LAUNCHING Egypt’s private power programme was one of the notable achievements of the government of Kamal el-Ganzouri, the prime minister from January 1996-October 1999. Like most of the works of El-Ganzouri, the programme has been subjected to a barrage of criticism since his replacement by Atef Obeid. The Cairo daily Al-Akhbar has accused the developers of the first private power project of skimping on concrete and destabilising the financial market by borrowing heavily from Egyptian banks. The issue is now being discussed by the industry and energy subcommittee of the People’s Assembly.
The questions being raised about the first build-own-operate-transfer (BOOT) projects, and the appointment of a new electricity minister in the October reshuffle, have resulted in a delay in moving ahead with the next projects. However, industry executives say they are confident that tender invitations for the next two projects will go out within the next two-three months once the concerns of the critics have been assuaged. Delays affecting the privatisation of state-owned power companies have more fundamental causes, and prospective investors say they do not expect any share offerings before 2001.
The project cited in the Al-Akhbar article was Sidi Krier (units 3&4), being built by InterGen Sidi Krier Generating Company. The venture signed the BOOT contract for the 685-MW plant in mid-1998, and reached financial close in July 1999. InterGen, owned by Bechtel of the US and the power arm of the Royal Dutch/Shell Group, holds 61 per cent of the $130 million equity and Italy’s Edison holds the remaining 39 per cent. The plant is due to start selling electricity to the Egyptian Electricity Authority (EEA) at a base price of $0.026 from 2002.
The debt finance for the estimated $450 million project has been raised in two tranches. A group of local banks led by National Bank of Egypt and Commercial International Bank (Egypt – CIB) is providing $187 million. A group of Banque Paribas, ABN AMRO, Societe Generale, Dresdner Kleinwort Benson and Export Development Corporation of Canada is providing an additional $130 million. The loans are for 15 years, including the three-year drawdown. Pricing is understood to be between 200-250 basis points over Libor. The International Finance Corporation has agreed to provide a refinancing facility.
A senior Sidi Krier project source explains the thinking behind tapping Egyptian banks for loan finance: ‘At the time we were lining up the loans, in 1998, the Egyptian banks were flush with foreign exchange and very keen to extend support.’ This situation changed in 1999, and Egypt’s financial markets were hit by foreign exchange shortages and a related squeeze in local currency liquidity. The source says there was no explicit requirement in the request for proposals that the loans should come from international banks. Some kind of explicit directive to this effect could be included in forthcoming tender documents. ‘At the end of the day, the market will prevail,’ he says. ‘If foreign exchange is scarce in Egypt, borrowing costs will be correspondingly higher.’
InterGen officials also say that dealing with two sets of banks complicated the process of achieving financial close because of the need to draw up two sets of legal agreements for the loan finance.
The other point raised by Al-Akhbar, relating to the amount of concrete used on Sidi Krier 3&4, was addressed by EEA chairman Mustafa Sweidan in a letter to the newspaper published on 16 January. The newspaper alleged that InterGen is using only half the amount of concrete on these two units than were used on units 1&2, which have identical specifications. Sweidan said EEA is entirely satisfied that sufficient concrete is being used on units 3&4. Contractors say some confusion may have arisen on this point because of difficulties encountered in some of the civil works done on units 1&2, which meant that more concrete had to be used than originally planned.
As the InterGen project moves ahead, Electricite de France (EdF) is putting the finishing touches to the finance package for its contract to build the second and third BOOT power plants in Suez and East Port Said. EdF is aiming to start production from the two 680-MW plants in late 2002 or early 2003, selling power to EEA at $0.0237 a kWh. It has awarded the turbines contract to Japan’s Toshiba Corporation for about $70 million, and in early January signed a $110 million contract with Foster Wheeler Corporation of the US for the boilers. Four groups are bidding for the $80 million-100 million civil works and mechanical and electrical package. Total costs are estimated at $760 million. EdF has mandated Societe Generale to raise a commercial loan package, and is also seeking funds from the European Investment Bank. Financial close is expected in mid-2000.
EdF has so far avoided major controversy, although rival developers have grumbled about how low the state-owned French utility pitched its price.
Just before the October cabinet reshuffle, EEA invited developers to prequalify for the next two BOOT projects: 600-750-MW combined cycle plants at Cairo North and in the Red Sea port of Safaga. These schemes were subsequently frozen. They are expected to be revived in March or April, but developers say the Safaga scheme will be dropped in favour of a plant in the Delta, with Nuberiya regarded as a likely candidate. The specifications are being drawn up by EEA without the help of an international consultant. It is expected that the tenderdocuments will prescribe minimum levels of local content for some of the equipment packages.
The revival of the BOOT programme has not been matched by progress with privatisation. The El-Ganzouri government had indicated that it wanted to launch an initial public offering (IPO) for one of the seven state- owned power generation and distribution companies by the end of 1999. However, it has now been decided that more preparatory work needs to be done. This will include efforts to upgrade operations at the power companies and the establishment of an independent regulator.