more thandoubled the gas reserves in the five-year period ending in 1998. Gas production has reached1,353 MMSCFD and planned gas production will nearly double this supply capacity in comingyears.

d) The official natural gas price in Egypt is 0.14 Egyptian pounds per standard cubic meter, whichis relatively low from a global perspective but at the high end for countries that are promotingthe use ofnatural gas for petrochemical feedstock.

e) Polyolefin product prices are increasing and the current cycle is expected to peak in 2004 or2005. Beyond the current cycle the prices are expected to remain attractive.

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f) An Egyptian polyolefin producer should implement a marketing plan that includes;•Feasibility Study Report - Volume 1 of2EA TCO - Suez Petrochemical Complex GTP ProjectSuez. Egypt

Section 8 Page 3

June 2000

•

•

- Establishing a domestic market position for the majority ofpolyolefin products. Therecommended product grades to target are LLDPE film and sheet grades, HDPE blow molding,injection molding, and film grades, and PP raffia, fiber and injection molding grades, as theserepresent over 80% ofthe domestic markets.

- Targeting a logistically economic export market in nearby countries ofNorth Africa, theMiddle East and portions of Western Europe.

- Participating in the general export market is not anticipated.

- Developing a sales organization using the producer's own sales force for domestic sales inEgypt and using agents for the target export markets.

The full market study report is included in the Appendix ofthe feasibility study report (confidentialversion only). The information provided in this section of the feasibility study report is based onthe results ofthe CMAI market study report.

8.2 Polyolefin Market Overview

Polyethylene and polypropylene are two of the most widely used polyolefin products forthermoplastics. Low-density polyethylene (LDPE) is used in the manufacture ofagricultural filmand packaging items. Linear low-density polyethylene (LLDPE) is used for the manufacture ofclosures and lids. High-density polyethylene (HDPE) is used in the manufacture ofcontainers,boxes, plastic kitchen appliances, electrical wires, water and gas pipes. Polypropylene (PP) is usedin the manufacture ofpackaging, carpets, pipes, woven bags, and garden furniture.

The global polyolefin market is huge with current annual consumption amounts totaling over50,000,000 Metric Tons per Annum (MTA) ofpolyethylene and over 28,000,000 MTA ofpolypropylene. Both near and long term demand growth rates are forecasted to increase by morethan 5% per year, requiring the addition ofnew production capacity, especially in locations withcost advantaged raw materials.

The Egyptian polyolefin market is characterized by CMAI as that ofa developing country that hasprogressed into the industrialized phase ofthe product chain. Per capita consumption ofpolyolefins in 1998 was only 6 kg per person but as the Egyptian economy grows and modernizes,the per capita consumption will increase. For comparison, per capita consumption ofpolyolefinsfor North America and Western Europe are in excess of60 kg per person.

Historically Egypt has relied on imports to supply the demand for polyolefins. Only recently iscapacity being installed to domestically produce polyolefms. Current demand is estimated byCMAI at over 330,000 MTA ofpolyethylene and 140,000 MTA ofpolypropylene. The polyolefm

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market is growing rapidly in Egypt with growth rates averaging over 8% per year and there is aneed for additional polyolefin production to satisfy the expanding demand.•Feasibility Study Report - Volume 1 of2EA TCO - Suez Petrochemical Complex GTP ProjectSuez, Egypt

Section 8 Page 4

June 2000

•

•

8.3 Polyoleim Product Supply & Demand

Polyolefin Demand

CMAI report the demand for polyolefins in Egypt amounted to just under 400,000 MTA in 1998.Other sources indicate even larger demand exists, such as a United States Department ofCommercereport issued at the end of 1997 (Egypt - Plastic Materials and Resins - ISA971201, MarketResearch Report, USDOC, International Trade Administration) that shows the demand ofpolyolefins in Egypt already reached 600,000 MTA in 1996 and they forecasted similar growthrates as CMAI. Chern Systems recently indicated the current demand is approximately 600,000MTA, split about 50/50 between polyethylene and polypropylene (Chern Systems AnnualPetrochemicals Planning Seminar, Dubai, May 2000). CMAI believe these other estimates to beoverstated and for the purposes ofthis feasibility study, the in-depth analysis provided by CMAIwas used as the basis. It is recognized that this is the most conservative estimate ofmarket demandand there could be a significant upside potential.

By the year 2005 CMAI expect the demand to approach 700,000 MTA and it will grow to almost1,000,000 MTA by the end ofthis decade. The growth is primarily expected to occur in themarkets for LLDPE, PP, and HDPE.

Although LDPE shares a large portion ofthe current polyethylene market in Egypt, the demand forLDPE is not expected to increase very much. The current demand for LDPE is driven by the lackofnewer processing equipment in Egypt. However, as the demand for polyethylene increases,processing equipment will be purchased that is geared to run the newer LLDPE. This will allowLLDPE to capture a large share ofthe future polyethylene market together with HDPE.

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Section 8 Page 5

June 2000

Egypt Polyolefin Demand

IIPPEillLLDPEEillHDPE.LDPE

Average Annual _

Growth RatesPP = 9.0% -------

LLDPE = 10.8%HDPE = 8.5%LDPE=2.6%

1000..,...------------------,

900

800

~ 700

~ 600

-0 500== 400EQ 300

200

100

o1998 2005 2010

•Source: CMAI

Polyolefin Supply

Years

The current demand for polyolefins in Egypt is supplied entirely by imports from Saudi Arabia,USA, Italy, Spain, Qatar, Germany, and others. Projects are planned to install polyolefmproduction capacity in Egypt within the next few years.

Two projects are currently under construction to produce polyolefins in Egypt and thereby reducethe dependence on imports:

• SIDI KERIR PETROCHEMICALS Co.: The first project is a private sector polyethylene plantbeing installed in the Alexandria region. This plant has a nameplate capacity of200,000 MTAofpolyethylene and is expected to come on-stream by 2001. The plant uses BP polyethylenetechnology and can swing between HDPE and LLDPE products. The ethylene feed will besupplied by a gas (primarily ethane) cracker being installed in the Alexandria region by the SidiKerir Petrochemicals Company (SIDPEC). This project is referred to as the SIDPEC Plant inthis report.

•• ORIENTAL PETROCHEMICAL COMPANY: The second project is a polypropylene plant

being installed by the Oriental Petrochemical Company (OPC) in the Suez region. This planthas a nameplate capacity of 120,000 MTA ofpolypropylene and is expected to come on-streamby 2002. The OPC plant uses Unipol technology and is expected to focus on the production of

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raffia and fiber grades ofpolypropylene. The propylene feed source is undetermined at thistime. This project is referred to as the OPC Plant in this report.•


Section 8 Page 6

June 2000

•

•

The Suez Petrochemical Complex GTP project is expected to come on-stream by 2005 with anameplate capacity of200,000 MTA polyethylene and 200,000 MTA polypropylene. The figureson the following page show how the planned production capacity, including the aforementionedprojects, compares with the polyolefin demand forecasts for Egypt.

For polyethylene, there is no production ofLDPE planned for Egypt so the market for polyethyleneproduction is mostly limited to HDPE and LLDPE consumption. It is possible that a portion ofthepolyethylene products produced by the SIDPEC plant and the SPC plant can be marketed asreplacement material to displace a portion ofthe LDPE market. In this case there could be somemarket potential beyond the HDPE & LLDPE markets. The "error bars" shown in the polyethylenedemand graph represent the potential demand for HDPE & LLDPE assuming 50,000 MTA couldbe sold as LDPE replacement material. The degree ofdomestic market penetration achieved forboth projects will dictate the amount ofpolyethylene that would be available for export, if any.

For polypropylene, there is a potential over-capacity ofabout 120,000 MTA in the year 2005.However, ifother sources were more correct in estimating the current consumption ofpolypropylene in Egypt at over 300,000 MTA then there would be no over-capacity. The "errorbars" in the polypropylene demand graph on the following page represent this higher demandestimate. In any case, the degree ofdomestic market penetration achieved for the OPC and SPCprojects will dictate the amount ofpolypropylene that would available for export during the initialproduction years. It may be beneficial to take advantage of the flexibility ofthe MTO process toshift the SPC production towards making more polyethylene and less polypropylene during theseinitial years.

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Egypt Polyethylene Demand & Production Capacity

Section 8 Page 7

June 2000

700

600..:; 500,...~ 400'"='"~ 300=co'"g 200.;

100

o

/1~ T I

~ YI~TT

~ I

,/' !i

~T~I

i~Vl~ I~

I

•_ PE Capacity

Source: CMAI & others

-+- HD & LLD PE Demand --- Total PE Demand

Egypt Polypropylene Demand & Production Capacity

500

450

.. 400co... 350,...~ 300'"= 250'"E-

"C 200=1llISO=

'".; 100

SO

0

v v

-- v~,...-

..---'

l---'~

-,...---;V

•Source: CMAI & others

_PP Capacity ---PP Demand

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8.4 Polyolefin Prices

Section 8 Page 8

June 2000

•

•

Historical and forecasted polyolefin prices, as reported by CMAI are provided in the graphs on thefollowing pages ofthis section. The averaged historic and forecasted prices are summarized in thetables below.

Polyolefm Prices - Current Dollars (US)

HDPE LDPE LLDPE PPHistoric Forecast Historic Forecast Historic Forecast Historic ForecastAverage Average Average Average Average Average Average Average

U.S. GulfCoast 795 930 834 1005 734 882 729 820West Europe 899 996 866 1013 824 944 783 922Asia 770 962 810 989 745 915 747 892Egypt 993 1053 --- --- 942 992 898 975

Historic prices are averaged from 1990 through 1999 except for Egypt, which is 1995 through 1999.Forecast prices are averaged from 2000 through 2020.

Polyolefm Prices - Constant 1999 Dollars (US)

HDPE LDPE LLDPE PPHistoric Forecast Historic Forecast Historic Forecast Historic ForecastAverage Average Average Average Average Average Average Average

U.S. GulfCoast 873 745 915 806 807 706 805 657West Europe 996 795 956 809 911 754 863 736Asia 852 767 897 789 826 730 827 713Egypt 1022 871 --- --- 971 822 927 800

Historic prices are averaged from 1990 through 1999 except for Egypt, which is 1995 through 1999.Forecast prices are averaged from 2000 through 2020.

The polyolefm pricing in Egypt is estimated by CMAI to approximate North West European F.O.B.pricing, plus the import duty of 17% in Egypt. As a domestic producer ofpolyolefins, SPC would·benefit from a higher netback price for domestic sales so the Egypt market is the preferred outlet forthe SPC products.

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June 2000

Section 8 Page 9

I

I

I

Current Dollars

WORLD HOPE PRICE COMPARISONIIi1 Dollar per Ton

!1400 T"i----------j------------------

i I!1200 i

l

·,···································· ·············Forecast·································· ....~.:;;..~

i \ .\ _..-~11000 .,..~ ~ '".:.:...~ ···········i~·····~·~.;.--.·..--::::::: . .

I 800 ~ -\ ; ~ t:: ttI··~' "';-j .i ~',j ~ 1-0 I;'.

600 . . . ~ .


•

400

•

200

o +J!1II,l-.III,~~L.8f-'"':'--Dr'-'""JU"'"1990 1993 1996 1999 2002

c::J USGC-Domestic

- West Europe-Domestic

-HK

2005 2008 2011

_ USGC-Export

-SEA FOB

2014 2017 2020

£MAl

Dollar per Ton

WORLD LLDPE PRICE COMPARISONCurrent Dollars

Forecast1400 i

I

1200 11 .

~~

\ -~ ..1000 ·~•.:-··············f··.················ -.- - - -.. -.-:.;.;,;,;,.;..;",- .. . . .

, '~ • V \ ~~~.....s .-:

800 f\'.\·······l ., -- -bj .. .. .. .. ..I I~ ~ ,\. ~-:~

600···· J,., ••

400

200

•O+I.IIII,l-III,lJl1I,LJIlI,I.--"";L-..,.....~~

1990 1993 1996 1999 2002

c::J USGC-Domestic

- West Europe-Domestic

-HK

2005 2008 2011

_ USGC-Export

-SEA FOB

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•Feasibility Study Report - Volume 1 oflEATeO - Suez Petrochemical Complex GTP ProjectSuez, Egypt

Section 8 Page 10

JunelOOO

Dollar per Ton

WORLD LOPE PRICE COMPARISONCurrent Dollars

1400 TI---------+-------------------.

i Forecast1200 1.... -.. -------.... -.. -- -. --- ----. --.. -.. -.. -- ... --- .-- ------ -- ----- -.... -- ---------. -.. -.... --. -... -- --- --- ---;'!'::;:--I ~~~~

I - ~~~mmmtft~~)JI1000 r -.. ------ .. -- .. ~-~----------- --.--.-.-.--~ ~ ~.--- -----800 ... ... -- .. ~ . .\; -- .- ]; ~

600

1993 1996 1999 2002

•

400

200 J

o +!.-,w...,.......,......\L..III,I-"'Tl--,.......,.......~

1990

Cl USGC-Domestic- West Europe-Domestic-HK

2005 2008 2011

II!iiI!I USGC-Export-SEA FOB

2014 2017 2020

WORLD POLYPROPYLENE PRICE COMPARISONDollar per Ton Current Dollars

1200 -,---------j---------------------,

1000

800

600

400

200

1993 1996 1999 2002

•O+-':'-JI'rL.llllf....Bf--,u~I,I-III,L--""J'.......,...

1990

Cl USGC-Contract- West Europe-Contract-SEA Spot

2005 2008 2011

Il!IllIilUSGC-Spot- SEA Contract

2014 2017 2020

DY'AI

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Section 8 Page 11

June 1000

Domestic Egyptian Polyolefin PricesCurrent Dollars

2020

........

2015

-k- PP I2010

----LLDPE

2005

AveragesHDPE=$1039-+---------- ------ILLDPE=$981

PP = $958 ----j

1400

1200

= 1000~

800I-~

C.

'" 600l-

SQQ 400

200

01995 2000

Source: CMAI--HDPE

•Domestic Egyptian Polyolefin Prices

Constant 1999 Dollars

'\

6~, ~ ····...~·...,.H__ZH_

-""

...' .. -_..-..............l.~l

" /~"-i.

AveragesHDPE = $906

LLDPE=$856PP= $829

I --HDPE -- LLDPE -,.- PP I

•

1,400

1,200

=1,000Q

Eo-~ 800c.~ 600S

~ 400

200

o1995

Source: CMAI

2000 2005 2010 2015 2020

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8.5 Raw Material Pricing & Availability

Natural Gas Supply:

Section 8 Page 12

June 2000

•

•

Natural gas demand has grown rapidly in Egypt due to the government encouraging the use ofitover refmed oil products. In 1985 natural gas provided 13.9% ofthe primary energy supply inEgypt and oil accounted for 77.0%. By 1996 the share ofprimary energy supplied by natural gashad grown to almost 31% and the share from oil decreased to about 62%.

The main consuming sectors for natural gas are power generation (60%) and the fertilizer industry(14%) where it is used for feedstock and fuel. Demand is expected to continue to grow as gas istargeted for use in new power generation plants and heavy industrial projects.

Oil companies only started active exploration for natural gas in Egypt within the past ten years.Egypt was faced with declining oil reserves and concems ofbecoming a net oil importer in thefuture so they provided incentives to attract more oil and gas development. This explorationresulted in large increases in gas reserves although only minor increases in oil reserves. Gasreserves more than doubled from 15.4 Tcf (trillion cubic feet) in 1993 to 31.5 Tcf at the end of1998. Oil reserves on the other hand only increased from 3.3 billion barrels in 1994 to 3.5 billionbarrels at the end of 1998.

Egypt's ultimate gas reserve potential is estimated at between 70 to 100 Tc£ The current estimatesofproven reserves vary from 33 Tcfto 40 Tcf. Within the next decade it is projected that theproven reserves could increase to 50 Tcf.

Egypt's dry natural gas production has been steadily increasing and reached 1,353 MMSCFD(million standard cubic feet per day) by early 1999. With the recent development ofa number ofgas fields in the Nile Delta region and Western Desert region, gas supplies in excess of2,500MMSCFD are planned.

The SPC project will consume 104 MMSCFD ofnatural gas. Given the abundant amount ofproven reserves and recent gas field developments, there will be a long-term supply offeedstockavailable for the SPC project. Furthermore, the SPC project enables the production ofpolyolefinswithout drawing further on the consumption ofoil refined products.

Natural Gas Prices:

Over the past twenty years methanol production has been shifting from the industrialized countriesofNorth America, Western Europe and Japan to locations with cost advantaged natural gas. Theselocations include the Middle East, South America, the Caribbean, Equatorial Guinea, and NewZealand. Many ofthe countries in these regions have established low natural gas prices to promote

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the development ofpetrochemical industries and monetize their natural gas reserves. Thesecountries have natural gas prices between $0.25 to $1.00 per million Btu.•Feasibility Study Report - Volume 1 of2EA TCO - Suez Petrochemical Complex GTP ProjectSuez, Egypt

Section 8 Page 13

June 2000

Natural Gas prices in Egypt are influenced by two key considerations; one relates to the price atwhich gas is sold by the producer to EGPC and, the second relates to the price at which gas ispurchased by the consumer.

Producer gas pricing has been linked to the Gulfof Suez crude oil price and depending on theprevailing price ofcrude oil, the producer could receive a very high price for natural gas (over$3.00IMMBtu).

Consumer gas pricing has been controlled and subsidized by the government. The current statecontrolled price for natural gas is reported as 0.14 Egyptian pounds per standard cubic meter ofgas.This equates to about $1.16 per thousand standard cubic foot (MSCF). Assuming a heat value of1000 Btu/SCF, this price is equivalent to $1.16/MMBtu.

Discussions with GASCa in Egypt have confirmed that a price of$1.00 IMMBtu or $1.00/MSCFis available for the SPC project.

Co-Monomer Supply and Pricing:

• Linear alpha-olefins (butene-l and hexene-l) will be used as co-monomers in the production ofLLDPE and HDPE. The density ofthe polyolefm product is determined by the concentration ofco-monomer in the polymer chain. Higher concentrations ofco-monomers reduce the density ofthe resin. In addition to controlling the density, co-monomers modify the processing andmechanical properties ofthe polymer.

The CMAI market study identifies the major producers ofalpha olefins in the world. CMAIreported that there should be an adequate supply ofalpha olefins available for the SPC projectbased on the forecasted operating rates for these producers. The supply will be available fromEurope, South Africa, the U.S. or possibly the Middle East.

It is desirable to enter into long-term pricing contracts for the supply of the alpha olefins. CMAIprovided estimated price ranges for alpha olefins in relation to the price ofethylene for the U.S.,Europe, and the rest ofthe world. The pricing for butene-l ranges from $110 to $220 per metricton over the price ofethylene. The pricing for hexene-l ranges from $265 to $375 per metric tonover the price ofethylene.

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Feasibility Study Report - Volume J of2EA TCO - Suez Petrochemical Complex GTP ProjectSuez, Egypt

• 8.6 Competition

Section 8 Page 14

June 2000

•

The gas to polymers (OIP) approach using the UOPIHYDRO MID process offers a new means toproduce polyolefins. Most polyolefins are produced from olefins derived from conventional steamcracking ofethane or naphtha. The second largest sources ofolefms for petrochemicals are oilrefmeries that recover olefms as a byproduct ofmotor fuel production. Propane dehydrogenationusing UOP's Oleflex process also produces a significant and growing share ofpropylene forpolypropylene production. All ofthese methods utilize different feedstocks andproduce differentproduct mixes so the choice ofwhich processing scheme is bestfor a given project is primarilydriven by the availability ofcost advantagedfeedstocks and the demands ofthe desiredproductmarkets.

The graph below illustrates the differences in the product mix between the various routes toproduce olefins as a key product. Each of these options can offer competitive economics under theright conditions as discussed later in this section. The comparison is made at capacities of400,000MIA oflight olefins (ethylene plus propylene) to provide a common basis. These mayor may notbe the most economical capacities for each processing scheme but the total light olefm capacity of400,000 MIA offers good economics and fits well with the size ofthe polyolefin market in Egypt.

Product Mix Comparisonat 400 kMTA Ethylene + Propylene

•

1000 .,...-------------------,

900 +------------------J800 +-----------700 +-----------600 +-------500

400

300

200

100

oEthane Propane Propane Naphtha Gas toCracker Dehydro Cracker Cracker Olefins

Source: CMAI (Crackers) & UOP (propane Dehydro & Gas to Olefins)

~OtherFuel

.H2• Fuel OilDC5toC9o Mixed C4's• Propylene• C2=/C3= Swing~Ethylene

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Feedstock Utilization:

Section 8 Page 15

June 2000

The main feedstock alternatives for olefin production consist ofmethane (natural gas), ethane,propane, and naphtha. Methane, ethane, and propane are primarily supplied by gas plants thatgather, condition and refine raw natural gas. The composition ofraw natural gas varies widely butit predominantly consists ofmethane. If the raw gas is "rich" in ethane, propane and possibly evenbutanes and naphtha, these components can be recovered as separate natural gas liquids. Ifthe gasis "lean" then the recovery ofnatural gas liquids can be costly and produce huge amounts ofmethane-rich natural gas byproduct. Naphtha is supplied from crude-oil refining and natural gasliquid. The alternatives for utilizing these various feedstocks for olefm production are discussedbelow.

Ethane: Ethane charged to cracker furnaces produces ethylene with relatively few byproducts.Propylene is not produced in an amount substantial enough to justify propylene recovery andpurification so it is generally included in the byproduct fuel. Ethane crackers are less complicatedand costly than LPG or liquid crackers and they produce a single key product. Ethane crackersconsume about 1.3 tons ofethane per ton of light olefm so they offer high selectivity compared toother ethylene plants. Ethane is the most desirable feedstock for crackers due to the high yield ofethylene however, availability can be limited in locations where the natural gas composition is lean.Ifpropylene production is desired then a different feedstock and/or process is required.

• Propane: Two options exist for utilizing propane for olefm production.

• The first option is to charge it to an Oleflex propane dehydrogenation process where it isselectively converted to propylene. Approximately 1.2 tons or propane are consumed per ton ofpropylene. Ethylene is not produced in a significant amount. Oleflex offers an economicalmeans to produce on-purpose propylene and it is steadily gaining a larger share ofthe propyleneproduction market for petrochemicals.

• The second option for propane is to charge it to an LPG cracker. The LPG cracker producesboth ethylene and propylene but also a large excess of fuel gas (methane) and numerous otherbyproducts. Propane consumption is about 1.7 tons ofpropane per ton of light olefm. The mixbetween ethylene and propylene is fixed at a ratio ofabout 2.5 to 1 with little flexibility tochange the product mix.

•

Naphtha: A naphtha cracker produces ethylene and propylene at a ratio ofabout 1.9 to 1 with little.flexibility. A large amount ofbyproducts are also produced and these must be sold at high marketvalues in order to afford economic operations. The feedstock requirement is about 2.2 tons ofnaphtha per ton of light olefin. A major byproduct ofnaphtha crackers is pyrolisis gas or PyGas,which contains high amounts ofbenzene, toluene, and xylenes (BTX). These components can betreated and recovered for other petrochemical uses however catalytic reforming ofnaphtha offersmuch higher BTX yields than naphtha cracking. Alternatively, Pygas is sometimes blended into

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motor fuel (gasoline) products but this practice is becoming less viable as more countries adoptregulations that place restrictions on the concentration ofbenzene and/or aromatics in gasoline.•Feasibility Study Report - Volume 1 of2EATCO - Suez Petrochemical Complex GTP ProjectSuez, Egypt

Section 8 Page 16

June 2000

•

•

Natural Gas: Until recently, the production oflight oletins from natural gas was not an option. Gasto liquids technologies had been practiced for many years but these plants produce fuel productssuch as gasoline, diesel, kerosene, and gasoil instead oflight olefins. The UOPIHYDRO MTOprocess is the first to offer economical high selectivity to ethylene and propylene. The combinationofthe MTO process with methanol synthesis technology enables cost effective production of lightolefins from natural gas (GTO). The MTO or GTO plant offers flexibility to adjust the ratio ofethylene to propylene anywhere between 1.5 to 1 (high ethylene mode) to 0.7 to 1 (high propylenemode). The GTO feedstock requirement is approximately 1.8 tons ofnatural gas per ton of lightolefm based on conventional methanol technology.

Economic Comparison

The availability ofcost advantaged feedstock and the demand for particular products primarilydrive the choice ofthe processing schemes discussed. Each process must also offer competitiveeconomics to be viable so it is appropriate to compare the economics ofeach option.

CMAI provided economic analyses for the three different types of "cracker" based complexes forproducing 400,0000 MTA ofpolyolefms. The same methodology was applied for an OleflexPropane Dehydrogenation (PDH) based complex and a Gas to Olefms (GTO) based complex for adirect comparison. Capital costs were adjusted for a 1999 Middle East basis and to correspond withproject scopes similar to the CMAI cracker models. The operating costs and product revenues werebased on the same price sets and model data used by CMAI for the cracker models. Product priceswere modeled based on the forecasts provided earlier in this section. Feedstock and byproductprices are shown on the following page.

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Section 8 Page 17 .

June 2000

Feedstock Prices - Egypt Polyolefin ComplexU.S. Dollars per Metric Ton

$250...----------------,

$200 +---..-----.,.----------~~

--Propane-- Full Naphtha--- Ethane--Nat. Gas

2015201020052000$0+------.-----.----,.-----1

1995

$100 +---L----==a--'_=_===----------;

•Source: CMAI

Byproduct Prices - Egyptian Polyolefin ComplexU.S. Dollars per Metric Ton

$250 ...------------------,

$200 4-------------=-=----I

$1004--::---+-------------3.------'_..------:::

I==~.r--....~~========--~$50 -F

--Pygas--Hydrogen-- Crude C'4s~ 400+ Pyr F.O.-Fuel Gas

Source: CMAI

2015201020052000

$0 +-------,---.,-----,------,------1

1995

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Feedstock Prices

Section 8 Page 18

June 2000

•

The prices shown on the previous page were provided by CMAI and are based on the following:

• Natural Gas - Equivalent to $1.04 per MMBtu with adjustments for inflation.

• Ethane - Shrinkage value (the energy equivalent ofthe ethylene removed from a gas streamwith an assumed value of$I.04/mmBtu) plus a $40 per ton extraction fee, and adjusted forinflation.

• Propane - Northeast Asia (major destination for export) forecasted pricing less freight(-$48/MT freight charges) for a net-back equivalent delivered price

• Naphtha- West Europe (major importer) forecasted pricing less freight (-$29/MT freightcharges) for a net-back equivalent delivered price

Further details on the model assumptions are provided in the CMAI Market Study.

GTP Capital Cost

For the GTO based complex, the capital cost was determined by adjusting the estimated erectedcost developed for the Suez Petrochemical Complex as follows:

Total Capital Investment:

GTP ISBL EEC (1999 Basis) =

GTP OSBL EEC (1999 Basis) =

Total EEC (1999 Basis) =

Initial Catalyst Inventories =

Misc. Owner's Cost Allowance =

$489.4MM

$214.8MM

$704.2MM

$35MM

$20MM

•

Total Capital Investment (1999 Basis) = $759.2 MM

License fees are included on an amortized basis in the fixed costs ofproduction to be consistentwith the CMAI methodology. Other capital costs such as pre-completion interest, duties, insurance,finance fees, are excluded to maintain a similar scope for comparison purposes. Although these

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costs influence the absolute investment returns, they do not significantly change the relativedifferences seen by comparing the plant options.•Feasibility Study Report - Volume 1 of2EA TCO - Suez Petrochemical Complex GTP ProjectSuez, Egypt

Section 8 Page 19

June 2000

•

•

The economic analyses are provided in the tables on the following pages. These tables provide ayear-by-year analysis to demonstrate how the costs ofproduction and investment returns varythroughout changing market conditions. Cash flow analyses are also provided for projectsbeginning production in the year 2006. It is preferable to commence operation during the years of2004 or 2005 to capture the peak years ofthe current polyolefin market cycle. The year 2006 wasselected to intentionally miss the market cycle and base the results on the long-term trend forecasts.The results ofthe analyses are compared below:

Olefin Source: Ethane Propane Propane Naphtha Gas ToCracker Dehydro Cracker Cracker Olefms

Feedstock Ethane Propane Propane Naphtha Nat. GasKey ProductsPolyethylene 400kMTA --- kMTA 286kMTA 262kMTA 200kMTAPolypropylene --- kMTA 400kMTA 112kMTA 136kMTA 200kMTATotal 400kMTA 400kMTA 398kMTA 398kMTA 400kMTANetCCOPI $407 $483 $528 $499 $425MT PolyolefmInvestment $687MM $555MM $681 MM $722MM $759MM(1999)IRR 21.1% 21.2% 16.3% 15.5% $17.3%

* "Net CCOP" means the average Cash Cost ofProduction after applying byproduct creditsover the analysis period (1995 through 2015). It includes the cost ofraw materials, utilities,catalyst and chemicals less byproduct credits.

Ofthe five options considered, the Ethane Cracker and Oleflex PDH based complexes provide thehighest returns on investment but these are only marginally higher than the GTO based complex.The Ethane Cracker complex offers a low cost ofproduction for polyethylene. The Oleflex PDHcomplex offers the lowest capital investment and lower cost ofproduction for polypropylene thaneither a propane cracker or a naphtha cracker complex.

The GTO based complex requires marginally higher capital investment than the cracker basedcomplexes but it offers much lower costs ofproduction that are matched only by an EthaneCracker. This enables the GTO based complex to remain profitable and competitive throughoutmarket cycles. Furthermore, the GTO based complex is the only option offering flexibility togreatly adjust the product mix between polyethylene and polypropylene which makes it even moreadaptable to changing market conditions.

BankofAmerica. ~~-


Net Cash Costs of ProductionDollars per Metric Ton of Polyolefin

Section 8 Page 20

June 2000

•

$700

$650

$600

$550

$500

$450

$400

$350

$3001995 2000 2005 2010

Source: CMAI (Crackers) & UOP (PropaneDehydro & GTP)

2015

-- Propane Cracker-- Naphtha Cracker-- Propane Dehydro···-GTP

....... Ethane Cracker

Includes Credits forCracker Byproducts

•

The variations ofthe net cash costs ofproduction over time are shown in the graph above. Themain factor in the cash cost ofproduction is the feedstock costs. Naphtha and propane prices tendto be more volatile than natural gas prices. The price ofethane is tied to the natural gas price inthese models so it follows that the GTO and Ethane Cracker experience relatively stable productioncosts. The natural gas and ethane based routes enjoy the security oflow production costs.

It is prudent to also consider the impact ofcapital charges on the full costs ofproduction. Based onthe 1999 capital investment costs, adding a 20% return on capital to the net cash costs ofproductionyields the following results on a dollar per metric ton ofpolyolefin basis: Ethane Cracker = $751,Propane Dehydro = $761, Propane Cracker = $870, Naphtha Cracker = $862, and GTO = $804 permetric ton. In this case, the lower capital cost associated with the Propane Dehydro based complexprovides a full cost ofproduction for polypropylene that is about equivalent to the full cost ofproduction for polyethylene in the Ethane Cracker based complex. The higher capital costassociated with the GTO complex places a slightly greater capital burden on the full cost ofproduction for GTP relative to the other plants but the production cost remains well below thePropane Cracker and Naphtha Cracker based complexes.

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Economy of Scale

Section 8 Page 21

June 2000

•

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World-scale Naphtha Cracker projects are currently considered to have capacities in excess of500,000 MIA ofethylene. Such large projects offer economies ofscale that help reduce the costsofproduction but they require huge investments, demand large product offtake arrangements, andconsume vast amounts ofnaphtha. It is only by achieving such large scale that a naphtha crackercan be competitive on a cost ofproduction basis.

Gas to Olefin based projects can be built on a similar scale and enjoy the same benefits oflowercosts ofproduction but a key difference is that a GIO based plant is also competitive on a smallerscale. This is evident in the previous section and it allows an excellent fit between single traincapacities for methanol processes and polyolefin processes in a Gas to Polyolefms plant.

Conclusions

The key advantages ofconverting natural gas to oletins or polyolefins are;

1. Strategic utilization ofnatural gas reserves with high value added products.2. Flexibility to produce polymer-grade ethylene and propylene in proportion to the market

demands.3. Lower costs ofproduction and better economics than liquid crackers.4. Production cost stability with independence from market cycles for crude oil, aromatics,

butadiene and other cracker byproducts.

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•

•

•


Ethane Cracker Model - CONFIDENTIAL

Section 8 Page 22

June 2000

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•

•

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Oleflex PDH Model- CONFIDENTIAL

Section 8 Page 23

June 2000

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•

•

•

Feasibility Study Report - Volume 1 of2EA TCO - Suez Petrochemical Complex GTP ProjectSuez. Egypt

Propane Cracker Model - CONFIDENTIAL

Section 8 Page 24 .

June 2000

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•

•

•


Naphtha Cracker Model - CONFIDENTIAL

Section 8 Page 25

June 2000

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•

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GTP Model - CONFIDENTIAL

Section 8 Page 26

June 2000

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• 8.7 Projected Market Share

Section 8 Page 27

June 2000

•

•

Domestic Egyptian Market

Most ofthe products from the SPC plant will be sold domestically in Egypt. During the fIrst fewyears ofoperation it is expected that a portion of the products will be exported due to the limits ofdomestic demand and the existence ofthe SIDPEC polyethylene and OPC polypropylene plants.The exports will be targeted for markets that provide logistic economic advantages compared to thetraditional "deep water" markets. As the domestic polyolefm markets grow, they will become largeenough to consume all ofthe products from the SPC project as well as the other domesticproducers. This is expected within fIve to eight years from the start ofproduction for the SPCproject.

CMAI expect that Egyptian producers will be able to capture from fIfty to seventy-fIve percent ofthe domestic polyolefm markets within the fIrst few years ofproduction. It will not be practical tocapture the entire market because the various resin types required would be too numerous foreconomical production and marketing.

The estimated market share projections shown in the fIgures on the following pages weredeveloped based on CMAI's capacity, demand and operating rate forecasts, combined with theexpectation for capturing 50 to 75% ofthe market demand that is unmet by the existing producers.

Export Market

The most promising export destinations will be those countries to which Egypt can provide gooddistribution economics. CMAI report these countries include; Algeria, Libya, Morocco, Tunisia,Turkey, Israel, Jordan, Iraq, Syria, Italy and Greece.

CMAI believe it will not be necessary to enter the general export market due to the size ofthedomestic market in Egypt and the peripheral export market identified in the previous paragraph.

BankofAmerica. ~~-


Estimated Market Share for HDPE in EgyptYear 2005

Section 8 Page 18

June 1000

Suez PC44%

Imports24%

•Total Demand = 222,000 MTA

Suez PC Exports = 35,100 MTA

Estimated Market Share for HDPE in EgyptYear 2010

Suez PC44%

Imports26%

•

Total Demand = 321,000 MTA

Suez PC Exports = 0 MTA

BankofAmerica, ~~-


Estimated Market Share for LLDPE in EgyptYear 2005

Section 8 Page 29

June 2000

•

Suez PC20%


Imports11%

SIDPEC69%


•

Estimated Market Share for LLDPE in EgyptYear 2010

Imports11%

Suez PC33%



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•

•


Estimated Market Share for PP in EgyptYear 2005

Imports20%

Suez PC38%



Estimated Market Share for PP in EgyptYear 2010

Imports17%

Section 8 Page 30

June 2000

Suez PC52%

•



BankofAmerica. ~~-

•Feasibility Study Report - Volume I of2EATCO - Suez Petrochemical Complex GTP ProjectSuez, Egypt

9. Project Technical Information

Section 9 Page I

June, 2000

•

•

9.19.29.39.49.5

Process DescriptionsProcess Flow Diagrams (Simple)Process Experience ListsOperating Costs & UtilitiesProject Implementation Schedule

page 2page 9page 19page 28page 32

BankofAmerica. ~~-


• 9.1 Process Descriptions

Section 9 Page 2

June, 2000

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•

The following describes the processes to be utilized in the GTP Project.

Methanol Production

The process route consists of the following five main steps to produce methanol:

• Feedstock Desulfurization and Saturation

• Synthesis Gas Production and Heat Recovery

• Synthesis Gas Compression

• Methanol Synthesis

• Distillation

Natural gas feedstock is desulfurized, saturated with steam in the saturator, pre-heated, prereformed and then mixed with remainder ofprocess steam to achieve the desired steam to carbonratio. The mixed feed is further heated and then introduced into the Reformer.

The steam/natural gas feedstock mixture reacts in the reformer and produces synthesis gas. Aconsiderable amount ofwaste heat is available from the synthesis gas, which is utilized by raisingsteam, preheating boiler feed water and preheating demineralized water. Waste heat from thereformer flue gas is recovered by preheating feedstock, raising and superheating steam andpreheating combustion air.

Cooled synthesis gas is compressed and mixed with circulating gas in the methanol synthesis loop.After synthesis and heat exchange, crude methanol is condensed and separated. A continuous looppurge is maintained to keep the inerts at a level suitable for satisfactory methanol production. Thepurge gas is used as reformer fuel, as a hydrogen source for desulfurization and as a hydrogensource for the PSA Unit to supply the hydrogen requirements for the PPIPE Plants.

Light end gases are separated from the crude methanol in the Topping Column to obtain the crudemethanol product. The crude methanol product is then cooled and sent to Storage.

Methanol to Olefins

The UOPIHYDO MTO Process consists ofthe following main processing steps:

• Methanol Feed Vaporization

• Reactor & Regenerator

• Product Cooling & Water Removal

• Compression• Oxygenate Recovery

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• Impurity Removal

• Fractionation & Purification

Section 9 Page 3

June, 2000

•

•

The methanol feed is preheated primarily by heat exchange with the reactor effluent productstreams. A portion of the methanol feed is first routed through the oxygenate recovery sectionbefore recombining with the rest ofthe methanol feed. The combined methanol feed is vaporizedby further heat exchange prior to entering the MTO Reactor.

The reactor is a fluidized catalytic type. It consists ofa feed distributor, a fluidized bed ofcatalyst,and vapor/catalyst disengagement devices. A small amount ofcoke is accumulated on the catalystas a byproduct ofthe MTO reactions. Therefore, the catalyst is continuously regenerated bycombusting the coke with air in the regenerator to maintain catalyst activity. The regeneratorsimilarly includes a fluidized bed ofcatalyst and vapor/disengagement devices. The regeneratorflue gas is cooled to recover heat and then catalyst fmes are removed prior to venting to theatmospheric flue gas stack.

The reactor effluent stream is partially cooled by heat exchange, transferring heat to the methanolfeed. The effluent is further cooled and byproduct water is condensed and stripped to removehydrocarbons. After water removal, the eflluent product is compressed and treated to recover smallamounts ofoxygenates that are returned to the reactor for more complete conversion to lightolefins.

After the oxygenate recovery section, the eflluent is caustic scrubbed to remove carbon dioxide andthen dried to remove moisture. The effluent is further processed in the fractionation andpurification section to separate the key products from the byproduct components. Trace impuritiesare removed in this section using conventional technologies for diolefin saturation and oxygenateremoval. The ethylene and propylene are produced as polymer grade products and sent tointermediate storage.

Polypropylene Unit

The plant will be based on the well proven UNIPOL Polypropylene process licensed by UCC. Thetechnology comprises ofthe fluidised bed and catalyst technologies ofUCC. The plant is designedto produce 200,000 tpa ofPolypropylene and the plant design includes for the manufacture ofhomopolymer, random copolymer and impact copolymer resins.

Polyethylene Unit

The unit will be based on the UNIPOL PE process which is simple to operate and produces low andhigh density Polyethylene economically in a safe manner. The plant is designed to produce200,000 tpa ofPolyethylene (LLDPE and HDPE) including high strength copolymers, whichincorporate Hexene and Butene as the copolymers.

BankofAmerica. ~~-


Utilities & Offsites

General

Section 9 Page 4

June, 2000

Water treating and usage is the largest portion ofthe utilities and offsites. The water treating andhandling consists ofthe following basic systems:

• Raw Water/Firewater

• Potable Water

• Stripped MTO Byproduct Water

• Boiler Feedwater Treating

• Condensate Polishing

• Deaerator and Condensate Return

• Cooling Water Systems

• Wastewater Collection and Treating

These systems interact with each other to provide the water needs to the process plants and theutilities systems.

• The other utility systems are:

• HP Steam Boilers

• Plant and Instrument Air• Nitrogen Generator

• Power Generation

• Flare Systems

• Offsites Storage

These systems supply the necessary utilities and offsites storage to operate the process plants andthe utility systems.

Raw Water/Firewater

The raw water supply to the site is assumed to be drinking water quality that is chlorinated, free ofsuspended solids, and about 600 ppm IDS max.

The raw water will be stored in a large storage tank that will reserve a four (4) hour supply offIrewater plus a one day supply ofraw water for normal plant operation above the portion reservedfor fIrewater

•BankofAmerica. ~

~-

Firewater pressure is maintained in the system with a jockey pump. Electric and diesel poweredfIrewater pumps will start on low fIrewater system pressure. The fIrewater supply is backed upwith an emergency bypass to utilize seawater supplied by the Diesel Firewater Backup Pump.


Section 9 Page 5

June, 2000

•

•

Potable Water

The potable water treating system consists ofa storage tank and a chlorinator that will be used tomaintain a safe level ofchlorine. To maintain the potable water at an acceptable temperatureduring hot weather an underground distribution system will be used with a continuous recirculationloop and a potable water cooler. This system will provide safe water for safety showers andeyewash stations without the possibility ofhot water burns.

Stripped MTO Byproduct Water

A fIxed fIlm or fluidized bed biological system is used to remove the organics from stripped MTObyproduct water. This process does not produce any waste disposal problems and will recover over91% ofthe water. The biological solids produced and associated water will go to drying bedswhere the water will be removed without any environmental problems. The dried solids will benon-hazardous solids that can be recycled for use in agriculture.

The effluent from the biological system will be fIltered through a back-washable filter where thebackwash stream will be recycled to the inlet ofthe biological treatment system. The remainingorganics will be removed using an organic trap, which contains a strong base anion resin operatedin the chloride fonn that is regenerated using salt. The wastewater from regeneration ofthe organictrap will be discharged to the sea without additional treatment. The water from the organic trap willbe fed to a Reverse Osmosis unit that will remove most ofthe sodium carbonate and other ions.Product water from the reverse osmosis unit will then be combined with treated raw water for boilerfeedwater treating.

Boiler Feedwater Treating

The raw plant makeup water will be dechlorinated with chemicals and sent to a Water Softener.The soft water from the Water Softener will be treated in a Reverse Osmosis Treatment Package toremove most ofthe inorganic salts. The treated water will be combined with the treated MTOwastewater for further treating.

The pretreated plant water and treated MTO byproduct water will be further treated in an additionalRO polishing package followed by a Mixed Bed Polisher.

BankofAmerica. ~~-


Condensate Polishing

Section 9 Page 6

June, 2000

•

•

Process condensate from the Methanol Plant is steam stripped in a decarbonator. Condensate fromthe steam turbine surface condensers is mixed with the decarbonated condensate, cooled, then sentto the condensate polishers.

Product water from the mixed bed polishers make up the demineralized water supply and are storedin the Boiler Feed Water Tank. The boiler feedwater tank is designed to hold 8 hours ofboiler feedwater or an equivalent of20 hours oftreated raw water.

Deaerator and Condensate Return

The Deaerator is supplied with condensate from the condensate flash drum and the balance is madeup from preheated water the Boiler Feed Water Tank. The condensate is then stripped ofanyentrained or dissolved air and non-condensables with 1 barg steam to remove the oxygen and noncondensables from the boiler feedwater. The deaerated boiler feedwater is fed to the various boilersby two sets ofboiler feedwater pumps.

HP Steam Boilers

Two HP Steam boilers are provided that will produce up to 200,000 kg/hr of steam for start-up andabnormal operation when the methanol unit is operating at 66% rate and the methanol plant is instart-up mode. The boilers will also provide steam to supplement the steam produced by themethanol reformer and provide a use for the waste gaseous and liquid fuel produced. The excesssteam produced from waste fuel will be used to generate power with a condensing turbine. Bothboilers will operate continuously sharing the steam load.

HP steam produced in the MTO unit is superheated in these boilers to the HP steam headersuperheat level in addition to their capability to generate 200,000 kg/hr of superheated steam.

Cooling Water Systems

Seawater Cooling

Seawater flows into a Seawater Suction Structure at the seashore through trash screens that aredesigned to keep fish and trash out ofthe seawater pump intakes. The seawater pumps will supplyseawater to the plant for cooling processes directly and also for removing heat from the freshwaterclosed loop system.

An Electrolytic Chlorinator is provided to generate sodium hypochlorite from a seawater slipstreamto control the growth ofsea life that will foul and plug the cooling system. After the seawaterremoves process heat from direct and indirect cooling duties it will be discharged back into the sea

BankofAmerica. ~~-


Closed Loop Cooling Water

Section 9 Page i

June, 2000

•

•

A closed loop fresh water cooling system will provide a circulating cooling medium to remove heatfrom the process coolers. The cooling water will be circulated via the cooling water pumps, heatwill be removed from the closed loop circuit by seawater in plate and frame exchangers.

Plant & Instrument Air System

Plant and instrument air is being compressed with two centrifugal compressors and a spare where itis cooled and sent to a Plant Air Receiver prior to being distributed as plant air and sent to the airdryers to become instrument air

Nitrogen Generator

The requirement for large quantities ofhigh purity nitrogen in the Polyolefins plant requires the useofa cryogenic nitrogen plant (air separation plant) for the production of the plant nitrogen.

Power Generation

The facility produces a small amount ofelectric power from the excess supply ofbyproduct streamsthat are used to raise HP steam that is condensed via a steam turbine generator/condenser set.

Flare Systems

The flare system consists oftwo separate systems. One for all cryogenic and continuous reliefs, theother for emergency releases.

Wastewater Collection and Treating

Wastewater is collected in process area sumps on a first flush principle from the paved processareas where organic contamination may occur. The sources ofwastewater are from wash downwater, maintenance steam outs, process drainage, and rainfall, which will run offto a wastewatercollection sump. The collected wastewater is pumped to a dissolved air flotation unit to removeany free oil down to a few parts per million. The remaining oil-free wastewater will flow to the

Facultative Pond.

Sanitary sewage will be collected in a lift station and pumped to the Sanitary Sewage TreatmentPackage where it will be treated. The Sanitary Sewage Treatment Plant will discharge into theFacultative Pond to supply nutrients to the pond and further treat the sanitary sewage effluent. TheFacultative Pond will discharge to the storm water drainage ditch, which flows to the sea.

BankofAmerica. ~~-


Offsites Storage

Section 9 Page 8

June, 2000

•

•

The intennediate storage tanks between the process plants supply a 24 hour surge ofproduct and orraw material. The co-monomer tanks provide a 14 day supply due to shipping requirements. TheDebutanizer bottoms tank is sized for two days ofdebutanizer bottoms to accommodate start-upsand shutdowns when the bottoms production is greater than fuel usage.

BankofAmerica. ~~-


9.2 Process Flow Diagrams (Simple)

Section 9 Page 9

June, 2000

•

•

Simplified process flow diagrams are provided for each of the processes included in the GTPcomplex on the following pages.

More detailed process flow diagrams are provided in Section 4 ofVolume 2 of this report.

BankofAmerica. ~~-

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Feasibility Study Report - Volume 1 of2EATCa - Suez Petrochemical Complex GTP ProjectSuez, Egypt

Section 9 Page 11

June, 2000

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• 9.3 Process Experience Lists

Section 9 Page 19

June, 2000

•

The Suez Petrochemical Complex is planned to utilize well proven commercially establishedtechnologies for the conversion ofgas to methanol and olefms to polyolefins. Commercialexperience lists for these technologies are provided later in this section and further information isprovided in Section 15 ofVolume 2 of this report.

The conversion ofmethanol to olefms is a technology offered by UOP, based on a conventionalreactor/regenerator system and product recovery and purification systems. The catalyst is the heartofthe process and it has been manufactured in commercial scale and thoroughly tested inlaboratories, pilot plants and the MTO demonstration unit at Norsk Hydro's facilities in Norway.Further information on the technology is offered below to provide an understanding behind theconfidence in this technology.

MTO Process Conditions & Equipment

The design and operation of the reactor section of the UOPIHYDRO MTO process arecomfortably within the experience range for UOP's well proven FCC (fluidized catalyticcracking) reactors/regenerators. Over 160 UOP FCC process units have been placed on-streamsince 1942 in oil refineries throughout the world. The table below offers a comparison betweensome key operating parameters of the MTO reactor and regenerator compared to the FCC reactorand regenerator.

REACTOR REGENERATORMTO I FCC MTO I FCC

Temperature, °CPressure, bar(g)Velocity CONFIDENTIALHeat ofRxn. kcal/mol

Avg. Particle Size, J..lPiece Density, glmlCommercial Units - I 160+ - I 160+

As shown above, the MTO reactor operates at milder conditions than the FCC reactors and theMTO regenerator conditions are very similar to the FCC regenerators. The physical size of theMTO reactor/regenerator is no larger than existing commercial FCC reactor/regenerators.Because the MTO reactor/regenerator design and operation are within the envelope ofcommercial FCC experience, the mechanical risks are minimal.

The velocities within the MTO reactor are less than the FCC reactor and are equivalent on theregenerator side. This directionally supports lower catalyst attrition, especially when combined

• with the superior attrition resistance of the MTO catalyst compared to typical FCC catalyst.

BankofAmerica. ~~-

•Feasibility Study Report - Volume 1 of2EA TCO - Suez Petrochemkal Complex GTP ProjectSuez, Egypt

Section 9 Page 20

June, 2000

•

Catalyst particle size and piece density are similar to FCC catalysts and therefore lie within therange of expertise for designing reactors or regenerators from fluid characteristics or designingfor cyclone separation.

Other sections of the MTO process (including the product recovery and purification sections)also utilize commercially proven processing methods, which do not push the envelope ofUOP'sand the industry's processing know-how.

MTO Catalyst Development Status

In order to gain a better understanding of the MTO catalyst commercialization UOP has alreadymanufactured commercial batches of catalyst and run long-term stability and selectivity tests.These tests included multiple regeneration tests through hundreds of cycles to better characterizethe long-term catalyst performance.

MTO Scale-up

The scale-up ratio ofthe capacity of the MTO demonstration unit in Norway to a commercialscale MTO unit will be one ofUOP's smallest process scale-ups to date.

Commercialization Scale-up

Technology IOperation Scale

CONFIDENTIAL

I Scale-up Factor

•Even more significant than the scale-up ratio is that the type and sizes of key equipment in theMTO process are equivalent to equipment items already in commercial use under similar or moresevere operating conditions.

BankofAmerica. ~~-


UOP Commercialization Experience

Section 9 Page 2i

June, 2000

•

•

UOP has a long history of successful commercialization ofrefinery and petrochemical processes.For more than 80 years, UOP has been a world leader in developing and commercializingtechnology for license to the oil refining, petrochemical and gas processing industries. The tablethat follows shows a listing ofjust some of the technologies that have been introduced to thecommercial marketplace by UOP. The experiences gained by these technology introductions areinvested in UOP's current commercialization efforts.

UOP Technology Introductions

1940's 1950's 1960's 1970's 1980's 1990'sConversion & FCC Merox HCUnibon Power RCC

Fuels Thennal Hydrotreating RCDUnibon Recovery C-F Merox

Processes Conversion BOCUnibon Demex

Gasoline Platfonning Butamer PSA CCR MTBE BenSat

Processes Poly Gasoline Platfonning Alkymax EthennaxHF Alkylation Penex SHP Oxypro

TIP IPA SCAAromatics & Cumene Udex Sulfolane Cresex Carom Cyc1ar

Derivatives Hydrar !samar Tatoray SMART Q-Max

Processes Hydea1!fHDA Cumox Parex Phenol RZ-IOOAlkar Tetra Cymex mX-SorbexStyrene

Detergent Propylene Molex Olex DeFine Detal

Processes Tetramer Pacol IsoSiv Linear-lDetergent Alky HDUnibon PEP

Olefm& Cat Con for Oleflex HyLube

Derivative Nonenes ORU TBA SHP-CB

Processes CSP SHPKLPButene-l

MTO Product Quality

The olefin product produced by the MTO process will meet polymer-grade specifications forethylene and propylene. There are no unusual contaminants found in the effluent from the MTOreactors and conventional processing steps are all that is required to purify the products withinthe MTO plant.

MTO Performance Guarantees

UOP offers a strong performance guarantee to support the confidence in this technology. Thisguarantee combined with a solid reputation for successful commercialization, offers soundassurance that the MTO unit will deliver the performance expected.

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KVAERNERlICI METHANOL EXPERIENCE LIST

Section 9 Page 22

June, 2000

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Year Client Location Capacity--(STPD)

1997 Methanex Chile 3100

1995 TTMC Trinidad 1800

1995 Methanex Chile 2950

1995 Sterling/BP Chemicals USA 1500

1992 BHP Australia 180

1992 Supermetanol Venezuela 2200

1990 Coastal Chern Inc. USA 222

1989 Caribbean Methanol Co. Trinidad 1650

1988 Deepak Fertilizers Limited India 330

1980 Mobil R&D New Zealand 2x2425

1980 Air Products USA 500

1980 ARCO Chemical Company USA 2000

1979 Ocelot Industries Canada 1350

1978 Sabic/Celanese Texas Eastern (SCT) Saudi Arabia 2300

1978 Borden Chemical USA 1900

1977 IMC/Air Products USA * 1500

1977 Techmashimport Tomsk, USSR 2750

1977 Techmashimport Gubaha, USSR 2750

1976 Methanor Holland 1100

1976 Celanese Chemical Co. (Expansion USA 22001800 to 2200 STPD)

1975 Celanese Chemical Co. USA ** 1300

1973 Taesung Methanol Industries Co. Korea 1100

1973 Induquimica (Subsidiary of CEPSA) Spain 660

1972 Metanor Camacari, Brazil 200

1971 PCUK (Ugine Kuhlmann) France 660

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June, 2000

Section 9 Page 23

* Project Shelved; ** Revamp Project

Year Client Location Capacity--(STPD)

1971 Methanol Chemie Nederland Holland 1100

1969 Chang Chun Petrochemical Co. Taiwan 165

1969 Celanese Chemical Co. USA 150011800

1969 Georgia Pacific Corp. USA 1200

1968 Taesung Lumber Industries Co. Korea 165.


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UOP COMMERCIALIZATION EXPERIENCE-PARTIAL LIST

Section 9 Page 24

June, 2000

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Process Description Year 1st Unit Number ofPlaced in Units--Operation Licensed

Catalytic Condensation GasolinelHigher Olefins 1935 300+

FCC Gasoline/Cycle OillLPG 1942 200+

HF Alkylation - Motor Fuel Gasoline 1943 100+

HF Detergent Alkylation Alkylation ofBenzene 1948 33

Platfonning Catalytic Reforming 1949 700+

Butamer Butane Isomerization 1955 50+

Merox Mercaptan Extraction 1958 1700+

Styrene Ethylbenzene Dehydro. 1960 14

Molex n-Paraffin Recovery 1964 30+

Sulfolane BTX Extraction 1965 100+

Pacol Olefin Production 1969 30+

Parex p-Xylene Recovery 1971 60+

MTBE-Ethennax MTBE/ETBE 1976 30+

Penex Lt. Naphtha Isom. 1983 100+

KLP Acetylene Hydrogenation 1986 8

Oleflex Lt. Paraffin Dehydro. 1990 14

Cyclar BTX Production 1990 2

Detal Alkylation ofBenzene 1994 4

Q-Max Cumene 1996 4

InAlk Gasoline 2001 3

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UNIPOL PE EXPERIENCE LIST

Section 9 Page 25

June, 2000

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UNIPOL PE Facilities Location Start-up ReactorUnits in Operation Year Lines

UCCLPPE-l USA 1969 1Borealis #1* Sweden 1971 3Qenos* Australia 1972 2UCCLP-l USA 1976 1Chemopetrol* Czech Republic 1976 4Chevron USA 1977 1Nova Canada 1977 2Borealis #2* Sweden 1978 IRussia PE #1* Russia 1980 3UCCLP-2 USA 1980 2Polisur Argentina 1981 1UCCLP-3 USA 1981 2Polifin* South Africa 1982 1ExxonMobil USA 1982 2Borealis #3* Sweden 1983 2ExxonMobil #2 USA 1983 2NUC Japan 1983 1Japan Polychem #1 Japan 1983 1Russia PE #2* Russia 1983 3Imperial Oil-ESSO** Canada 1983 1Nova #2 Canada 1984 2Kemya Saudi Arabia 1984 2Equistar#1 USA 1984 1Yanpet PE #1 ** Saudi Arabia 1985 3Sharq #1 Saudi Arabia 1985 1HCC#1 Korea 1986 1Borealis* Austria 1986 1Buna Germany 1987 1Qilu* China 1987 2Daqing China 1988 1USI Far-East** Taiwan 1989 1HCC#2 Korea 1989 1UCCLP-5 USA 1989 1ExxonMobil #3* USA 1990 1Equistar#2 USA 1990 1

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Section 9 Page 26

June, 2000

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UNIPOL PE Facilities Location Start-up ReactorUnits in Operation Year Lines

Qilu#2 China 1990 1Petromont Canada 1991 1Showa DenIm Japan 1992 1MCCPE#2 Japan 1992 1OPP Brazil 1992 2CIPEN* France 1992 1Qenos Australia 1992 1Titan Malaysia 1993 1Sharq #2 Saudi Arabia 1994 1Chandra Asri Indonesia 1995 1Tianjin China 1995 1UCCLP-6 USA 1995 1Jilin China 1996 1Maoming China 1996 1Zhongyuan China 1996 1Kalush Ukraine 1996 1Equistar#3 USA 1996 1ASPELL Polymeres France 1997 1Polimeri Europa Italy 1997 2Guangzhou China 1997 1Equate Kuwait 1997 2Hyundai Petrochemical Korea 1997 1J. G. Summit** Philippines 1998 2Rasco Libya 1998 2

UNIPOL PE Facilities Location Start-up ReactorUnits in Design Year Lines

Yanpet PE #2** Saudi Arabia 2000 2DSM* Germany 2000 1UCCLP-7 Canada 2000 2ExxonMobil** Singapore 2000 1Chemopetrol** Czech Republic 2001 1Yangzi Petrochemical** China 2002 1Rio Polimeros Brazil 2002 2ExxonMobil/Pequiven Venezuela 2003 1

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UNIPOL PP EXPERIENCE LIST

Section 9 Page 27

June, 2000

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UNIPOL PP Facilities Location Start-up ReactorUnits in Operation Year Lines

UCCP-l USA 1985 1L. G. Caltex Korea 1988 1Huntsman #1 USA 1989 1Polychim #1* France 1989 1Propilco Colombia 1990 1Epsilon USA 1991 1Montell Australia 1991 1Montell Germany 1991 1Huntsman #2 USA 1991 1TPI#1 Indonesia 1992 2DSM Germany 1992 1MCCPP Japan 1992 1Solvay #1 * Belgium 1992 1Propylene Malaysia Malaysia 1992 1IbnZahr* Saudi Arabia 1993 1TPI#2 Indonesia 1995 1Reliance* India 1996 2Epsilon #2 USA 1996 1Solvay #2 USA 1996 1Hyosung T&C Ltd. Korea 1996 1PIC Kuwait 1997 11. G. Summit** Philippines 1998 1Reliance #2* India 1999 2ARCO USA 1999 1Epsilon #3 & #4 USA 1999 2Reliance #3* India 1999 1Stavropol Polymers* Russia 2000 1

UNIPOL PP Facilities Location Start-up ReactorUnits in Design Year Lines

YanpetPP** Saudi Arabia 2000 1OPC Egypt 2000 1IbnZahr#2 Saudi Arabia 2001 1TOSCO* USA 2001 2

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9.4 Operating Costs & Utilities

Raw Materials

Section 9 Page 28

June, 2000

The raw materials consumed by the facility are summarized below. Details ofthe specifications ofthe raw materials can be found in Section 2.1 ofVolume 2 ofthis report.

Natural Gas Consumption

Copolymer Production

The above consumption ofnatural gas is based on homopolymer production in the polyolefinsplant. Over the course ofa year, the polyolefins plant will produce numerous polyolefm productsin addition to homopolymers. These other products require copolymer reaction materials, namelybutene-l and hexene-l. The annual consumption ofcopolymer reaction materials is summarizedbelow:

(I) During the annual plant operation this amount ofnatural gas will be replaced with the quantities ofcopolymerreaction materials (butene-l & hexene-l) shown.•Copolymer ConsumptionNatural Gas Displaced(l)

9,701 TeNr (MTA)(22.55) MMNm3Nr

•

Expected Unit S/MTofConsumption Units Cost(2) SMMlYr Polyolefin

Natural Gas 930.00 MMNm3Nr $36.86 $93Copolymer Credit -22.55 MMNm3Nr $39,630 ($0.89) fmNet Natural Gas 907.45 MMNm3Nr $35.97 $91Copolymers 9,701 MTA $724 $7.02 $17Raw Material Cost S42.99 S108

(2) Natural gas price based on $1 per million B.t.u. and a gross heating value of 1062 B.t.u. per standard cubic foot.

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Catalysts & Adsorbents

Section 9 Page 29

June, 2000

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The MTO plant utilizes a fluidized catalyst bed style reactor and regenerator system. The catalystmoves continuously between the reactor and regenerator and a relatively small amount ofattritionoccurs producing catalyst "fines". These fines are collected for disposal and make-up catalyst issteadily added to maintain the catalyst inventory in the reactor. This requires a steady consumptionofcatalyst.

The polyolefin plant steadily consumes catalyst in the production ofthe polymers.

Other catalyst and adsorbents require periodic replacement once they become spent at the end oftheir life.

$MM/Yr $/MT ofPolyolefinCatalysts - Steady ConsumptionMTO & Polyolefin Plants Included IncludedCatalysts & Adsorbents- Periodic Replacement Included IncludedGroup A: 10 year lifeGroup B: 5 year lifeGroup C: 3 year lifeGroup D: 2 year lifeTotal Catalyst & Adsorbents $30.07 $75

Chemicals

Expected $/MTofConsumption Units Unit Cost $MM/Yr Polyolefin

PhosphateSodium HydroxideSulfuric AcidChlorine CONFIDENTIAL

Sodium ChlorideCalcium HypochloriteHydrazineMixed AminesSodium SulfiteChemicals Cost $0.65Chemicals Allowance $0.75 $2

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Section 9 Page 30

June, 2000

Utilities Cost

EqUIvalent to $1 per mIllIon B.t.u.

Expected Unit Cost $/MTofConsumption Units $MMlYr Polyolefm

Electricity 42.0 MW $30/MW-h $10.08 $25Raw Water 77.5 m3/hr $0.60/m3 $0.37 $1

Fuel nil MW $3.41/MW-h(l) $0.00 $0

Total Utilities Cost $10.45 $26(I) . .

Labor

•Number of $Cost/Yr/Person Annual CostsEmployees $ Millions

Shift StaffSupervisorsOperationsMaintenanceSecurityDayStaftOps. ManagementMaintenance CONFIDENTIALLaboratoryAdministrationExpatriatesSales & MarketingDirectorSales ManagerSales ForceProgress ChasersSecretarialTotal 314 $9.55

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Operating Cost Summary

Section 9 Page 31

June, 2000

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$MMlYr $/MT ofPolyolefinRaw Materials $42.99 $108Catalysts & Adsorbents $30.07 $75Chemicals $0.75 $2Utilities $10.45 $26Total Variable Costs ofProduction $84.26 $211

Labor $9.55 $24Maintenance & Other Fixed Costs $13.2 $33Total Fixed Costs of Production $22.75 $57

Total Cash Costs ofProduction $107.01 $268

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•Feasibility Study Report - Volume I of2EA TCO - Suez Petrochemical Complex GTP ProjectSuez, Egypt

Section 9 Page 32

June, 2000

9.6 Project Implementation Schedule

The preliminary project schedule is shown below based on an assumed project kickoff date inJanuary,of2001.

Preliminary Schedule: EATeO - Suez Petrochemical Complex GTP Project

....I

I

Precommissioning-t------+------+------+------+__

Commissioning+------+------+------+------+-

Test Runs Completed i

Roatt=====[=====Ii=====J==Jf~"W'~.H"~+~):I)~+i'~HtI"q

'l-.aVOs

Develop Design BasiS)Basic Engineering Phasel

Process Engineering i

Mechanical Engineering I

Vessels Design I

Piping Engineering

Civil Engineering

Power & Control Systems IArchitectural I H.VAC.

Equipment Delivery

Construction

•

•



Basic Engineering Completed 1 August 2001 7 Months




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10. Preliminary Environmental Assessment

10.1 Preliminary Environmental Assessment Study10.2 Existing Conditions10.3 Potential Impact of ConstructionlOA Potential Impact of Operations10.5 Potential Impact ofCatastrophic Events10.6 Conclusions

Section 10 Page 1

June, 2000

page 2page 2page 3page 4page 6page 8

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10.1 Preliminary Environmental Assessment Study

Section 10 Page 2

June, 2000

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An independent preliminary environmental assessment (PEA) study was performed for thisfeasibility study by Nexant Incorporated (a Bechtel Technology and Consulting Company). ThePEA was performed to document the general environmental baseline conditions and concerns, andto screen for undesirable or unacceptable environmental impacts or potential fatal flaws in theproposed project. The PEA is presented in a format compatible with The World BankEnvironmental Impact Assessment (EIA) requirements. The format is also compatible withEgyptian Environmental Affairs Agency (EEAA) EIA requirements. The PEA study reportincludes the following sections:

• Executive Summary

• Introduction

• Proposed Project

• Existing (Baseline) Conditions• Legislative and Regulatory Considerations

• Potential Environmental Impacts of Construction of the Proposed Project

• Potential Environmental Impacts ofOperation ofthe Proposed Project

• Alternatives to the Proposed Project

• Environmental Management Plan

• Monitoring Plan• Interagency Coordination and Public/NGO Participation

• Conclusions and Recommendations

The full Preliminary Environmental Assessment report is included in the Appendix of thefeasibility study report (confidential version only). The information provided in this section ofthefeasibility study report is based on the results ofthe Nexant PEA report.

10.2 Existing Conditions

The existing (baseline) conditions are documented to the extent available including physical andchemical, biological, socio-economic and land use. The proposed site is located in a coastal regionin an area zoned for industrial use. The location is in an area comprised primarily ofbarren deserts,bounded by two high mountains which extend towards Cairo. The site is stated to be clear, leveland free from obstructions above and below the surface. The location is subject to periodicsandstorms. Winds are primarily from the north and northwest. Southerly winds occur lessfrequently, and typically during January and February. Wind speeds are generally low, withmaximal occurring during Spring and Summer. The seasonal mean temperatures range from about10°C in the coldest months to 33°C in the hottest months. Average annual rainfall in this area isreported to range from 100 to 150 mm. Industrial activities in this area are numerous and includefertilizer, petroleum refinery, textile industry, cement production, glass industry, and food industry.

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10.3 Potential Impact of Construction

Section 10 Page 3

June, 1000

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The PEA indicates that the following items will be impacted as a result ofconstruction oftheproposed project:

Geology and Soils - Except for surface scraping and shallow excavation, no impacts togeology and soils are expected as a result ofconstruction ofthe proposed GTP plant.

Air Quality - Minor and short-tenn impacts on local air quality may be experienced as aresult ofwindblown fugitive dust and heavy equipment exhaust emissions duringconstruction ofthe proposed project.

Noise - Minor and short-tenn noise impacts may be experienced as a result ofoperation ofheavy equipment, pile driving and other activities during construction of the proposedproject.

Visible Radiation (Light) - Other than nighttime vehicular traffic (freight haulage andconstruction) no impact on local light patterns is expected as a result ofconstruction oftheproposed GTP plant.

Socioeconomics - With the exception of income earned by locally hired employees duringthe construction phase, no long-tenn impacts on the socioeconomics ofthe project area areexpected as a result ofconstruction ofthe proposed GTP plant.

Water - The sources ofpotable and other water will be from municipal service and deliveryby water tankers. Exact volumes, use patterns and means ofdelivery are not known.

Power - Onsite power will be provided by drop lines from existing nearby service and dieselgenerator sets.

Transportation - Transportation impacts ofconstruction will consist offreight delivery bysea shipment, and by over-the-road freight haulage from port facilities and other points ofsupply.

Housing - The number and location ofconstruction workers and managers is not known atthis time.

Worker Health and Safety - Worker health and safety during the construction phase oftheproposed GTP plant will be in accordance with all requirements ofthe Egyptian Ministry ofLabor, and applicable requirements ofLaw 4, which address worker exposure limits andgeneral working conditions.

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The PEA indicates that no impact is expected as a result of construction ofthe proposed GTP planton the local topography and landfonns, littoral salt marshes, coastal marine environment, NorthernLimestone Plateau, local climate and meteorology, temperature, relative humidity, rainfall patterns,wind patterns, moisture regime, water quality, hydrology, flora and fauna, sensitive habitats,endangered species, fisheries, livestock or crops, demographics, indigenous peoples or tribal lands,cultural, archeological and historical resources, agricultural land use patterns, mining andquarrying, recreational, or local public services.


Section 10 Page 4

June, 2000

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10.4 Potential Impact of Operations

The PEA indicates that the following items will be impacted as a result ofoperation ofthe proposedproject:

Geology and Soils - Impacts on geology and soils will result primarily from disposal ofsolid wastes in approved landfills. Such wastes will include catalysts and adsorbents,catalyst fines and sludge. Wastes and the proposed means ofdisposal are described asfollows:

• Polymer Wastes - Polymer granules and pellets, separated from stonn-water in thepolymer interceptor, may be saleable. Polyethylene granules, pellets or additive spillswill be contained, removed as soon as possible and either recycled or transported offsitefor disposal by others.

• Catalysts and Adsorbents - Periodically, there will be a need to remove and dispose ofspent catalysts and adsorbents from the facility. Manufacturer's recommendationsregarding the safe handling and disposal of such items will be followed. Certaincatalysts will be recycled to recover metals having commercial value.

• Catalyst Fines - The MTO process will generate catalyst fmes, which will betransported offsite for disposal by others.

• Sludges - Waste solids from the biological treatment pond will be periodically removedand disposed ofin an environmentally acceptable manner.

Littoral Salt Marshes - Impacts on local littoral salt marshes occurring as a result ofoperation ofthe GTP plant will depend on the location and means ofdischarge ofwastewaters - e.g., point ofdischarge, depth, and whether discharge is at end ofpipe or byway ofdiffusers along the length ofthe pipe.

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Coastal Marine - Impacts on the coastal marine environment occurring as a result ofoperation ofthe GTP plant will depend on the location and means ofdischarge ofwastewaters - e.g., point ofdischarge, depth, and whether discharge is at end ofpipe or byway ofdiffusers along the length of the pipe.

•Feasibility Study Report - Volume I of2EA TCO - Suez Petrochemical Complex GTP ProjectSuez, Egypt

Section 10 Page 5

June, 2000

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Air Quality - Gaseous emissions of the plant will be from stacks, vents and flares.

• Stack emissions will occur from the Methanol Reformer Stack, the MTD RegeneratorStack, and the Package Boiler Stack. The only regulated emission expected from thesestacks is Nitrogen Oxides (NO,). Preliminary modeling ofthese emissions wasincluded in the PEA. The NOx emissions are not expected to exceed EEAA or WorldBank guideline limits.

• Vent emissions will occur from the Decarbonator Vent, the Dearator Vent, andIntermittent Boiler Blowdown. Gases emitted from these vents are not regulatedpollutants.

• Flare emissions will occur from the two flare systems installed at the facility. One willreceive emissions from all of the cryogenic service vents and the other will receive allother discharges to be flared. The flare systems are provided for emergency and orupset conditions. Venting to flares is not expected during normal operation so theseemissions were not modeled for the purposes ofthe PEA.

Water Quality - Liquid discharges from the process plants will be treated prior to dischargefrom the facility into the seawater. Facility wastewater discharge points are as follow:

• Organic Trap (MTO Waste Treatment)

• Reverse Osmosis Unit (MTO Waste Treatment)

• Water Polisher (MTO Waste Treatment)

• Water Polisher (Boiler Feedwater Treatment)

• Water Softener (Raw Water Treatment)

• Reverse Osmosis Unit (Raw Water Treatment)

• Other Liquid Waste Streams include an oil removal system included in the plant design.The system will remove oil from water streams that may be contaminated with oil frompotential leaks in process equipment, e.g., compressor trains. Oils collected will beperiodically removed from the plant and disposed of in an environmentally safe manner.

Noise - Noise levels will not exceed 90 dBA in normally accessible locations on the facility.

Visible Radiation (Light) - Radiation, as visible light from flaring operations, will notexceed an intensity of 1.6 kW/m2 (excluding solar) at accessible locations. The only other

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source ofvisible radiation will be plant lighting at nighttime, and nighttime vehicular trafficassociated with operation ofthe proposed GTP plant.•

Feasibility Study Report - Volume I of2EATCO - Suez Petrochemical Complex GTP ProjectSuez, Egypt

Section 10 Page 6

June, 2000

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Demographics & Socioeconomics - Determination ofimpacts on local demographics andsocioeconomics have not been completed at this stage.

Infrastructure - Impacts ofthe proposed project on local infrastructure are expected to beminimal. Wastewater recovery and recycle are included in the plant to minimize freshwater consumption. The plant will handle water treatment and disposal. Electrical powerrequirements will be supplemented by power generated onsite by a condensing turbineoperated on the exhaust stream ofthe HP boilers.

Worker Health and Safety - Worker health and safety during the construction phase oftheproposed GTP plant will be in accordance with all requirements ofthe Egyptian Ministry ofLabor, and applicable requirements ofLaw 4, which address worker exposure limits andgeneral working conditions.

The PEA indicates that no impact is expected as a result ofoperation ofthe proposed GTP plant onthe local topography and landforms, Northern Limestone Plateau, local climate and meteorology,temperature, relative humidity, rainfall patterns, wind patterns, moisture regime, hydrology, floraand fauna, sensitive habitats, endangered species, fisheries, livestock or crops, indigenous peoplesor tribal lands, cultural, archeological and historical resources, agricultural land use patterns, miningand quarrying, or recreational.

10.5 Potential Impact of Catastrophic Events

Potential hazards include environmental impacts resulting from catastrophic failure ofprocesses orassociated equipment, and or catastrophic events such as natural phenomenon (e.g., earthquakes,storms, floods and lightening), or accidents. Types failure, potential hazards and resulting possibleenvironmental impacts are discussed in the following sections.

Hazards ofand Impacts Resulting from Process and Equipment Failure

The process fluids are typically contained within the pressurized process plant. The various processplants operate at elevated temperatures and pressures and care will need to be taken to preventoperator and maintenance staffcoming into contact with the hot process and utility piping.

In the event ofa release to the atmosphere ofone or more ofthe reaction gases, there is the potentialfor the generation ofa vapor cloud, which could result in a catastrophic explosion. Siting and/ordesign ofoccupied buildings will need to address the potential consequences ofsuch an incident.The electrical classification ofthe facility will have to take into account the fluids normallycontained within the process to ensure the correct electrical devices are incorporated into the facilitydesign.

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Section 10 Page 7

June, 2000

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Area gas detection devices will be required to monitor for gaseous emissions from the plant; thesewill include carbon monoxide and hydrocarbon detection systems.

Safety-showers/eyewash stations will be required at locations where personnel can come intocontact with chemicals within the facility. Adequate personnel protective equipment will need tobe worn by plant personnel when handling chemicals in the facility.

There will be the need for noise reduction in the plant due to the use ofhigh-speed machinery.Noise reduction can be effected by design where possible, and also by the use ofadequatepersonnel safety equipment.

Plant Overpressure

Over-pressure in any ofthe process units can occur due to anyone of several reasons, for example ablocked outlet, coolant failure, power failure, external fire etc. In the event ofan overpressureincident, the processes are to be equipped with reliefvalves designed to vent the overpressure to acontrol device, e.g. a flare, to prevent a release to the atmosphere ofone or more ofthe reactionfluids.

Spill Containment

In the event ofa process liquid spill it may be necessary to contain the liquid to prevent potentialenvironmental contamination. In such areas, it will be necessary to curb the process areas and todrain the liquid away from the process equipment to prevent possible 'liquid pooling' and theresultant fire hazard around equipment.

Chemical Storage

The storage ofthe reaction feedstocks and products should be such that emissions to theenvironment are minimized. Vents from such tanks should be sent to an approved control device,e.g. a flare. Separation ofand diking requirements for storage tanks containing flammablematerials will require siting per the local codes and regulations

Hazards ofand Impacts Resulting from Natural Phenomenon

The primary natural hazard present in Suez region is earthquake. The Suez area has registered 55earthquakes, all ofmild intensity during the period 1990-96, compared to more than 1,000 in andaround the GulfofAqaba during the same time period.

The plant will be built to code in accordance with ASCE standards, and will be designed towithstand seismic activity ofmagnitude that could reasonably be expected to occur at the GTPfacility.

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10.6 Conclusions

Section 10 Page 8

June, 2000

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• The proposed location ofthe project site is consistent with the planned use ofthe land in thiszone. Nearby facilities will include other petrochemical plants and industrial plants, the port ofAin El Sokhna and the main highway from Suez to Zaafrana.

• No unique or unusual potential major hazards are associated with the installation and operationofthe GTP complex. The design and layout ofthe facility will be so as to minimize inadvertentemissions to the atmosphere through the implementation ofcontrol safeguards as well as theuse ofwell-trained operations and maintenance personnel.

• The primary impacts ofconstruction ofthe proposed project will be temporary, and will consistofwindblown fugitive dust resulting from earthmoving and other site preparation activities, andexhausts from fossil fuel-fIred equipment.

• The primary impacts ofoperation ofthe proposed project will result from emissions ofnitrogenoxides (NOJ, primarily as nitrogen dioxide (N02)' and discharge ofcooling water in to theGulfof Suez. Preliminary atmospheric dispersion modeling predicts maximum annual impactsofapproximately 8 Ilg NOx/m3, annual average, at a distance of 1,000 meters downwind ofthepoint ofdischarge. The applicable standard and guideline limit is 100 Ilg NOX/m3, annualaverage. Impacts ofthe thermochemical plume ofthe cooling water return are expected to bewithin required limits based on the small temperature differential of 10°C at the point ofdischarge and the assimilative capacity ofthe receiving waters (Gulfof Suez).

• No impacts on endangered species or sensitive habitats are predicted.

• The preliminary fInding ofthis PEA indicates that the environmental impacts ofthe proposedproject will meet the requirements ofthe Egyptian Environmental Affairs Agency (EEAA) andcomply with the guidelines ofThe World Bank (WB) Pollution Prevention and AbatementHandbook, 1997 (pPAH)

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11. Project Sponsor Information

11.1 EATeO11.2 Kvaerner11.3 Ferrostaal11.4 Other Sponsors

Section II Page I

June, 2000


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11.1 EATCO

Section 11 Page 2

June, 2000

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The Egyptian Arab Trading Company, EATCO, is an investment holding company for the EIKomi family. Founded in Egypt, its current chairman is Mr. Yehya EI Komi. EATCO's turnoveris in the region of US$ 15 million with assets ofabout US$ 100 million. The Company has avaried portfolio of interests ranging from industrial developments in the oil and gas andpetrochemical sectors, real estate in Egypt, tourism in Newaibi, agriculture, with one of thelargest private banana and mandarin plantations in Egypt.

Specifically Mr. EI Komi started his oil and gas interests drilling for oil in the southernMediterranean with Voest Alpine in 1992 as a joint venture partner and followed soon after withthe installation of a US$ 35 million lube oil plant using UOP technology in Tenth ofRamadancity outside Cairo; this plant is due on stream by the end of2000. EATCO has also recentlyformed a joint company with a major Spanish utility for the installation of a 4 bn m3 /day LNGplant near Alexandria.

EATCO's decision to enter the petrochemical industry follows in the wake ofPresidentMubarak's drive to expand the private sector ofthe Egyptian economy and the evident localdemand for polyethylene and polypropylene (demonstrated in the CMAI market study attachedto this report). The decision has been encouraged by UOP in light of the availability of relativelylow cost gas from EGPC and UOP's new MTO process converting methanol directly to ethyleneand propylene without the need for a conventional catalytic cracker.

11.2 Kvaemer

Kvaemer is an international diversified business group, registered in Norway with a London basedinternational operational headquarters. The group has annual operating revenues in excess ofUS$lO billion, employs over 50,000 people, and is a global leader in technology-based engineering,manufacturing, and construction services for a wide range of industries. The company is a keymanufacturer and developer ofsystems and technologies for environment friendly solutions neededin processing natural resources such as oil, gas, minerals, steel and hydropower.

The Kvaerner group incorporates the internationally renowned contracting companies John Brownand Davy Corporation whose experience includes the completion worldwide of26 polyethyleneand polypropylene plants using Union Carbide UNIPOL process technology and 30 methanolplants utilizing Kvaerner - ICI technology. Kvaerner also has extensive experience ofworking withUOP technology in the refining and petrochemical sector.

Kvaerner Construction has been working continuously in Egypt since 1977 and has a branch officeregistered in Cairo. Recent projects include:

• • PMC services to NPC Hydrocracker project - Suez

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• Technology supply to Naga Harnmadi Aluminium factory

• Partner in Cairo Waste Water consortium

• Consortium leader for the South Valley Development project

• Cairo Airport development

Section II Page 3

June, 2000

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Kvaemer has experience in operating petrochemical plants, specifically in South America and theFormer Soviet Union. Kvaemer Bowen is the Kvaemer entity in the business of undertaking theoperation and maintenance of process plants. Kvaemer will further increase its operatingexperience profile with the sponsorship of the SPC project.

11.3 Ferrostaal

Ferrostal is a company of the MAN Group (Germany), one ofEurope's leading producers ofcapital goods. The group is a systems supplier in the fields ofcommercial vehicle manufacturing,machinery and plant construction and in the industrial services sectors worldwide. The totalturnover of the MAN Group in the 1998/99 financial year amounted to nearly DM 26 billion, ofwhich 67% accrued from exports. Some 67,000 persons work worldwide for the MAN Group.

Ferrostaal, based in Essen, Germany, is active in the following areas:

- Designing, delivery, assembly (including that of steel-based structures), starting up andmaintenance of industrial facilities on a worldwide scale.

- Worldwide distribution ofand provision of after-sales services for machines used inmanufacturing operations as well as for equipment and ships.

- Planning and carrying out of infrastructural projects.- Trading in both Germany and abroad in steel products and non-ferrous metals.- Maintaining of centers providing logistics-based supply services to automobile manufacturers.- Financial services facilitating investments in industrial and infrastructural projects.

In 1998/99 Ferrostaal had total sales ofDM 5,219 million, new orders for DM 4,357 million, netincome ofDM 63 million and employed 6,811 people.

Ferrostaal has substantial investment and operating interests in methanol plants in Trinidad andTobago, some together with Kvaemer. Like Kvaemer, Ferrostaal sees an investment in the SPCproject as a strategic step in furthering its methanol interests.

DSD (Dillinger Stahlbau) GmbH is 100% owned by Ferrostaal. It is based in Saarlouis, Germanyand has worldwide activities in servicing the engineering industry with deliveries and erection forsteel making plants, petrochemical plants, cement plants, refineries, power plants and otherindustrial facilities. In 1998/99 DSD had total sales ofDM 1,133 million and had 5,350 employees.

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Ferromatalco, a fully owned subsidiary of DSD, will act as a subcontractor to Kvaerner in the EPCcontract. Ferrometalco, based in Cairo, Egypt, executes design, fabrication and erection ofheavysteel structures for buildings, factories and industrial plants. Ferrometalco are also fabricators ofmechanical equipment components, tankage, light pressure vessels, heat exchangers; they ownfacilities for pipeline fabrication and erection at their new site in Tenth ofRamadan city outsideCairo.


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11.4 Other Sponsors

Other sponsors yet to be determined are anticipated to participate in the equity ofthe project. SuchSponsors may include strategic investors with a long-term interest in the successful completionand operation of the project.

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12. Information Regarding the Government of Egypt

12.1 Commitment to Project12.2 Legal and Regulatory Environment12.3 Status of Government Requirements12.4 Egypt Country Profile

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12.1 Commitment to Project

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The commitment ofthe Government ofEgypt to the SPC project is evidenced by the followingfactors:

- The Special Economic Zone in the North West Gulfof Suez, where SPC will be located, hasbeen granted economic and fiscal benefits, including a tax holiday and reduced import duties;

- Gasco, the government owned gas distribution company, has provided a letter advising SPC ofthe availability required quantities oflean natural gas starting from 2004;

- Discussions with His Excellency Sameh Fahrny, Egyptian Minister ofPetroleum, have indicatedthe policy ofthe Government to offer a competitive price for natural gas for projects such asSPC;

- The Government has made industrial development based upon natural resources a key policy,and has commissioned a master plan for the petrochemical industries in Egypt to an internationalconsulting company ofrepute.

For the sake ofclarity, SPC is a private sector project and it is not expected that the Governmentwill control in any way its management and operations.

As further evidence ofthe Government's support to investments, the Investment Law (law No. 230of 1989) offers a number ofincentives to foreign investors including:

- The companies and establishments shall not be nationalized or confiscated or sequestered;- No Government intervention in the pricing of the establishment's products, nor in determining

their profits;- The companies have the right to own building lands and real estate regardless oftheir

nationalities;- The foreign investors have the rights to transfer without any restriction, their profits and hard

currency to their homeland.

12.2 Legal and Regulatory Environment

Egypt has a well developed legal system which has its roots in the civil and penal codes oflaw,inspired primarily by French law, that were put in place in the late 19th century.

The court system is well established, from the ordinary police courts to the Supreme Court ofAppeal (Court ofCassation). Egypt has a strong independent judiciary. The courts recognise theprimacy ofParliament but will rule on the legal status of legislation passed by Parliament.

The Court of Cassation has confirmed on a number of occasions the validity of clauses on theinternational arbitration for the settlement of contractual disputes. An Egyptian court will respectan arbitration clause and stay proceedings brought before it. Arbitration may be conducted under

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any set of rules including those ofUNCITRAL and International Chamber of Commerce;arbitration under such rules may be held in Egypt or abroad.•Feasibility Study Report - Volume 1 of2EA TCO - Suez Petrochemical Complex GTP ProjectSuez, Egypt

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An award pursuant to an arbitration that has taken place outside Egypt may be enforced in Egypt ifit is covered by one of the international conventions to which Egypt has adhered or if it satisfies theconditions set out in Law No. 27 of 1994. Egypt is a signatory state to the New York convention of1958 on the recognition and enforcement offoreign arbitral awards.

Foreign court judgements may be enforced in Egypt subject to certain conditions. Egypt is asignatory to the Arab League Convention that allows enforcement ofawards issued in a signatorystate in another state.

In Egypt business enterprises must observe the following regulations:

- The Companies Law (law No. 159 of 1981) issued by the Ministry ofEconomy and Trade- Social Security regulations issued by the Ministry of Social Affairs- Income tax, sales and customs duties and other regulations issued by the Ministry ofFinance- Labour regulations issued by the Ministry ofLabour pertaining to personnel working in Egypt.

Subject to observing the applicable regulations, companies in Egypt are allowed to incur long-termindebtedness. There are no specific debt-to-equity ratios prescribed for companies, and owners maystructure the companies as they wish. As mentioned in section 5, withholding taxes on interestpayments apply to lenders based in certain jurisdictions.

In terms ofsecurity, prior project fmance transactions in Egypt have featured the following:- Real estate mortgage (Egyptian law)

Commercial mortgage (Egyptian law)Charge over the offshore projects accounts (English law)Baileeship ofraw materials (Egyptian law)Assignment ofthe benefit of the EPC contract, the offtake contract and other contracts (Englishlaw)Assignment of insurances (English law)Negative pledge ofproject company shares (English law).

12.3 Status of Government Requirements

The project promoters have been required by the Government to fill in a questionnaire indicatingthe nature ofthe SPC project.

To the best ofthe project promoter's knowledge there are no other official requirements imposedby the Government to approve the feasibility ofspc.

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12.4 Egypt Country Profile

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Note: Infonnation contained in this country profile report is the best available as ofDecember 1999 and can change; infonnation in this report is based on the United StatesEnergy Infonnation Administration's country analysis briefs.

Egypt is a significant oil producer and a rapidly growing gas producer. The Suez Canal andSumed Pipeline are strategic routes for Arab Gulf oil shipments, making Egypt a focal point inworld energy markets.

Egypt's government plans to accelerate its program for the privatization of state-ownedenterprises (SOE's). The privatization program moved slowly in the early to mid-1990's due to

GENERAL BACKGROUND

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LIBYA.

The Egyptian economy has maderemarkable progress in the 1990's, as thegovernment has implemented refonnsunder an IMF stabilization programsince 1991. The government has alsoaccelerated the privatization of stateowned enterprises, whose losses were amajor drain on the state treasury, andliberalized rules for foreign investment,resulting in greatly increased foreignbusiness interest in Egypt. Subsidieshave been cut (except for a few basicitems such as staple foods), which hascontributed to a reduction in thegovernment's budget deficit to around1% of gross domestic product (GDP).During 1998, Egypt's GDP grew at a5.0% pace, slowed by a sharp decrease

in tourism earnings following the November 1997 massacre of 62 tourists at Luxor. Tourismrevenues account for about 5% ofEgypt's GDP, and are among the country's five main sources ofhard currency inflows (the others being remittances from Egyptian workers abroad, oil exports,Suez canal tolls, and foreign aid.) GDP growth for 1999 is projected at 5.5%. Overall, Egypt'slong-tenn macroeconomic prospects look favorable, with progress set to accelerate on suchstructural issues as privatization, trade liberalization, and deregulation. Egypt's main challenge ismatching employment growth to the estimated 500,000 new job seekers coming into the labormarket each year. Unofficial estimates put Egypt's unemployment rate at 17%-19%, twice theofficial figure. To lower unemployment, Egypt needs to maintain a high rate of GDP growth andto bring in more foreign investment.

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the large debts of SOE's and severe overstaffmg (layoffs were largely prevented by regulations).The government plans to target "strategic" areas for privatization, including telecommunicationsand other utilities, including the power distribution company (although the Egyptian GeneralPetroleum Corporation - EGPC - remains off limits). Reliance on build-own-operate-transfer(BOOT) contracts, especially for power generation projects, seems to be increasing. Egypt hasalso embarked on a program to develop infrastructure in uninhabited or sparsely inhabited areasof the country, especially the massive Toshka irrigation project in the Western Desert. The goalsare to facilitate a move of population out of the crowded Nile Valley and to increase agriculturalproduction.


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Energy will continue to play an important role in Egypt's economy. Oil exports account for about40% of the country's total export revenues. The government has been successful in curbingdomestic demand for petroleum products by reducing subsidies and encouraging consumption ofnatural gas. New natural gas fmds, especially in the Nile Delta region, will soon give Egyptenough production capacity to become a significant gas exporter.

OIL

Egypt produced an average of 866,000 barrels per day (bbl/d) of crude oil during 1998. This is adecline from a high point of 922,000 bbl/d in 1996. With domestic oil demand increasing due toeconomic growth, there are fears that the country could become a net oil importer by 2005-2010.Egypt is hoping that exploration activity, particularly in new areas, will discover sufficient oil incoming years to maintain crude oil production comfortably above 800,000 bbl/d. Egyptian oilproduction comes from 4 main areas: the Gulf of Suez (over 70%), the Western Desert (about16%), the Eastern Desert, and the Sinai Peninsula. Egypt's proven crude oil reserves areestimated at 3.5 billion barrels.

Oil from the Gulf of Suez basin is produced mainly by the Gupco (Gulf of Suez PetroleumCompany) a joint venture between BP-Amoco and the Egyptian General Petroleum Corp.(EGPC). Production in the Gupco fields, with most wells in operation since the 1960's and1970's, is falling rapidly, although it remains substantial at around 360,000 bbl/d. Gupco isattempting to slow the natural decline in its fields through significant investments in enhanced oilproduction as well as increased exploration. BP Amoco has announced that it intends to invest$450 million over the next six years in technology to prolong the production life of Gulf of Suezfields. Besides Gupco, other major companies in the Egyptian oil industry include Badr el-DinPetroleum Company (EGPC and Shell); Suez Oil Company (EGPC and Deminex); and ElZaafarana Oil Company (EGPC and British Gas -- BG).

Egypt's total oil production has declined more slowly than Gupco's due to new output fromindependent producers like Apache and Seagull Energy at smaller fields, especially in theWestern Desert. Crude production in the Qarun block, for instance, surpassed 40,000 bbl/d inmid-1997, up from 5,000 bbl/d in late 1995. In October 1997, Apache and Seagull announced a

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"significant" oil discovery in the East Beni Suef concession (which they share 50/50), alsolocated in the Western Desert. The field is said to contain around 100 million barrels of crude oil.Overall, Egypt now gets around 16% of its oil and 30% of its natural gas from the WesternDesert. Development of new fields in the Qattara Depression and the North Coast's El Alameinare expected to add 40,000 bblld in new production as they come online in the next few years.Recent discoveries in the Western Desert include: a find south of Dab'a (93 miles southwest ofAlexandria), another at the Qaroun concession (43 miles southwest of Cairo), and one in theMeliha concession area (50 miles southeast ofMersa Matrouh).


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Spain's Repsol is currently expanding its oil output in Egypt's Western Desert to 60,000 bbl/d(from 32,000 bblld in early 1997). A joint venture of Repsol (50%), along with Apache (40%),and Australia's Novus (10%), operates the Khalda concession, currently producing 35,300 bbl/dof oil. In September 1998, the partners announced that they would double their investment to$100 million at Khalda over the next two years in order to increase oil production to 40,000 bbl/dby the end of2000. In October 1999, a new test well in the central Khalda concession produced aflow of3,000 bbl/d.

Suez Canal I Sumed Pipeline

In addition to its role as an oil exporter, Egypt has strategic importance because of its operationof the Suez Canal and Sumed (Suez-Mediterranean) Pipeline, two routes for export of Arab Gulfoil. Tanker traffic and revenues have declined in recent years as a result of competition from oilpipelines and the alternate route around the Cape of Good Hope in South Africa. Suez Canal tollsin 1998 fell to $1.76 billion, from $1.79 billion in 1997, the fifth consecutive annual decline,despite efforts to win back market share. In late December 1997, for instance, the Suez CanalAuthority (SCA) announced that it would not raise canal transit fees for the fourth year in a row.The SCA also said it would offer a 35% discount to liquefied natural gas (LNG) tankers in 1998,as well as other discounts for oil tankers.

The SCA is continuing enhancement and enlargement projects on the canal. The canal has beendeepened so that it can accept the world's largest bulk carriers, but it will need to be deepenedfurther to 68 or 70 feet, from the current 58 feet, to accommodate fully laden very large crudecarriers (VLCCs). The SCA has attempted to reach an agreement with its main competition fornorthbound crude traffic, the Sumed pipeline. Such an agreement could bar any tanker smallenough to traverse the canal from transporting oil through the pipeline. The SCA offersincentives for tankers to off-load a portion of its cargo through the Sumed, allowing for passagethrough the canal, and reloading at the other end ofthe pipeline.

The Sumed pipeline is an alternative to the Suez Canal for transporting oil from the Arab Gulfregion to the Mediterranean. The 200-mile pipeline runs from Ain Sukhna on the Gulf of Suez toSidi Kerir on the Mediterranean. The Sumed's original capacity was 1.6 million bbl/d, but withcompletion of the Dashour pumping station, located south of Cairo, capacity has increased to 2.5million bbl/d. The pipeline is owned by the Arab Petroleum Pipeline Company (APP), a joint

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venture between Egypt (50%), Saudi Arabia (15%), Kuwait (15%), the U.A.E. (15%), and Qatar(5%). The APP also has been increasing storage capacity at the Ain Sukhna and Sidi Kerirtenninals.


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Refining and Petrochemicals

Egypt's eight refmeries are able to process more than 577,000 bbl/d of crude, with the largestrefmery being the 145,000-bbl/d Mostorod refinery outside of Cairo. The government has plansto increase production of lighter products, petrochemicals, and higher octane gasoline byexpanding and upgrading existing facilities. In addition, Egypt's Ministry of Petroleum plans tobuild five new refineries and petrochemical plants valued at $2.5 billion. Egypt's refineryexpansion plans include construction of a 40,000 bbl/d hydrocracker at the EI-Nasr PetroleumCompany refmery in Suez, and a doubling of capacity at the refinery in Assyut to 100,000 bbl/d.In September 1997, a $33 million management contract was awarded to U.K.-based KvaernerJohn Brown for the EI-Nasr hydrocracker project, which is expected to cost $450 million.

EGPC is planning to increase production of lube oils by expanding its EI-Mex refinery inAlexandria. In May 1997, EGPC signed a $300-million contract with Toyo Engineering to buildEgypt's first steam cracker. The cracker is to be fed by ethane and to have a capacity of 300,000tons per year. In August 1998, Foster Wheeler France SA won a $200-million contract fromAlexandria Mineral Oils Co. to build a lube oils plant in Alexandria. Meanwhile, a 700,000-tonper-year naphtha refonner complex is being built by Alexandria Petroleum Company, withcompletion due in June 2000.

A contract for construction of the 100,000-bbl/d, Egyptian-Israeli joint venture MIDOR (MiddleEast Oil Refinery Ltd.) refinery in Alexandria entered into effect in July 1997. The ultra-modem,environmentally-advanced facility is expected to cost about $1.3 billion and will include a25,000-bbl/d hydrocracker. The original plan was for the facility to be mainly export oriented,with only 20% of production sold in Egypt, but recent reports indicate plans for 50% or more ofthe products to be sold locally. The project represents the largest Arab-Israeli joint venture todate. In January 1997, EGPC acquired an additional 20% equity from Israel's Merhav and fromthe local Hussein K. Salem Group to push its share in the venture to 60%. Each of the privateinvestors retains a 20% share in the project. Recent reports indicate that EGPC may intend to selloff some of its holding to foreign investors. Spain's Repsol is set to manage the plant when itcomes online in 2001.

NATURAL GAS

Oil companies began active exploration for natural gas in Egypt beginning in the early 1990s,and in short order they found a series of significant gas deposits -- in the Nile Delta and theWestern Desert. Today, Egypt's natural gas sector is expanding rapidly, with production expectedto nearly double between 1999 and 2002. Production stands at 2.3 billion cubic feet per day

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(Bcf/d) near the end of 1999, up from 1.6 Bcf/d at the beginning of the year, and is expected toreach 3.0 Bcf/d by the end of2002 and 4.0 Bcf/d in 2003.•Feasibility Study Report - Volume 1 of2EA TCO - Suez Petrochemical Complex GTP ProjectSuez, Egypt

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Major foreign companies involved in gas exploration and production in Egypt include BritishGas (BG), BP-Amoco, ENI-Agip, and Shell. Shell has plans to spend around $1.6 billion inEgypt, mainly on gas exploration and development, over the next five years. BP-Amoco plans tospend $450 million by 2000, while ENI-Agip and BG also plan significant expenditures in thisarea.

As of early 1999, Egypt's total proven gas reserves were estimated at 31.5 trillion cubic feet(Tc±), up 54% from 20.4 Tcf in 1997, and more than double the 15 Tcf of proven reserves in1993. Reserves are expected to increase even more in the next few years. Most of this increasehas come about as a result of new gas discoveries in the Mediterranean offshorelNile Deltaregion, and increasingly in the Western Desert. In the Nile Delta, which has emerged as a worldclass gas basin, recent offshore field developments include Port Fuad, South Temsah, andWakah. In the Western Desert, the Obeiyed Field is an important natural gas area currently underdevelopment. Overall, more than half of Egypt's current natural gas production comes from justtwo fields: Abu Madi (on stream since the 1970s) and Badreddin (since 1990). Abu Qir is thethird largest field, and like Abu Madi is considered mature.

The International Egyptian Oil Company (IEOC), a subsidiary of Italy's ENI-Agip group, isEgypt's leading natural gas (and overall hydrocarbons) producer, operating in the Gulf of Suez,the Nile Delta, and the Western Desert regions. In cooperation with BP-Amoco, IEOC has beenconcentrating its natural gas exploration and development efforts in the Nile Delta region. Thecompanies are undertaking a $1 billion development program expected to yield about 365 billioncubic feet (Bet) annually beginning in 2000. On November 4, 1997, Amoco (along with itspartners EGPC and IEOC) announced plans to develop the giant Ha'py gas field in the Ras elBarr concession of the Nile Delta region at an estimated cost of $248 million. The gas (up to 2Tcfannually) is to be marketed domestically beginning in 2000. In September 1997, IEOC testedthe Temsah gas field (located in the offshore Nile Delta) at 11.6 million cubic feet per day(Mmcf/d). In October 1998, BP-Amoco (25% owner) and ENI-Agip signed a gas salesagreement with EGPC (50% owner) and IEOC (25% owner) for Temsah. Field developmentcould cost $700 million, with production beginning in early 2000. Temsah's gas reserves areestimated at 3.9 Tcf, and the gas sales agreement is for 35 Mmcf/d initially, increasing to 480Mmcf/d by 2003.

Two areas in the Western Desert -- Obeiyed and Khalda -- have shown great potential forincreasing Egypt's gas production in the near future. The Obeiyed gas recently started producing300 Mmcf/d, after the completion of a pipeline linking it to Alexandria. Production of 300Mmcf/d started at Khalda. In late 1998, Repsol announced a gas discovery in the Khalda OffsetConcession, adjacent to Khalda. Output from Obeiyed and Khalda will be transported toAlexandria by a 180-mile pipeline. BP-Amoco and the IEOC also are preparing to bring severalfields off the Nile Delta coast into production. These include the Baltim and Baltim South fields,

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expected to come online by 2000, and fields on the Temsah and Ras el-Barr concessions by2003.•Feasibility Study Report - Volume 1 of2EA TCO - Suez Petrochemical Complex GTP ProjectSuez, Egypt

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Other companies with recent gas finds in Egypt include: Petrobel (the Sigan-l field), AgiplEGPC(Wakkar), and the U.K.-based BG Group (Rosetta-5 and Rosetta-6). These 3 finds are all in theNile Delta region. Gas deliveries from the Rosetta concession are expected beginning in 2000. Inother developments, BP-Amoco has found significant gas reserves in its North Sinai concession,while Apache is expecting its natural gas output in Egypt to grow five-fold between 1997 and2000, reaching nearly 15 Bcf per year. In April 1999, German RWG-DEA hit gas in itsconcession in the western Nile Delta, with a flow rate of 30 Mmcf/d. In May 1999, the Italianfirm Edison and British Gas International made a large find ("PI2/13") in the West Delta DeepMarine concession, which tested at 45 Mmcf/d, followed by another ("Simian-l ") which tested at44 Mmcf/d in October 1999. Geologists believe that the same type of formations which havebeen found to hold gas in the Nile Delta also extend out into the Mediterranean as a result of theNile's flow.

The rapid increase in Egypt's natural gas reserves and production in recent years has encouragedambitious plans for gas exports (either by pipeline or LNG tanker) to such countries as Turkey,Israel, Jordan, Libya, and the Palestinian territories. Currently, Egypt consumes all the gas itproduces.

• The most ambitious idea for gas exports is a pipeline which would connect Egypt with Israel andGaza, with the possibility of eventual links to Lebanon, Syria and Turkey. On December 22,1999, agreement was announced by the office of Israeli Prime Minister Ehud Barak on gasexports from Egypt to Israel and Gaza. A pipeline is to be extended from El-Arish in Sinai toconsumers in Israel and Gaza, initially gas-fired power plants along the coast. Construction isdue to be completed by early 2002.

Besides the Egypt-Israel-Gaza pipeline, another option for Egypt is to export LNG to Turkey.This project would involve the construction of a $1.2-billion liquefaction terminal near Port Saidon the Mediterranean coast, and a regasification facility at Izmir in Turkey. Egypt and Turkeysigned a preliminary agreement for LNG exports in 1996, and BG in November 1999 formed asubsidiary called Egypt LNG for the venture, but analysts have raised serious questions aboutwhether the project is economically feasible.

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Natural gas demand is growing rapidly in Egypt as thermal power plants, which account forabout 65% of Egypt's total gas consumption, switch from oil to gas. Gas also is being targetedfor use in heavy industrial projects, including petrochemical plants, a large new fertilizer plant inSuez, and several major new steel projects in Alexandria, Suez, and south ofAswan. CompressedNatural Gas (CNG) is being used as fuel for taxis in the Cairo metropolitan area as part of a pilotproject. Around 20,000 taxis already have been converted to use CNG, and 17 CNG fillingstations have been built to serve them. Meanwhile, domestic gas consumers are to be served byseveral private gas distributors, franchises which were awarded in late 1998. One of the

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franchises, awarded to a team headed by BG and including the Egyptian construction finnOrascom and Edison of Italy, will develop a gas distribution infrastructure in Upper Egypt as farsouth as Asyut, where no piped gas had been available. After the initial phase, valued at $220million, a possible later phase may extend the gas grid south to Aswan.


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ELECTRIC POWER

Egypt currently has installed generating capacity of 16.6 gigawatts (GW), with plans to add 9.3additional GW (mainly gas-fired) by 2010. Around 84% of Egypt's electric generating capacity isthennal (gas turbines), with the remaining 16% hydroelectric, mostly from the Aswan High Dam.All oil-fired plants have been converted to run on natural gas in a recently completed program.Plans for additional capacity include a 1.2 GW gas-fired power plant at Kureimat, about 60 mileseast of Cairo, scheduled to enter service in the near future. The Kureimat plant received $200million in financing from the United States Agency for International Development. Withelectricity demand growing 7%-8% annually, Egypt is building several power plants and isconsidering limited privatization of the electric power sector. Egypt's power sector is currentlycomprised of seven regional state-owned power production and distribution companies. Thegovernment plans to privatize them, starting by selling off minority stakes to private investorsthrough the Cairo Stock Exchange. A 20% stake in Cairo Electricity Company was sold off bythe end of August 1999, and minority stakes in the six others are to be sold by the end of 1999.This decision follows the February 1998 passage of Law 18, which provides for electricityrestructuring and asset sales. The aims of privatization are to raise money and to attract newinvestment.

Egypt is planning to add generating capacity by utilizing Build, Own, Operate, and Transfer(BOOT) fmancing schemes to construct power plants. BOOT projects are used to fund largescale public infrastructure without affecting the country's debt profile. Private developers areallowed to recover their costs of construction through ownership and operation of the plant for afixed period before handing it over to the state. The first BOOT project is a gas-fired steampower plant with two 325-MW generating units, to be located at Sidi Kerir or on the Gulf ofSuez. The plant is expected to cost about $450 million, to begin operation in 2001, and to be thelargest private power generator in the Middle East. Electricity from the plant is to be sold at 2.54cents per kilowatthour. This competitive price stems largely from the availability of cheapnatural gas -- to be supplied by Egypt's Gasco -- as a feedstock. U.S.-based InterGen (a jointventure of Bechtel Enterprises and Shell Generating Ltd.), along with local partners KatoInvestment and First Arabian Development and Investment, have the 20-year BOOT contract forSidi Kerir. The second BOOT power project award went to Electricite de France (EDF), for twogas-fired plants to be located near the north and south ends of the Suez Canal. Each plant willhave an installed capacity of 650 MW, and the project cost will total around $900 million. Theprice for power from the EDF plants will be 2.4 cents per Kilowatt hour (Kwh), the lowest priceyet offered for a BOOT plant. The Egyptian Electricity Authority issued a tender for twoadditional BOOT projects, Cairo North and Safaga, in October 1999.

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COUNTRY OVERVIEW

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President: Mohammed Hosni Mubarak (since October 1981) Prime Minister: AtefObeid (sinceOctober 1999)Independence: July 23, 1952Population (7/99E): 67.3 millionLocation/Size: Northern Africa/1,001,450 sq. kIn (386,662 sq. miles), about the size of Texasand New MexicoMajor Cities: Cairo (capital), Alexandria, Aswan, Asyut, Giza, Ismailiya, Port Said, Suez, TantaLanguages: Arabic (official), English, FrenchEthnic Groups: Egyptian, Bedouin, and Berber compose 99% ofthe populationReligions: Sunni Muslim (94%), Coptic Christian (6%)Defense (8/97): Army (320,000), Air Defense Command (80,000), Air Force (30,000), Navy(20,000), Reserves (254,000)

ECONOMIC OVERVIEW

Currency: Pound (P)Market Exchange Rate (19/6/00): P 3.47 = $1 U.S.Nominal Gross Domestic Product (GDP) (1999E): $91.9 billionReal GDP Growth Rate (l999E): 5.8%Inflation Rate (1999E): 4.0%Current Account Balance (1999E): -$2.5 billionMajor Trading Partners (1998): United States, Italy, Germany, JapanMerchandise Exports (1999E): $4.8 billionMerchandise Imports (1999E): $15.2 billionMerchandise Trade Balance (1999E): -$10.4 billionMajor Export Products: Crude oil and petroleum products; cotton yarn and textiles;engineering and metallurgical goods; agricultural goods and raw cotton (5.2%)Major Import Products: Machinery and transport equipment; livestock; food and beveragesNet International Reserves (1999E): $21.2 billionTotal External Debt (1999E): $34.5 billion

ENERGY OVERVIEW

Energy Ministers: Sameh Fahmy (Minister of Petroleum), Ali el-Saidi (Minister of Electricityand Energy)Proven Oil Reserves (1I1199E): 3.5 billion barrels

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Oil Production (1st 9 months of 1999, average): 910,000 barrels per day (bbl/d), of which834,000 bbVd is crude oilOil Production Capacity (1999E): 928,000 bbl/dOil Consumption (1998E): 550,000 bbl/dNet Oil Exports (1998E): 360,000 bbl/dCrude Refining Capacity (1I1199E): 578,000 bbl/dNatural Gas Reserves (1I1199E): 31.5 trillion cubic feet (Tc±)Natural Gas Production (1998E): 0.5 TcfNatural Gas Consumption (1998E): 0.5 TcfElectric Generation Capacity (1I1197E): 16.6 gigawatts (84% thermal, 16% hydroelectric)Electricity Generation (1998E): 57.8 billion kilowatthours

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eatco_suez petrochemicals complex_gas to polyolefins

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