Major lender pulls out of Egypt renewables scheme

16 June 2016

Developers lose trust in government

The Washington-based International Finance Corporation (IFC) has pulled out of financing the first round of Egypt’s renewables feed-in tariff scheme.

The development bank is declining to finance projects without international arbitration clauses in the power purchase agreement (PPA). It was preparing to finance six photovoltaic (PV) solar schemes.

“The IFC is very supportive of the government’s agenda of promoting privately led renewable energy projects in Egypt,” the IFC said in an emailed statement. “We believe this is vital for the energy strategy the government adopted last year. Some elements of the current round of the Feed in Tariff [FiT] programme are unfortunately not in line with our requirements, as well as with what we have seen from other programmes launched around the world. In order not to postpone the programme further, we have agreed with the government that we will not participate in the current projects. We stand by the government in creating opportunities for the private sector to contribute to this promising sector in Egypt and, therefore, we expect to invest in this sector in the next fiscal year.”

Other development banks that were planning to finance schemes, including European Bank for Reconstruction and Development (EBRD), European Investment Bank, African Development Bank, and France’s Proparco could also pull out of the Egyptian project.

EBRD had earlier stated it would extend $500m of project finance for between 10 and 15 PV solar schemes between 20MW and 50MW. The bank was unable to comment when contacted by MEED.

The other lenders 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 financial close under the current conditions. This should include a binding letter from lenders.

The New & Renewable Energy Authority (NREA) and state-owned 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 schemes 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 schemes that do not reach 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 project owners.

“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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