Logistics and power sectors drive progress on PPPs in Egypt

12 June 2018
European bank backing of 6 October City dry port and success of solar projects under feed-in tariff scheme prove the viability of PPP programme

When the European Bank for Reconstruction & Development (EBRD) announced in December last year that it had partnered with Cairo to promote a public-private partnership (PPP) programme to support infrastructure development across the country, it was another signal that Egypt is serious about pressing ahead with PPP.

The agreement between the EBRD and the government will support the development of the country’s first inland port PPP – at 6 October City – and the largest logistics centre in the greater Cairo region.

The project falls within the framework of Egypt’s approved transport masterplan, which calls for the tendering and development of nine dry port and logistics centre PPPs.

The EBRD funding is backed by an advisory team from Mazars, with legal support from Allen & Overy and Sarie-Eldin & Partners, and technical support from Infralinx, IMC, Rendel and Mena Rail.

Cairo’s mixed record

However, international interests have historically steered away from Egypt’s PPP segment, and for good reason. Since the World Bank’s recognition of Egypt’s PPP Central Unit in 2010, the country has found it difficult to reach financial close on many of its utility projects.

Cairo has also struggled to develop a suitable PPP model for the delivery of real estate projects, despite claiming that it wishes to press ahead with several masterplanned mixed-use projects under the model.

In 2018, the power sector nevertheless witnessed positive steps forward for the PPP sector. The second round of solar projects in the country’s feed-in tariff (FIT) programme was much more successful than the first round, which omitted an international arbitration clause and resulted in only three financial closes.

By demonstrating the ability of the country to attract significant investment from international institutional financiers, the second round of the programme has raised investor confidence in Egypt.

By March, Ehab Farouk Abd el-Aziz, planning manager at Egypt’s New & Renewable Energy Authority, revealed that 900MW of renewable energy had been installed, while a further 400MW of capacity was under construction and 4,000MW was in the planning and development stages.

This success should act as a catalyst for future finance – particularly from commercial banks and export credit agencies, which may play a bigger role in round three of the renewable energy development scheme.

Struggling real estate

At the same time, the real estate projects launched in the country under PPP models have stalled, while projects not structured under the country’s PPP law or managed by the PPP unit have moved ahead.

The central government and Housing Ministry have continued to waive land fees for private sector developers instead of entering into partnerships – a model that has caused problems for both the government and developers in the past.

Since 2011, the industry has been looking forward to state participation and engagement, as well as a comprehensive legal and investment framework to provide an additional layer of security for investors.

Short of a concerted effort by Cairo, however, the market is not expecting significant changes to the way the government sees a partnership between the private and public sector when it comes to real estate.

Nevertheless, as has been shown this year, PPP has cemented its role in the energy sector with the FIT programme, which looks set to attract more investment in the coming months, while the high-profile involvement of the EBRD in Cairo’s PPP dry port and logistics schemes hints at much more to come.

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