Key fact

Cairo announced plans for five independent power projects, which will collectively deliver 3,500MW

Source: MEED

Egypt’s new and yet-to-be defined political climate has created uncertainty across all business sectors. What is clear, however, is that Cairo needs to continue its programme and boost power generation capacity or risk creating even greater cause for political unrest. Peak power demand soared by 11.5 per cent in the summer of 2010, from 21,300MW in 2009 to 23,500MW. Installed capacity at the time was only 25,000MW and some areas of the country suffered blackouts as the system strained under the unprecedented demand.

High summer temperatures were blamed for surging demand and export commitments were cited as the reason gas supplies to power stations could not be increased. The state reacted quickly, with assurances of more power from the grid and an additional 700MW by the end of the year. This seems to have been successful. The US commercial services department says installed capacity is now 27.4GW, equivalent to a peak reserve margin of 14 per cent.

Major projects

Schemes for future generation look promising, with major engineering, procurement and construction (EPC) projects planned across Egypt. A consultant working on several EPC power projects, with contracts due to be awarded this year, says business is usual in the power sector.

“We are not really seeing any changes in timescale,” says a consultant at the local Engineering Consultants Group. “We don’t [envisage] any problems in continuing with our projects. At the most, we are looking at delays of six to nine days.”

Attempts to reach state generating authority Egypt Electricity Holding Company were unsuccessful. However, the government’s PPP Central Unit, which is responsible for a number of major projects, including the 6th October City wastewater treatment works and the Rod el-Farag highway, has stated that projects will continue as planned, but on an adjusted schedule. Rania Zayed, director of the unit, told bidders that necessary guarantees would be made available by the government to the equity providers “as a sign of goodwill”.

In early February, contractor Kharafi National, which is working on two 750MW power projects at Damietta and Shabab, also confirmed that construction work was continuing as usual. However, the source added that curfews, which have reduced working hours, could prevent them from completing the plants by the end of June and July as planned.

Other projects due to start this year include the 1300MW Ain el-Sokhna steam power plant, the 650MW Suez thermal power plant, the 750MW Benha combined cycle power plant and the 500MW North Giza steam power plant.

Egypt has also relaunched its independent power project (IPP) programme, with the announcement of five IPPs that will collectively deliver 3,500MW. Six technical consultants are expected to submit their bids for advising on the first IPP by the end of March. Originally planned as a 1,500MW station, the developers of the Dairut combined cycle power plant in Cairo are allowed to suggest an alternative set up that would increase generating capacity to 2,250MW. Ten developers were prequalified in June 2010, but RFP is not expected any time soon.

IPP experience

This is not the first time Cairo has sought to use the IPP model. Its first foray was not deemed a success, however. In the late 1990s, three 683MW IPPs at Sidi Krir, Port Said and Suez were launched, but their construction coincided with the revaluation of the Egyptian pound, which halved in value against the US dollar during the 1990s. As a result, the government found its costs had doubled and sought to change its payments to local currency, despite the original agreements and project financing being in dollars. The developers could not agree to the requests, although some concessions to small local payments were made. In the end, the original owners of the plants, France’s EDF and Intergen with Edison International, both of the US, sold their assets to Malaysia’s Powertek Berhad and its owner Tanjong Energy Holdings.

This led to a lull in private involvement, but the IPP programme is now back on the agenda with a number of changes to the structure of the agreements. It is understood that for future IPPs the developers will be able to circumvent the government and agree tariffs directly with an industrial or commercial end-user. However, the mechanisms for doing this are part of the new electricity law, which is still to be approved and is now likely to be delayed.

For now, it appears to be business as usual in the power sector. But the current political uncertainty will ensure that developers proceed with caution and some projects will find their timelines slipping.