The Energy Base Of Syria:.
Syrian oil production capacity of 562,000 b/d, compared to 610,000 b/d in 1995, appears set to decline further in the coming years. Nearly all major producing oilfields in the country had reached their plateaux by 1996. Since then there have been no significant discoveries. The only important new oilfield to come on stream over the past two years was Kishma, in Deir Ez Zor province, which was inaugurated in November 1997 (see Oil Market Trends of this week).
The options facing Syria in developing its energy base are limited by political factors. As one of the countries called a "terrorist state" by the US, future investments into its oil and gas sector could be affected if Washington moves to impose sanctions similar to those on Iran and Libya. Over the past year, some US Congressmen have advocated this as one way to punish Syria for its position on the Middle East peace process. For example, Conoco stands to lose out on a $350 million gas development venture in Deir Ez Zor field because of Syrian concerns that future US legislation may affect the project.
Political factors affect Syrian potential for hydro-power generation as well. The country is already producing hydro-electricity to meet power needs to some extent. But there are indications that moves by Turkey to control the Euphrates and Tigris rivers through its South-East Anatolian Project, involving a vast network of dams across the two rivers, could restrict future Syrian projects in this sector.
Despite endemic problems the Syrian economy had grown by an average of 5% from 1991 to 1996, according to 'MEED' of Sept. 5, 1997. Reforms based on Law Number 10 have given a boost to the private sector, whose activity by 1997 accounted for an estimated 63% of GDP. But the momentum of the early 1990s was not maintained in 1996-1997 and growth figures are slipping. Western critics say the pace of economic reforms is too slow, adding that limited liberalisation measures put in place have been rendered ineffective due to excessive bureaucracy, regulations, a poor legal environment, etc. Indeed, these critics say that an economic assessment on Syria is hard to make as virtually all related statistics are treated as state secrets (see economic base on following pages).
Local Consumption: At present, oil is the main component of the domestic energy consumption mix. But considerable progress has been made in Syria's shift from oil to natural gas to meet local energy demand. Total energy consumption in Syria exceeds 14 million tons of oil equivalent, up from more than 13 million tons in 1996 and 12 million tons in 1993.
Domestic oil consumption exceeds 200,000 b/d. Government efforts to limit oil consumption have met with limited success. Reasons for this range from the rapid growth of population to government subsidies that keep prices down to levels which the people are able to afford.
Now production of associated and non-associated gas is averaging about 17.5 million cubic metres/day - of which 11 MCM/day are being processed for local consumption by the power plants, the oil refineries and other industries, compared to 8 MCM/day in 1996. Gas consumption rose from 217 MCM in 1986 to 972 MCM in 1990, 1.16 BCM in 1992 and an estimated 2 BCM in 1993.
Demand for gas is set to rise rapidly in the coming years. It should reach about a third of Syria's total energy consumption during the first half of the next decade. The power sector is by far the biggest local consumer of gas, which is also used on a smaller scale in manufacturing fertilisers, as well as in the cement, ceramics and metals industries. Five power stations have been converted to gas: the ones in Damascus, the Mhardeh plant, and the plants of Homs and Al Ghab. The power plants at the oil refineries of Tartus and Banias have also been converted to gas.
The share of natural gas in electricity generation rose from 0.1% during 1982 to 3.3% in 1984, 3.8% in 1985, 6.4% in 1986 and 7.8% in 1987. It reached almost 18% in 1995 and over 20% in 1997, while the country's energy consumption base has increased considerably during the past three years. A number of gas-fired power stations are to be built in Syria, including a plant at Al Zara (see overleaf).
The shift away from oil will entail the laying of 1,160 km of new gas pipelines. This will supply the new power plants, as well as a growing fertiliser sector, an iron and steel complex and other industries as well as household users. By 2000, these will absorb almost 13 MCM/day of natural gas. Gas distribution through domestic grids for household use will take more than 3.5 MCM/day.
Much of the local demand for refined oil products is met by the refineries at Homs and Banias. Syria is self-sufficient in gasoline and is capable of meeting most of the domestic demand for heating oil. A big part of Syrian oil consumption is comprised of fuel oil, of which sufficient quantities are produced locally. But Syria has to import gasoil and diesel oil to meet local requirements. Imports could be substituted if a long-planned refinery at Deir Ez Zor is to be built, or if proposed expansions at the existing refineries are implemented, but projects in this sector have been prone to repeated delays. There are also plans for a 140,000 b/d refinery to be built by the private sector (see next week's DT).
Local marketing of refined products is done by the Syrian Company for the Storage and Distribution of Petroleum Products (Mahruqat). The Syrian Company for Oil Transport (SCOT) operates the country's pipeline network, which carries crude from the fields in the north-east to the refineries and the Tartus and Banias oil terminals. In July 1993, the government authorised two private companies - Musa Fattush & Partners and Bahij Yasaminah & Partners - to undertake the transport of refined products and crude oil within the country and abroad. They are allowed to charter or buy road and sea tankers for the purpose, and may use local infrastructure (roads and railways).
The Power Sector: There has been rapid growth in electricity generation capacity in Syria during the 1990s. Installed power generating capacity at present is above 4,000 MW, and demand is expected to reach that level by 2000. This compares to a peak demand of 2,500 MW in 1991. By 2003, installed capacity is projected to rise to 7,500 MW. But operating capacity remains below the installed capacity. In 1993, installed capacity exceeded 3,000 MW, but operating capacity was about 2,200 MW.
Among the new projects to be carried out in coming years is a 600 MW power plant to be built by the Syrian-owned Sarakbi Group, headed by US-based businessman Bourhan Sarakbi, and Tractebel of Belgium. This 100% private project, the first of its kind in the country, is to be located at Bardeh, 150 km north of Damascus. The government confirmed its support for the project in December 1997, with Tractebel and Sarakbi working since 1994 to get this venture off the ground. The government had wanted a 25% stake in the project but changed its position in 1997. Tractebel and Sarakbi have formed the Syrian Power Investment Company, incorporated under Belgian law, to implement this venture. The power generated will be sold to the Electricity Ministry at market prices. The government is to provide the gas or fuel oil required by the plant, also at market prices.
The rapid rise in generating capacity in recent years followed high demand growth which sparked off a period of power cuts in the early 1990s. This led President Hafez Al Assad to declare in September 1993 that every citizen had a right to a secure electricity supply. Until 1994 power cuts used to last several hours a day; the situation was so bad that supplies in war-ravaged Lebanon and Iraq were better than in Syria. After the government made upgrading this sector a priority, Electricite de France - under a 2-month EU-financed contract in 1994 - did a study to improve the operations of the Public Establishment of Electricity (PEE). Financing for the new ventures was done mainly by Japan's Overseas Economic Co-operation Fund (OECF), the Kuwait Fund for Arab Economic Development (KFAED) and the Saudi Development Fund (SDF).
Mitsubishi Heavy Industries (MHI) has had a large-scale involvement in the Syrian power sector. In December 1995 a 600 MW station began operating at Jandar, south of Homs, built by MHI. This combined-cycle plant was financed by a $410m OECF loan. This plant has four 100 MW gas turbines and two 100 MW steam turbines. In addition, MHI began building a 1,000 MW power station at Aleppo in 1996 with a $530m loan from SDF. The company is also building for Syrian Petroleum Co. the 600 MW Al Zara gas-based power station near Homs, with a $440m OECF loan. This power station is to have three 200 MW turbines, with a pressure reduction and metering system for the gas intake facility. It is to be installed by October 1998, with the turbines to start up in phases. MHI had implemented the expansion of the Banias power plant in 1986, under a $296 million Japanese loan.
Capacity expansions on an emergency basis were carried out in the mid-1990s. Eight 125 MW gas turbines were added in various parts of the country during that period. These were installed by FiatAvio of Italy as part of contracts worth more than $300m awarded in 1994 and financed by KFAED. Of these turbines, three generate 375 MW of electricity at Zaizoun in central Syria, fuelled by gas from fields in the Palmyra region delivered through a 120 km pipeline. Upgrading envisaged at present include work at the 600 MW Mhardeh power station and at the 680 MW Banias plant. Lahmeyer International of Germany has been selected for the consultancy services contract for the Mhardeh plant.
Another important development in this sector is the planned link-up of the Syrian power grid to that of Jordan. Siemens of Germany is in the lead for a contract to build two substations at Deraa on the Jordan border. The company offered the lowest price of $23.5m, but the award has been delayed because Siemens is required to attest that it is complying with the Arab boycott of Israel, something which it is prohibited from doing under German law. KEC International of India in November 1997 signed a $45m contract to supply and install 400 kV transmission lines for the link-up from the border with Jordan to Homs. The substation and transmission line project is financed by the Arab Fund for Economic and Social Development (AFESD). This project follows from agreements reached in 1995 in Antalya (Turkey) and on Nov. 6, 1996 in Damascus between the electricity ministers of Egypt, Iraq, Jordan, Syria and Turkey to link their countries' power grids.
The Economic Base: The Syrian economy now faces a different perspective compared to the situation in 1991-1996. At the time, the country's role during the 1991 Gulf war and modest liberalisation measures based on Law No. 10 decreed by President Assad in May 1991 had spurred optimism for the future. The prospects for the Arab-Israeli peace process was bright in 1993-1995 and Syria was expected to gain from regional projects as well as aid from the OECD states. 'MEED' of Sept. 5, 1997, says the economy grew at an average pace of 5% a year in the first half of the 1990s. But for 1996 it says GDP growth was 4% while for 1997 the estimate is 1%.
This negative shift is due to a number of factors, including the slowness of economic liberalisation, the drop in oil prices and the deterioration of the peace process. Prospects for big regional projects based on peace and for large-scale international assistance to benefit Syria have vanished for the time being.
Increasingly, the country is turning to non-oil sources for hard currency income. These include cotton exports and tourism. The latter generated more than $1 bn in revenues in 1995 and the figure has increased over the past two years. In 1997 cotton exports were estimated to have generated as much export revenues as oil, according to 'Tishrin' daily of Nov. 24, 1997.
The climate for reforms is poor. Syria still has no private banking, there is no stock market and credit cards are not permitted. Cellular phones and internet access, with the latter considered a threat to state security, are not allowed while fax machines were legalised only in recent years. The economy is hampered by state control of more than half the manufacturing capacity, although the private sector is beginning to play an increasingly important role - by 1997 accounting for an estimated 63% of GDP. Yet privatisation of state industries was ruled out in June 1997 by Economy Minister Mohammed Al Imadi in an interview with UAE weekly 'Emirates Today'.
One of the main reasons for the slowness of reform is the regime's determination not to leave any room for social instability. But unemployment, estimated at 12%, is already a problem with an additional 150,000-200,000 Syrians entering the job market each year. A February 1996 UN study said that about 40% of the rural population and 18% of the urban dwellers live below the poverty line. Another study published in February 1997 by Damascus University Professor Said Nabulsi said Syria would need $60 billion to create new jobs for 3m people by 2011, a virtually impossible sum under current economic circumstances. Job creation is one of the thrust areas of a $12.4m project involving the Syrian government and the UN Development Programme (UNDP); the three-year programme which began in January 1997 is focused on improving the Syrian administration as well.
Even those who are employed fare poorly. A 'Tishrin' newspaper poll on Feb. 14, 1998, said that 43% of public sector workers are seeking a second job. According to a report published in July 1997 by Syria's Central Statistical Bureau, the salary of 68% of workers does not exceed $100/month, 52% earn between $60 and $100 and 16% receive less than $60/month. Of the rest, 19.5% earn $100-$140/month, and 4.4% earn $140-$180/month. Only 8.1% of workers take home more than $180 a month.
One way that socio-economic stability is maintained is through Lebanon, which acts as a sort of pressure valve by absorbing around 1 million Syrian labourers. These workers manage to send home the equivalent of about $8-10 million/day. Damascus agreed in February 1998 to set up a free trade regime with Lebanon, with a tariff reduction schedule over 4 years. Currently trade is heavily in favour of Syria with exports to Lebanon totalling $326m in 1997 against imports of $38m.
A resumption of trade with Iraq is expected to generate important revenues in coming years. Syria is hoping to become a transit point like Jordan. Syria and Iraq share a 600 km border. Some transit points are already open, and the UN in August 1997 approved a new entry point into Iraq from Syria, at Al Walid.
There have been some positive developments in 1997. After a visit by World Bank President James Wolfensohn, on Sept. 1, 1997 the government agreed to make a payment of $269.5m to the bank's account to settle debt arrears, the largest such payment in the country's history. France agreed in October 1996 to waive $175m in debt and to roll over a similar account. Syria has negotiated deals with other smaller European creditors.
Only Germany remains as a major European creditor, with debts owed of $500m that were incurred during the days of former East Germany. Debts to what used to be West Germany amount to just $30m. Damascus says the former GDR debt was political and should be treated as such, but Bonn does not share this view. Of Syria's total foreign debt of $20 bn, nearly 75% is owed to Russia (incurred during the days of the USSR) but these are not subject to the same commercial terms as the rest of the debt. Thus the overall debt situation has improved during 1996-97.
A limited devaluation of the Syrian pound was carried out in July 1997, with the "neighbouring countries" rate changed from 43.5 Syrian pounds to the dollar to S[pound]45 per dollar. The government said this was part of moves to unify the exchange rate, a statement welcomed by bankers who said such a move should have a positive impact on the private sector. The devaluation followed a partial lifting of currency exchange controls in September 1996. Yet in early 1997, a review by the Global Risk Service of DRI/McGraw Hill of the US said the Syrian currency was the riskiest in the world after the Albanian lek and the Zairean zaire.
Finance Minister Khalid Mahayni announced on Sept. 1, 1997 that the 1998 budget would be based on a unified exchange rate, unlike previous budgets which used to be based on various exchange rates. The 1997 budget of $4.2 bn was 10% higher than that of 1996, with a deficit projected at 3.8% compared to 17% in 1996.
THE SYRIAN CURRENT A/C 1995-96 (S[pound] million) 1996 1995 Exports, of which 168,782 132,561 Public sector 123,700 98,682 Private sector 45,082 33,879 Imports, of which 177,343 137,474 Public sector 70,464 48,551 Private sector 106,579 88,923 Trade balance (fob) -8,561 -4,913 Services balance +10,917 +15,187 Income (net) -15,667 -18,520 Transfers (net) +24,504 +20,856 Current account +11,193 +12,610 Exchange rates: $1=[pound]Syr 39.27 (1996), $1=[pound]Syr 34.36 (1995) Source: 'MEED' Nov. 14, 1997.
APS Review 9, 2/9 March 1998 - DOWNSTREAM TRENDS - Cont'd SP 35