Hussein Salem: A businessman from the times of crony capitalism - Part five

Karem Yehia, Sunday 26 Jun 2011

Hussein Salem singularly used his connections with Mubarak and with Israel to gain personal profit, revealing much about the political implications of Egyptian crony capitalism


Hussein Salem returned to Egypt in the mid-1980s carrying with him two “stains of shame” that could have landed any ordinary person in jail: one from the Emirates and the other from the United States.

However, before returning to Cairo from Washington, he did the same exact thing when he left Emirates: he deposited vast sums of money in Switzerland. This time, Salem did not invest in hotels and real estate. Instead, he started a firm for financial transactions and mediation in Geneva, Masaka. Meanwhile, Salem maintained his mansion in Majorca, Spain, as his primary residence.

In 1987, Hussein Salem landed his first business deal in the field of construction despite the fact that he had no prior experience in this area. Contacts and friendship, not experience, is all that Salem needed to start his conquests in Egypt. In 1987, his Washington DC friend, General Abdel-Halim Abu Ghazalah, now minister of defence, awarded him a substantial contract his to build Milsa residential complex for the armed forces.

In 2007, and in a rare interview with the media, Salem told Al-Alem Al-Youm that on the one hand, the Milsa deal was actually a financial disaster for him. However, on the other hand, the same army contract allowed him to import massive construction equipment, which he later transported to Sinai to erect his hotel and tourism empire on the peninsula.

Hussein Salem has concentrated the bulk of his investments in Egypt in the area of tourism, but also petroleum. Indeed, a veteran lawyer provided us with copies of evidentiary briefs presented in criminal case 1061 (in which the courts heard that the government violated the law in exporting natural gas to Israel at below market prices) that show the extent of Salem’s embroilment in the petroleum business and his deals with the Israelis.

Salem and his family owned extensive shares in Fordas, Coltex, and Mediterranean Gas Pipelines, all companies that owned major stakes in the Egyptian Israeli Eastern Mediterranean Gas company.

A source in the Egyptian Ministry of Industry told us that in 1993, shortly after the conclusion of the Oslo Accords, Israeli Prime Minister Yitzhak Rabin and Israeli Minister of Foreign Affairs Shimon Perez offered Mubarak what they called "two thank you presents" for his role in bringing the Palestine Liberation Organisation (PLO) onboard.

The first gift the Israelis offered Mubarak would be a petroleum refinery, which would become the first privately owned gas production site in the Middle East. The second gift would be a gas pipeline through the Sinai Peninsula to allow Egypt to export gas to Israel.

Hussein Salem was delighted and expected that his friend Mubarak would cut him a huge slice of the new gas "pie". He initially wanted Mubarak to award him the refinery. Mubarak was more generous than Salem had expected: he awarded his friend both projects — the refinery and the gas pipeline.

(Nepotism seemed to have characterised the awarding of the whole deal on both sides of Gaza: the billionaire Yosi Miman, the Israeli partner in the new deal, was also a dear friend of Shimon Perez.)

Another informed source told us that Hussein Salem’s interests in Israel dated back to his tenure as an undercover intelligence officer in the 1960s, tracking Israeli economic activities. He could have started to form personal relationships with the Israelis (whom he used to spy on) sometime in the late 1970s, while he was still working in the Egyptian embassy in Washington DC, and while Egyptians and Israelis were negotiating final details of their 1979 peace treaty.

We know for fact that Abu-Ghazalah hosted lunch and dinner negotiation sessions with the Israelis at the Madison Hotel in Washington DC in the weeks prior to the signing of the peace treaty at the White House. Yet, we still have to find out whether Salem attended such sessions, which is not out of the realm of the possible.

Salem: Mr Two Per Cent

The Egyptian-Israeli gas company, Midor, was established with 80 per cent private capital divided evenly between the two sides, and a 20 per cent share for the Egyptian General Petroleum Company. However, soon afterwards, in 1996, Salem sold most his shares in the refinery project and made an exuberant profit.

In his interview with Al-Alem in 2007, Salem justified his decision to sell his shares in the refinery by saying that he had pioneered the establishment as part of his patriotic duty, and now that the company was on its feet it was time to move on. In 2007, once again, Salem sold his shares in the second half of the Egyptian-Israeli joint venture deal: the East Mediterranean Gas Company. Incredibly, he sold his shares in East Mediterranean a whole year before the company even began to pump any gas.

In both cases, Salem held on to a symbolic two per cent of shares in those companies

Finally, in March 2005, Haaretz, the Israeli newspaper, mentioned that Salem and his Israeli partner Yosi Miman were in the midst of discussions to launch a $1 billion third joint venture, in the area of energy also, between Egypt and Israel. General Omar Suleiman, the former head of Intelligence under Mubarak who oversaw Egyptian Israeli affairs, personally supported the project. Nevertheless, like other puzzles we previously threw at our readers, nobody knows why nothing came of the idea.

What we know for sure is that Israel has achieved more than it ever dreamed of from its joint ventures in energy with Mubarak. While poor Egyptians fought one another over gas in long queues, according to The New York Times, Israel secured more than 40 per cent of its energy needs for its electric power plants from cheaply priced Egyptian gas exports. This prompted Benyamin Ben-Eliezer, Israel’s former minister of infrastructure, to describe Mubarak as a "strategic asset" for the State of Israel.

Not to ignore the role of Israel’s second best friend on the Nile, Hussein Salem, the Israeli daily Yedioth Ahronoth described Salem as the number one man of the normalisation process between Egypt and Israel.

Defendant No 7

Hussein Salem, now a fugitive in Spain, occupies the position of Defendant No 7 on the list of those implicated in the court case that is looking into corruption charges in Egypt’s gas deals with Israel. Ironically, Sameh Fahmi, the former minister of petroleum who worked under Salem in the capacity of government representative on the Board of Trustees of Midor (under Salem’s chairmanship) is named as Defendant No 1 in the case.

Court papers show that Fahmi (and the cabinet of former Prime Minister Atef Ubeid) violated Egyptian law in awarding East Mediterranean gas concessions without any bidding process. Court papers also show that Fahmi deliberately did not include any provisions in the gas deal with Israel for the Egyptian government to reserve the right to revise the price of exported gas based on fluctuations in international market prices, to benefit Defendant No 7, Hussein Salem.

In fact, Egypt, the papers say, sold gas to Israel at fixed prices (which were also much lower than international market prices) in a 15-year contract eligible for another five-year extension. This unprecedented and corrupt deal inflicted a $714 million (LE4.2 billion) loss on the Egyptian economy annually. The deal, on the other hand, guaranteed the Egyptian side a farcical number of job opportunities: 450.

One of the prosecution's main witnesses in the gas corruption case, Alia El-Mahdi, contracts auditor at the Egyptian Ministry of Petroleum, told the court that Hussein Salem illegally made $2 billion from the gas deal with Israel because he owned 70 per cent of East Mediterranean shares at the time of the company’s inception.

Egypt: The end of crony capitalism?

Many people in the halls of government and in newspaper editorial rooms knew that Mubarak and Benyamin Ben-Eliezer were very good friends. This last fact might sound quite bizarre to many Egyptians if they also knew that Ben-Eliezer was the Israeli general implicated in the execution of Egyptian POWs in the 1967 war.

However, Mubarak is a man who seems to believe in the saying, 'Let bygones be bygones'. Mubarak, the 1973 war "hero", forgave Ben-Eliezer for his war crimes against his fellow Egyptian comrades, trusted the general and confided in him on numerous occasions. To prove the point, and as the world was crumbling around Hosni Mubarak on the morning of 11 February 2011, Mubarak, ironically, called General Ben-Eliezer on the phone minutes before boarding a helicopter to Sharm Sheikh, to vent against the Americans who abandoned him.

Salem never served a day in the Egyptian army, as we established in part one of this series, and therefore, did not have to face any "moral dilemmas" Mubarak might have agonised over in dealing with the Israelis, or anyone else for that matter.

He excelled, as we have argued, in using his contacts in government to earn an undeserved advantage and to accumulate massive fortunes. Salem, for sure, was one of those capitalists who knew how to milk his relationships with public officials and politicians to the utmost.

Ambassador Amin Yousri, Salem’s colleague from his Baghdad days in the 1960s, told us a telling story to demonstrate to us how close Salem was to Mubarak. Amin recalled that he ran into Salem at the posh Semiramis Continental in midtown Cairo one day in the mid-1990s. While the twol were sipping coffee, an American Jewish businessman approached Salem and asked him if he could facilitate a meeting with Mubarak. “The following morning,” Amin mused, “I saw that entrepreneur’s picture standing next to Mubarak in the newspapers.”

But in the last analysis, it was all about personal profit, Egyptian style crony capitalism — the unholy marriage between big business and politicians — allowing the likes of Salem to move from the realm of mediocrity to mansions in Cairo and Majorca.

Translated and edited by Mostafa Ali

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