By Asma Alsharif and Jonathan Saul
CAIRO/LONDON (Reuters) - A plan by Egypt's Islamist-led government to develop the land along the Suez Canal faces fierce opposition in districts that have been flashpoints for violence before, and may even threaten traffic on the strategic waterway.
Officials say a draft law aims to raise $100 billion in yearly revenues, bypass bureaucracy and create an industrial hub for shipping along the 192 km (120-mile) strip.
Those opposing argue it gives the president absolute powers to seize land.
Last month, protestors in Port Said stormed a conference that aimed to showcase the port development plan, forcefully removing attendees.
While demonstrations have been limited to government buildings, activists in Suez and surrounding areas say if a draft law is passed, they could aim to disrupt the flow of shipping through Suez - a vital chokepoint for global trade especially goods and oil to Europe.
"The response to the project shows the deep distrust that many Egyptians have towards (President Mohamed) Mursi's government and increasingly of the Muslim Brotherhood," said James Petretta of risk consultancy Maplecroft.
"While the government is desperate to increase revenue and signal to the world that Egypt is ‘open for business', plans to put this into action are likely to be rushed and at times haphazard."
Mursi's cash-strapped administration is battling a slump in tourism, sliding currency reserves and failure to reach agreement with the International Monetary Fund over a $4.8 billion loan due to required austerity measures. Tolls paid by ships using the canal bring in around $5 billion annually.
A copy of the draft law seen by Reuters states the president has the right to determine the area of the Suez project and the authority's board of directors, appointed by the president, "can own land and property, including the sequestering of ownership for public interest".
The draft says the authority's finances are considered "private funds". Opponents argue such a clause will allow the state to use land as an asset against sukuk debt raisings, which if Egypt is unable to repay, can be claimed by investors.
"We are afraid that some countries who have interests with the Muslim Brotherhood, such as Qatar, will abuse the right of the lands and take advantage of this," Islam Mosadaq, a leading Suez activist, told Reuters.
Government spokesman Alaa el-Hadidi said the draft had since been "rewritten in a very comprehensive way and will be submitted to the cabinet".
In recent weeks opposition to the plan has spread and a group of retired generals are seeking to coax the military to block the proposals.
"If we can't repay the sukuk, foreign firms can claim the land," retired general Abdulrafi Darwish said.
RISING SHIPPING RISKS
Thousands of activists in Suez, Ismailia and Port Said have been coordinating opposition, threatening they could escalate their protests to disrupt the main operations control centre in Suez.
"I hope that we do not reach the point where we have to stop navigation at the canal but if they pass the law then this is ... the last step to escalate," said Mohamad Hanafy, a leading activist in Ismailia.
Cairo says such moves would be "a direct threat to national security".
"There are certain red lines. Anyone who thinks they can disrupt navigation of the Suez canal will be considered doing an act against Egypt's national security and will be dealt with accordingly," government spokesman el-Hadidi said.
Shipping sources say some vessels calling at Port Said have experienced robberies in recent months. There have already been minor stoppages affecting the canal this year by other protest groups.
"Ports along the Suez Canal are at a somewhat higher risk of being affected by riots, as also demonstrated in the past," said Jakob Larsen, maritime security officer with BIMCO, the world's largest private ship owners' association.
"Judging from the economic and political outlook as reported by our local contacts, things are likely to get worse before they get better."
Using the canal is still the quickest route between Asia and Europe, saving an estimated 15 days of journey time on average. Shipowners have told Reuters that re-routing around the Cape of Good Hope might be a consideration if disruptions worsened.
(Writing by Jonathan Saul; Editing by Veronica Brown and William Hardy)