Egypt arbitration clause hits IPP

26 June 2016

Renewables projects affected

The Gulf of Suez wind independent power project (IPP) is being delayed by the Egyptian government’s refusal to accept international arbitration.

UK/French Engie, Japan’s Toyota Tsusho and the local Orascom Construction are still negotiating the power purchase agreement to develop the 250MW wind farm,

But developers and lenders are unwilling to accept local arbitration or a cap on government guarantees, MEED has learned.

Export credit agency Japan Bank for International Cooperation (JBIC), and Japanese and European commercial banks are planning to lend on the project. Progress has been slower than initially expected.

The Engie-led consortium submitted the low bid, at $0.041 a kilowatt hour (kWh), to develop the build-own-operate (BOO) scheme in April 2015.

Egypt’s insistence on ruling out international arbitration has also caused the Washington-based International Finance Corporation to pull out of funding the first round solar projects under the 4,300MW feed-in tariff scheme.

Other development banks are still discussing their positions on international arbitration, sources have told MEED. The majority are expected to pull out.

Feed-in tariff developers have until 30 June to inform the New & Renewable Energy Authority (NREA) and Egyptian Electricity Holding Company whether they are able to reach a financial close.

This will leave only a handful of local developers able to secure domestic sources of finance before the October deadline for the first round.

The remaining developers will be moved to the second round of the scheme, for which the tariff has not yet been set.

Saudi Arabia’s Acwa Power, which is negotiating a contract to develop the gas-powered Dairut IPP, said the project had not been affected by the arbitration issue when contacted by MEED.

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