Egypt’s Construction Companies’ Compensations Committee has finalised the structure for compensating contractors working on government projects to alleviate the pressure of rising costs.

The state-backed organisation has submitted the structure as part of a new law that is currently being drafter and is expected to be passed by parliament by the end of the month, according to a number of Cairo-based sources working in the Egyptian market.

The decision to compensate contractors working on government projects is due to a number of economic reforms that have made driven up construction costs.

At the forefront of these issues is a number of a new measures applied by the government, including the additional value-added tax (VAT) on construction projects, which has been increased to about 6 to 8 per cent depending on the size of the scheme. The government has also lifted subsidies on fuel, which has inflated operational costs for many industries. And of course the most damaging of all reforms has been the recent flotation of the Egyptian pound, which resulted in the value of the currency falling by approximately 50 per cent overnight.

The details of the compensation terms are unclear at this stage although it is understood that it will be set as a percentage of the value of the contract with other conditions determined by the committee.

“Paying a unified compensation for all contracts was ruled out,” says one lawyer.

The lawyer also added that the compensation will be subject to the difference in the volume of business in each contract, in addition to the “project’s status and the current volume of business.” The committee is also likely to only authorise compensation for contracts signed before the flotation of the Egyptian pound in November this year.

The deal is likely to replicate a similar arrangement in 2003, when Cairo last significantly devalued its currency.