Flowing with the times

In an exclusive interview with Al-Ahram Weekly, , head of the Suez Canal Authority, spoke to Sherine Abdel-Razek about the canal's future
Celebrating the 45th anniversary of its nationalisation, the Suez Canal continues to prove that it was worth fighting a war over. The 190-kilometre-long canal last year contributed $2 billion to Egypt's flagging hard currency income and saw approximately seven per cent of sea-transported world trade pass through it.
Even so, the canal is facing increased competition. Improvements in shipping technology have made the longer Cape of Good Hope shipping route a financially viable alternative. The development of supertankers too large for the canal to accommodate along with the growing tendency to use pipelines in transporting oil have weakened the canal's competitive advantage.
As one of the main sources of badly-needed hard currency, how much revenue has the canal generated in recent years?
The canal was hard-hit during the second half of the 1990s by a number of global economic factors, at the top of which was the South East Asian financial crisis. The fallout from this crisis reduced the exports from the region by more than 38 per cent alongside an 18 per cent decline in their imports.
This decline in trade was reflected in a 5.3 per cent decrease in the canal's revenues in 1997-1998 compared to the previous year. In 1996-1997, the canal earned $1.83 billion, while the following year it brought in $1.75 billion.
The subsequent improvement in international trade, increase in oil prices and the development of the canal facilities all helped to reverse the trend, pushing the canal's revenues during the calendar year 2000 to $1.93 billion and then to $1.947 in fiscal year 2000/2001, marking the highest revenue the canal has earned in a single year.
These results were achieved despite the five per cent decrease in the value of the special drawing rights (SDRs) due to the drop in the value of the currencies which it represents. The International Monetary Fund's SDRs unit has been used by the SCA (Suez Canal Authority) since the 1970s to hedge against fluctuations in the value of the dollar. The SDRs is based on a basket of currencies in which the dollar represents 39 per cent, the Deutschmark 21 per cent, the French franc 11 per cent, the British pound 11 per cent and the Japanese yen 11 per cent.
How was the canal able to increase its revenues despite the worldwide economic downturn?
The canal has recently introduced a number of improvements both in its infrastructure and the incentives granted to ships passing through it. The canal has just completed a five-year plan to increase its draught from 58 feet to 62 feet, enabling it to accommodate larger vessels. By 2010 the draught will be increased to 72 feet. Once this has been done, vessels weighing 300,000-350,000 tons will be able to pass through the canal, depriving the alternative routes of their competitive advantage. The canal will then be able to accommodate the specifications of 92 per cent of transport vessels worldwide.
All widening and deepening work has been carried out by the canal's fleet of dredgers and completely financed by authority resources.
The introduction of a new electronic vessel traffic control system has also increased revenue. This system, under which the entire length of the canal is covered by radar surveillance, calculates the transit time for any vessel seeking to pass through the canal. Previously, only vessels arriving by 7pm, the canal's "zero time," were permitted to go through the following day. However, the system's accuracy in calculating average speeds, distances between vessels and transit times allowed us to change methods of controlling the flow of traffic.
Now ships arriving at the canal an hour or two hours after the zero time are permitted to pass through the following day by paying an additional three or five per cent of transit fees respectively. This new measure has brought in an additional $200 million annually.
We also have an effective system for determining fees and incentives granted to ships. The announcement of the fees schedule each November for the following year is preceded by monthly meetings of the SCA's fees committee with the authority's research department and then an annual meeting with the authority's board.
The role of research is very important in setting fees as it takes into consideration a wide array of political and economic factors. When the liquefied natural gas industry was thoroughly examined, we decided to reduce fees levied on ships carrying this fuel by 35 per cent. Long-haul tankers are also granted discounts.
How is the canal facing competition from other transport routes?
The real competition comes from the oil pipelines like the SUMED [Suez-Mediterranean] pipeline linking the Red Sea port of Al-Ein Al-Sukhna with Sidi Kreir on the northern coast. The introduction of such pipelines has resulted in the decline of revenue from oil tankers, in favour of revenue from container ships. Transportation of oil through the canal has decreased as SUMED's capacity has increased. When it became operational in the early 1980s, SUMED's annual capacity was 80 million tons of oil; in 1994 this was increased to 120 million tons annually.
Instead of competing with SUMED we are trying to complement each other. The maximum vessel weight the canal can accommodate is 200,000 tons dw [dead-weight]. Heavier vessels can off-load a portion of their oil in SUMED, pass through the canal with the rest and then reload the SUMED- transported oil in Sidi Kreir.
Cooperation with SUMED has resulted in an increase in the number of supertankers using the two transport routes so that the number of huge tankers passing the canal and SUMED reached 100 during the last year.
Is there competition from the land route through Israel and do you anticipate competition from the planned local one linking Sharq Al-Tafrea [located east of Port Said] with West of Suez?
Israel had planned to establish a water route that would compete with the Suez Canal, but this was deemed unfeasible because it would have cost approximately $50 billion. The alternative -- a land transportation route -- was also viewed as not being viable because extensive security measures governing the transit of goods between Israel and neighbouring Arab countries would have made this route very costly.
As for the East of Port Said Terminal, it is conceived as an industrial port built to export and import for the city. If, however, it is eventually linked by a road to the northwest point of the Gulf of Suez, it will definitely represent a competitor to the canal but we have plans to deal with such a situation.
Periodically there is talk of privatising the canal. Do you think this might happen one day?
This is completely out of the question. People misinterpreted the SCA's announcement of plans to withdraw its investments from a number of public sector companies. During the 1970s, dozens of companies were formed from contributions by state bodies and banks. The SCA was a partner in some of these companies -- some of which are engaged in activities that bear no relation to the canal's activities such as a poultry farm. We have sold about 75 per cent of our holdings in such companies.
Another reason for the confusion was the SCA announcement that it divested its holdings in one of its affiliated companies, the Suez Canal Investment Company. The proceeds were then transferred to the SCA's employees' pension fund.
What activities other than shipping is the authority currently involved in?
The authority plays a social role, including building roads and infrastructure for canal cities and providing medical care through its hospitals. It is also involved in a number of profit-making projects.
We are managing the sewerage stations in Ismailia and are using water from these to cultivate an environment-friendly tree belt. We have imported silk worms from China to produce silk by feeding on the trees we planted and we are moving at a good pace according to the Chinese experts who recently visited the project.
We have also nearly completed a shipyard near Luxor which will offer maintenance services for ships and tourist boats. The SCA and two affiliated companies have invested about LE100 million in this project .
All affiliated companies are being developed to complement the functions of the canal. For example, we have a company to manufacture and service dredgers which work on the canal's maintenance on a daily basis as well as working on the widening and deepening projects.
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