The Egyptian Finance Ministry recently published a facsimile of the budget of 1885, which showed that more than half of total spending was made up of payments to the Caisse de la Dette Publique, an international commission set up to service loans advanced for the construction of the Suez Canal. These payments continued to be a drain on the Egyptian exchequer until the Caisse was cancelled in 1940.

The Suez Canal is now an important source of income for the state budget, providing about 10 per cent of total revenue in taxes and dividends from its operations; its toll revenue of about $5bn a year makes up a similar proportion of Egypt’s total current account earnings.

Development initiatives

Successive governments have sought to promote further development of the waterway and the surrounding area in order to take full advantage of its position as the transit point for about 20 per cent of the world’s seaborne container trade.

Recent initiatives have included the Suez Canal Container Terminal (SCCT) at Port Said East, which opened in 2004 and has since become one of the largest trans-shipment centres in the Mediterranean, as well as the development of an industrial zone and Sokhna port along the Gulf of Suez on the southern approach to the canal.

The Egyptian authorities are now seeking to take the region’s development to another level, with the launch of the Suez Canal Regional Development Project (also referred to as the Suez Corridor).

The new scheme is based to a large extent on studies prepared by DHV Consultants of the Netherlands in 2008, but each of the governments that have assumed office since the overthrow of the Mubarak regime in 2011 has claimed the plan as its own. The main elements include further expansion of capacity at East Port Said, the creation of a technology investment zone on the east bank of the canal (to be linked to Ismailiya by a new tunnel) and an extension of the industrial zone along the west bank of the waterway from Suez City.

Egypt is deriving meagre returns from the canal; the development project offers an opportunity to rectify this

World Bank 2013 Doing Business survey of Egypt

The Washington-based World Bank included an appendix on the Suez Corridor in a special Doing Business survey of Egypt published at the end of 2013. One of its central findings was that Cairo was deriving meagre returns from the Suez Canal and that the development project offered a great opportunity to rectify this.

The study found that the country obtained a maximum of just $150-$200 in value added for each container shipped through the Suez Canal or handled by its ports, whereas European ports typically generated $2,000-$3,000 for each container.

The interim government formed after the removal of President Mohamed Mursi in July 2013 decided to hand over responsibility for the development project to the Suez Canal Authority (SCA), the state-owned body that manages operations in the canal, on the basis that it was best-equipped to provide the necessary strategic guidance.

The earlier DHV masterplan had been commissioned by the Port Said Port Authority, and the Mursi administration had considered forming a new, specialised body to undertake the scheme. Mursi was later accused of seeking to use this arrangement as a cloak for handing over ownership of large tracts of land along the canal to Qatar.

From the point of view of the new regime, in which the influence of the military establishment dominates, handing the project to the SCA is a logical step, as the canal authority is traditionally the preserve of former naval officers. The current chairman, Mohab Mameesh, is an ex-commander of the navy.

Project progress

At the end of 2013, the SCA sifted through 33 prequalification applications from consultants for the contract to draw up a masterplan for the project, and 14 groups were selected in January to present their offers by mid-April. The SCA has said the bids will be evaluated by an independent panel of local and international experts, and the winner will be announced within three months.

In the meantime, the government is supposed to prepare draft legislation setting out the conditions applying to investors in the scheme. The masterplan is to be completed in six months, and will be presented at a conference targeted at prospective investors. The SCA envisages infrastructure work starting in early 2015.

The groups invited to bid for the masterplan contract are all partnerships between local and international consultants. The 14 teams are:

• WorleyParsons of Australia/Salah & Hegab;
• Witteven & Bos of the Netherlands/Egyptian Group for Engineering Consultants;
• Aecom Middle East of the US/Maritime Research & Consultation Centre;
• Scott Brownrigg of the UK/Centre for Planning & Architectural Studies;
• Oriental Consultants of Japan/EHAF Consulting Engineers;
• PwC of the UK/Port Consultants Rotterdam of the Netherlands/El-Sahly/El-Sawy Technical Consultants;
• Inros Lackner of Germany/Hamza Associates;
• Idom of Spain/Sabbour Associates;
• WYG Group of the UK/Egyptian Swedish for Architecture & Planning;
• Jurong International of Singapore/Cosmos Engineers & Consultants;
• James Cubitt & Partners of the UK/Arab Contractors;
• Royal Haskoning DHV of the Netherlands/Pacer;
• Beirut-based Dar al-Handasah (Shair & Partners) with its local affiliate;
• McKinsey & Company of the US/Arab Consulting Engineers (Moharram Bakhoum).

Feasible investments

The Port Said East and Sokhna projects, for which the local Hamza Associates performed much of the engineering work, have shown port investments are feasible in Egypt. Netherlands-based APM Terminals owns 55 per cent of SCCT, the operator of Port Said East, while Hong Kong-headquartered Cosco Pacific holds 20 per cent.

SCCT has recently doubled the length of its container quays to 2.4 kilometres, which boosted its capacity to 5.4 million 20-foot equivalent units (TEUs) a year. It handled 3.1 million TEUs in 2013, a 9 per cent increase on 2012, but slightly below its record performance of 3.2 million TEUs in 2011. Sokhna is now majority-owned by Dubai’s DP World, which is investing in expanding its capacity. The facility experienced a serious bout of labour unrest in early 2013. The dispute has been resolved for now, but labour militancy remains an issue of concern for investors in any field in Egypt, given the continued political turbulence.

The Port Said East and Sokhna projects have shown such port investments are feasible in Egypt

The limited cabinet reshuffle in early March has resulted in a return to favour of public-private partnerships (PPPs). Hany Kadry Dimian, the new finance minister, was involved in setting up the PPP unit within the ministry in the late 2000s, and has announced plans to relaunch several private infrastructure projects that had stalled since he left the ministry in early 2013. These include an industrial port on the Red Sea, south of Safaga, to export phosphates and handle imports of grain and livestock. Bids for the build-operate-transfer deal have been invited by 6 July for the Safaga scheme by the Red Sea Ports Authority.

The ports authority also wants to convert El-Tor seaport on the east side of the Suez into a cargo port. It has issued a tender for the construction of a marine jetty and a multipurpose terminal with a 20 July deadline. The port is currently being used by a petroleum company under a 10-year leasing contract, which is set to expire by mid-2014.

The Alexandria Port Authority, meanwhile, has issued a tender for a project to design, build, manage and handover the third container terminal at Alexandria Port for a concession period of 30 years. The deadline for bids is 26 June.

Improved perceptions

The investments in the port sector in the final decade of the Mubarak era and the efforts made during this period to streamline Egypt’s notoriously bureaucratic and corrupt customs administration have resulted in some improvements in perception by businesses dealing with the country’s ports industry.

In 2007, Egypt ranked 97th out of 150 countries in the World Bank’s Logistics Performance Index, including positions of 122nd and 121st, respectively, for the ease of clearing customs and quality of infrastructure. By 2012, it had climbed to 57th place out of 155 countries.

In the 2014 index, Egypt slipped to 62nd, but the number of countries in the index had increased to 160. Its best ranking was 43rd, for tracking and tracing, which is likely to reflect the impact of Port Said East’s trans-shipment operations. Its ranking for customs administration has risen to 57th, which is a remarkable improvement compared with 2007. The perception of port infrastructure has also improved, but the ranking of both shows there are still some shortcomings, which could be addressed in the proposed new wave of investments.