Expanding and upgrading Egypt’s power sector is a key pillar of the country’s infrastructure development plans.

At the Egypt Economic Development Conference (EEDC), held in Sharm el-Sheikh in March 2015, the government outlined a $70bn programme to develop up to 54GW of new power capacity and upgrade and expand the country’s electricity infrastructure by 2022 to meet future demand. Much of this investment will need to come from the private sector, in the form of independent power projects (IPPs) and feed-in-tariff (FIT) programmes.

Through a variety of technologies, from renewables to coal and nuclear, Egypt’s power sector will form a focal point of the region’s project financing market.

In 2015, Egypt moved forward with its FIT wind and solar programme, and the government has received significant interest from regional and international investors. The Electricity Ministry also made progress with negotiations for major coal-fired power plants, including the Al-Nowais project, for which HSBC is the financial advisor.

Recent announcements around the construction of the country’s first nuclear power plant are part of the government’s strategy to move away from reliance on oil and gas for its utilities sector.

Key challenges

While great progress has been made, there are some key challenges facing Cairo in delivering its ambitious power plans. For the FIT programme, a shortage of foreign currency will be one of the main obstacles.

Through a variety of technologies, Egypt’s power sector will form a focal point of the region’s project financing market.

Payment for electricity will be made in Egyptian pounds, but a lot of costs are US-dollar denominated and developers will require US-dollar loans in order to meet capital expenditure costs.

It is vital that a solution is found for this to provide confidence for international developers and investors to push ahead with projects.

The government also faces a challenge to reach an agreed tariff with developers for coal projects, which is a completely new type of project for the Egyptian market.

The central challenge for all of the planned power projects is the significant financing required for these deals. With the Egyptian, GCC and global financing markets all facing a squeeze on liquidity, export credit agencies and multilateral investment will be crucial to securing the billions of dollars that will be necessary for these projects to reach execution.

While some stiff challenges remain, I am confident that Egypt will be able to meet these and emerge as one of the most attractive power markets for the regional and international power and financing sectors.