The Egyptian government has still not finalised its promised compensation package for contractors working on projects signed before the currency flotation.

A number local and international contractors have told MEED that there is currently no indication to when old contracts will be renegotiated.

Earlier this year, the government announced that is currently putting together the framework for renegotiating contracts and compensation following the spike in construction costs.

The decision to compensate contractors working on government projects is due to a number of economic reforms that have 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 flotation of the Egyptian pound last year.

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.

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