Developers lose trust in Egyptian government
The Washington-based International Finance Corporation (IFC) and the European Bank of Reconstruction & Development (EBRD) have pulled out of financing the first round of Egypts renewable feed-in tariff scheme.
The development banks are declining to finance projects without international arbitration clauses in the power purchase agreement (PPA).
EBRD had intended to extend $500m of project finance for between 10 and 15 solar photovoltaic (PV) projects between 20MW and 50MW. The IFC was preparing to finance six solar PV projects.
Other development banks which were planning to finance projects, including the European Investment Bank, the African Development Bank, Frances Proparco and Germanys KfW Deg could pull out of the scheme.
The development banks did not respond immediately to requests for comment.
Developers now have until 30 June to communicate to the Egyptian authorities whether they will be able to reach a financial close under the current conditions. This should include a binding letter from lenders.
The New & Renewable Energy Authority (NREA) and the Egyptian Electricity Holding Company (EEHC) had previously agreed to allow international arbitration in the PPA.
Local arbitration was the default, but either party could choose to request international arbitration in Geneva.
This clause was removed from the PPA in May, causing progress on the scheme to stall.
A handful of local developers who are relying on domestic banks to finance their projects could still sign the PPA and carry out projects in the first round.
International developers are preparing to pull out of the first round of the project, if the Egyptian authorities do not reverse the decision on arbitration.
Any projects which do not reach a financial close by the October deadline will be moved into the second round. The second round is expected to have a lower tariff, but provide partial currency convertability guarantees and international arbitration.
However, international developers could lose confidence in the Egyptian clients.
Every move decreases our trust in the Egyptian authorities, one major developer told MEED. They are losing credibility and the management is starting to question whether it makes sense to further invest in Egypt.
Developers took exceptional steps including transferring money for capitalising special purpose vehicles, plot allocation and infrastructure works before signing the PPA.
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