Between encouraging efficiency and improving capacity, the national grid is set to undergo improvements

Over the past year the shortfall in Egypt’s electricity capacity has become increasingly apparent, with load-shedding becoming a regular occurrence. The government has aggressively sought to address the issue with demand-side management, from a reintroduction of the daylight savings time regime, which had been dropped in 2011, to an initiative to replace standard light bulbs with high-efficiency ones.

The Egyptian Electricity Holding Company (EEHC) has also announced plans for the introduction of more efficient street lighting, less energy-intensive potable and sewage water plants, increased use of solar water heaters and smart meters in the residential sector, and a media awareness campaign to be launched with the cooperation of government ministries to drive home the importance of energy efficiency to the public. Maqsood Sher, the president of GDF Suez in Egypt, told OBG, “Energy efficiency is an issue that is being tackled by several players in the private sector. With public sector cooperation, the country’s demand for energy could decrease significantly.”

Managing Supply

Equally noticeable have been efforts by the government to expand the supply side of the equation. The EEHC aims to add 10,950 MW of capacity to the nation’s infrastructure by 2017. Kamilia Sofia, CEO of the Egyptian Methanex Methanol Company, told OBG, “The fact that 80% of energy resources are being used for electricity production means that energy needs in other areas are not being met.”

However, meeting Egypt’s rising electricity demand will not come cheaply. According to the EEHC, the funding required to meet the ambitions set out in its current five-year plan for 2012-17 amounts to LE103bn ($14.63bn), which is a 58% increase on the funding called for by its previous five-year strategy. The long-term goal of the EEHC is to encourage the private sector to invest more heavily in the sector, including through independent power producers (IPPs), and thereby relieve the government of the financial burden associated with providing new infrastructure.

Development Finance

Currently, Egypt’s electricity segment is largely being developed with the cooperation of development finance organisations. The financing structure that underpins the Helwan South project provides a good illustration of how an extensive network of these agencies can be brought together to implement large power installations. The World Bank has played the role of principal development partner for the project, and moving the new plant from the drawing board to the construction stage was made possible due to a wider effort to provide technical assistance and advice in key areas of the power sector, including subsidy reform, utility governance and energy pricing, funded by the Deauville Partnership and the EU. The Deauville initiative brings together the G8 countries (Canada, France, Germany, Italy, Japan, Russia, the UK and US), the EU and a number of regional partners (Kuwait, Turkey, Qatar, Saudi Arabia and the UAE). Their chief objective is to provide support for the ongoing political and economic transitions that Egypt, Tunisia, Morocco, Libya, Jordan and Lebanon are currently experiencing, and as such it is likely to play a significant role in Egypt’s infrastructural development for years to come.

Other development finance organisations have also played a role, including the Arab Fund for Economic and Social Development, Islamic Development Bank, Kuwait Fund for Arab Economic Development and OPEC Fund for International Development. Helwan and similar generation projects provide a host of positive externalities that help to attract donor financing. Helwan will also create 4000 jobs during its construction, 25% of which will be available after completion in areas such as plant operation and maintenance.

Private Sector

However, despite Egypt’s success in obtaining soft loans and technical advice from diverse sources, the inclusion of the private sector in energy provision remains a central pillar of its long-term strategy. Egypt’s energy sector has a long history of private sector involvement. It was first opened up to private and foreign investment with the promulgation of Law 100 of 1996, and a new investment law issued in 1997 established a number of incentives, including tax holidays, profit repatriation and protection against nationalisation, among other things.

Rising Prospects

By the turn of the century, the first of three build-own-operate-transfer (BOOT) projects was under way: a 650-MW, gas-fired plant developed by InterGen began commercial operations in 2001. Egypt’s second and third IPPs were soon to follow when Electricité de France won a second BOOT award to build two gas-fired projects near the cities of Suez and Port Said with a combined capacity of 1.4 GW. In light of the size of the Egyptian market, with more than 80m people, the long-term attractiveness of serving such a large population with rising demand is attractive. However, the IPP framework does have strict contractual terms in relation to financing and off-take requirements, such as a stipulation that all foreign currency must be obtained from abroad rather than from domestic sources, and that local designers, contractors and manufacturers must contribute substantially to the project. Moreover, the most recent IPP framework put in place before the revolution of 2011 stipulated that developers must source their own customers, a notable change from the previous arrangement by which the EEHC acted as sole buyer.

Egypt has, however, made a recent attempt to entice private capital back to the sector. In 2013 the Ministry of Energy and Electricity (MoEE) invited a number of interested companies to submit the financial and logistical details of their offers for Egypt’s first build-ownoperate (BOO) plant, which is to be built at Dairout. The companies had already qualified to participate in a previous bidding round held by the EECH, and included: Japan’s Sumitomo and Mitusi; GDF and EDF from France; OCI; El-Sewedy Energy; TAQA Arabia, a subsidiary of Egypt’s Qalaa Holdings; PowerTek Energy and Tenaja Nasional from Malaysia; GMR from India; ACWA Power from Saudi Arabia; and Enka from Turkey.

While the intervening period has seen a change of government and there has yet to be a formal announcement regarding Dairout’s developers, the facility remains as part of the MoEE’s generation expansion plan as a BOO project, and is slated to add 2250 MW to the grid by 2015/16. Whatever the result of the bidding round, the process has at least revealed a willingness on the government’s part to provide reassurance to private sector developers. The Dairout project is being facilitated by a Ministry of Finance guarantee of the EEHC’s financial obligations to the private sector participant enshrined in Law No. 14 of 201. Meanwhile, the MoEE has undertaken to ensure that the proposed combined-cycle facility has access to an uninterrupted supply of natural gas. This degree of flexibility and inter-ministerial cooperation is a welcome sign of the government’s intention regarding private sector investment in the provision of the nation’s electricity.

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The Report: Egypt 2014

Energy & Utilities chapter from The Report: Egypt 2014

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