Multi-package route delivers cost dividend

02 February 1996

INNOVATION, efficiency, and ahead-ofschedule are not terms often applied to business in Egypt. But they are applicable to one of the key areas of the economy: the construction of facilities to cater for relentless annual increases in demand for electricity. Over the past 10 years, the load growth has been between 7-12 per cent a year. It has since come down to 4-5 per cent a year because of conservation efforts and a slowdown in the economy. But Egypt will still need the addition of at least 500 MW of capacity a year over the next 10 years.

The record of the past decade suggests that meeting the extra demand will be well within the capabilities of the Egyptian electricity sector, overseen for the past 16 years by the colourful and well-respected Electricity & Energy Minister, Maher Abaza.

Initiatives taking shape include building up local manufacturing capabilities, build-ownoperate-transfer (BOOT) schemes, grid interconnections with neighbouring countries, and privatisation of power distribution companies.

Minimum costs Egypt has carried out a stream of new power projects in a timely and well-organised fashion, keeping costs to a minimum and managing to secure good financing terms.

Bechtel Power Corporation of the US has been closely involved in managing many of these projects - the notable exception being the two-by-600-MW Kureimat project, on which Bechtel lost out to Ebasco, now owned by Raytheon Corporation of the US.

Bechtel Power's Leon Auerbach says Egypt has benefited hugely from adopting a multipackage approach to power station construction. This entails the appointment of a company to provide engineering, procurement and project management services, and splitting up the construction and equipment supply elements into 20-30 lots. The alternative is to award a single lump sum turnkey contract, leaving it up to the contractor to co-ordinate all the elements of the project.

The first major project on which this approach was used was the Shoubra elKhaima power station in Cairo. Bechtel was able to hand over the first three units in 1986, one year ahead of schedule, and with significant cost savings.

Bechtel has since become even more closely tied into the Egyptian power sector, by taking an equity stake in a local venture carrying out two new power station projects, at Sidi Krier and Ayoun Musa. The Power Generation Engineering & Services Company (PGESCo) came into being in 1994, after Bechtel was selected ahead of six international rivals to become the foreign partner in a specialist local power engineering cornpany. Bechtel and the Electricity & Energy Ministry - through its affiliates - each hold 40 per cent, and the Arab African International Bank holds 20 per cent.

The aim is to build 10 320-MW thermal units, with all the various packages carried out by locally incorporated companies. The technology transfer implicit in this process will, it is hoped, result in the creation of efficient and competitive Egyptian legal entities to manufacture power plant components.

Contracts have now been placed for the key packages for the first four units, two each at Sidi Krier and Ayoun Musa. Siemens of Germany is working with local partner Ferrometalco to make the four turbines, for a total $93 million. The $141 million boilers contract has gone to Babcock & Wilcox Egypt, 50 per cent owned by the US/Canadian Babcock & Wilcox. It was formerly the state-owned boiler company, and is one of the three examples of complete privatisations in Egypt.

Now the Sidi Krier/Ayoun Musa schemes are underway, the BOOT programme is attracting most attention. Six international consultants have bid for the contract to draw up tender documents for the first three projects: a wind-farm, a pumped storage scheme and a thermal plant. The World Bank has already said it is interested in providing guarantees for BOOT power schemes.

Egypt's attempts to create an efficient, modern economy have had patchy results.

But the power sector stands out as an example of what can be achieved.

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