Egypt currently offers the biggest opportunities in the region’s wastewater sector. In the past five years it has invested more than $14bn in wastewater and sanitation and spending is set to continue. The investment model is changing, though. Future schemes are set to make much more use of private sector involvement and this will significantly change the spending profile.

It’s all about the quality of the water produced. We want it of course to be of the highest standard

Rania Zayed, director, PPP Central Unit

The Ministry of Housing, Utilities and Urban development, with support from the Ministry of Finance through its Public-Private Partnership (PPP) Central Unit, is working on a large number of wastewater projects. These 25-year PPPs are intended to both widen the coverage and capacity of wastewater services and at the same time raise the quality of effluent produced, improving it from what is in many cases a basic primary standard. 

Overloaded wastewater tanks

Primary treatment can remove up to 65 per cent of solids and up to 35 per cent of organic matter through separation of solids in sedimentation tanks.

But, unfortunately, in Egypt and in many other countries in the region these tanks are commonly overloaded, meaning that the settlement time is reduced and the efficiency of the process is much lower, resulting in a poor-quality effluent. This is then discharged into water courses and in some cases is a source of contamination of surface water.

What Egypt needs, and is committed to building, is modern facilities which apply secondary and in some cases tertiary treatment processes, which further clean the sewage using biological treatment, filtration systems and disinfection. The country is therefore putting quality at the heart of its PPP contracts and incentive payments will be offered to reward clean outputs.

We hope to be able to re-use more effluent when better-quality wastewater is produced

Mohammed al-Alfy, assistant minister of utilities

“It is all about the quality of water produced. We want it of course to be of the highest standard,” says Rania Zayed, director of the PPP Central Unit. The unit is working on implementing the forthcoming projects based on Egypt’s new PPP law, which came into effect on 1 July 2010. Regulations supporting the new law are being finalised and tender documents for three major PPPs will follow shortly afterwards. These are: the Abu Rawash wastewater treatment works (WWTW), the 6 October WWTW and the Rod el-Farag road project. “We are working on preparing tenders for the end of November,” says Zayed.

Perhaps the most eagerly anticipated contract is that of the 6 October WWTW, which has undergone significant changes since invitations to prequalify were first issued in November 2009.

The original prequalification process asked for developers to design, finance, construct, operate and maintain a new 150,000 cubic metres a day (cm/d) works in the south of the 6 October City area and also take over the operation of the existing 100,000cm/d plant, which it would sit beside.

During early 2010 the government decided to move the plant from the city’s southern zone to the western zone and remove the requirement to take over the existing works. As a result, the prequalification process was re-opened in May 2010 and 10 consortia are now keenly awaiting invitations to bid. These were expected to be issued in August. However, the documents cannot be issued until all regulations regarding the new PPP law are finalised. Prequalifiers have been told that draft PPP contracts will be distributed with the tender documents and these will comply fully with the new legislation.

Wastewater treatment upgrade

The same conditions apply to the Abu Rawash scheme, which will see a consortium take over the existing 1,200,000cm/d plant and upgrade the treatment capacity from primary to secondary standard. Five bidders are currently awaiting invitations to bid.

Following on from the Abu Rawash and 6 October PPPs is the Alexandria West WWTW, which is set to see its capacity increased from 460,000cm/d to 680,000cm/d. A further 500,000cm/d expansion is also planned for Cairo’s Gabal Asfar plant, taking its capacity to 2,500,00cm/d.

Although these schemes must wait for the new law to be in place before construction can start, Egypt has already begun a wastewater PPP under previous legislation. Law 89 of 1998 was used to set up the 250,000cm/d New Cairo Wastewater Treatment PPP, which was let to local construction giant Orascom in consortium with Spain’s Aqualia in July 2009 under a 20-year agreement.

“In the first PPP we learned a lot,” says Zayed. Part of this learning curve involved careful consideration of the financing packages brought in by the developers of projects. Egypt knows that a payment guarantee from the government makes borrowing much cheaper. For its new raft of PPPs, the PPP Central Unit and is setting up financing packages as part of the contract.

“Now we are helping bidders seek financing by negotiating deals with Egyptian banks and the terms of this are part of the contract documents. Of course, if the developers can get better terms elsewhere, they are free to do so. The package is optional,” says Zayed.

This move has a number of impacts on future wastewater PPP projects. Egypt does not want to make awards simply based on who has the best financial package. Zayed says the focus is rather on the efficiency and quality [of the works. 

Low-interest lending

Financial conditions among Egypt’s long-established banking sector are favourable, with interest rates for domestic lending at a low of about 200 basis points over the London Interbank Offered Rate (Libor) and project finance available on 15 to 20-year terms.

By encouraging banks to lend to the PPPs, the government is stimulating a project finance market in the country and at the same time mitigating against the competitive rates charged by international liquidity sources.

Another side-effect is that, by pricing and paying in local currency, developers are able to ascertain costs without regional currency fluctuations affecting projects.

“We are finding it extremely difficult to accurately cost schemes at the moment. Using local currencies is sensible at this time,” says a regional contracts manager based in Egypt.

At the same time the new law is intended to give both financiers and developers more confidence in the PPP process and create a more level bidding field.

A requirement for performance bonds of 5 per cent has been axed in favour of setting bonds on a project-by-project basis. Many other measures are also included [in the law?] to give stability to the process.

“It covers many issues, including performance bonds, competitive dialogue, agreements and guarantees from the Ministry of Finance. There is also a petition committee for investors. There are lots of steps to give more security,” says Zayed.

Further investment in wastewater treatment works in densely populated areas of Egypt is set to follow. The extensions to treatment works at Alexandria West and Gabal Asfar are expected to be tendered in early 2011. However it is not just urban areas that the government is focusing on. Many rural areas are in need of sanitation and wastewater treatment.

“Sanitation in villages is a particular focus and we are investing our efforts into increasing coverage in rural areas,” assistant minister of housing, utilities and urban development Mohammed al-Alfy tells MEED.

“This means that there are lots of small-scale projects and we are thinking of bundling them up with smaller wastewater treatment plants in one area or governorate,” he says.

100 per cent coverage

These contracts will in some cases provide sewerage to an area for the first time.

“Approximately two-thirds of the country is covered but we are aiming for 100 per cent and this takes time. In some urban areas we do have 100 per cent [coverage] but in other areas it is lacking,” says Al-Alfy.

Wastewater treatment capacity in Egypt has rocketed in recent years. In 1982 just 1.1 million cm/d of effluent was treated before being discharged into water courses. Today 28 million cm/d is treated – an effort that has cost the government £E53.2bn ($9.3bn).

With the limited amount of treatment that has taken place, re-use of treated effluent has been limited, but the ministry sees an emerging market for high-quality treated sewage effluent. “Some plants re-use the water, but not all, and not to the level that we want. We hope to be able to re-use more effluent when better-quality wastewater is produced,” says Al-Alfy.

Both Zayed at the Central Unit and Al-Alfy at the Ministry of Housing Utilities and Urban Development say wastewater service provision is one of Egypt’s biggest priorities. Egypt has a clear strategy. Through its PPPs, the private sector will be instrumental in creating an efficient sewage system fit for the future.