The Minister of Energy, H.E. Maher Abaza, has embarked upon an ambitious expansion of the electric power generating sector to last through the end of the next decade. Based on discussions with Minister Abaza, Egypt plans to add 9350 megawatts of capacity through the year 2010 at an estimated total investment of US$7.2 billion. All of this capacity is to be developed by the private sector on a BOOT basis.
At the moment, there is no Egyptian government budget to finance future power plants. The BOOT process has already started with a US$450 million 2 X 325MW gas/mazut fired project at Sidi Krir for which 11 of 54 groups initially solicited were short listed and received RFPs in May 1997. From these, nine proposals were received. Intergen/Bechtel was chosen as the first ranking developer offering to sell the power to the Egyptian Electrical Authority (EEA) for $.026 a kWh. Prices quoted by the nine proposals reportedly ranged between $0.26 to $.035. There is a formula for price escalation linked to inflation and gas price trends over the 25 years of the agreement.
Although the conclusions of agreements was planned for June 1998, World Bank representatives advised World Cogeneration in Cairo last November that the World Bank was still talking with the Ministry regarding a partial risk guarantee for the project. Through this the World Bank is guaranteeing against profit loss and guaranteeing the commitments of both parties.
The power purchase and energy purchase agreements were completed July 22nd, and Intergen was talking at the end of last year about an imminent financial closer. The contractors were reportedly in the process of getting all of the necessary environmental and construction permits. Intergen faces penalties if it is not generating power by mid-2002.
Following the Sidi Krir project--a process according to many industry observers that was quite open and transparent thanks to the consulting assistance of Sargent & Lundy--several other projects have started moving forward. These are the 150 MW El-Kuraimat Solar/Gas powerplant for which consultants are being shortlisted to assist preparing the project as an IPP. Global Environment Facility funds will help finance this project. Also, shortlists are being prepared for the 2 X 350 Suez Gulf powerplant and the 2 X 325 El-Tafreia East Steam plant.
Future BOOT Projects--Pricing Is paramount
The Egyptian Electricity Authority's plan for BOOT power plants through the year 2010 include 15 projects that run the gamut from gas fired combined cycle projects in the 300 megawatt range to pumped storage and wind farms. The most important criteria in winning BOOT projects is price. According to the Minister, in considering proposals, price of energy sold comprises 80% of the evaluation criteria, with the balance being the strength of the technology, consortium members, Egyptian participation, and financing.
The US$.026 price for electricity that Intergen will be selling to the EEA is among the lowest BOOT prices that exist. Although a part of this stems from subsidized fuel prices and low cost of Egyptian labor, some analysts in Egypt questioned whether Intergen or any other consortium could make money on this price. Citing the transparency of the first project and the stability in the country, the Minister expects the pricing for the second BOOT to be less than US$.026. Several consultants and contractors interviewed in Egypt said that the $0.026 price is the published price on paper and that clauses in the contract will actually determine the price paid and eventual profitability for the developers. It is important to recall that retail energy prices for electricity in Egypt are among the lowest in the world-selling at a discount of 63% to both households and industry compared with respective world averages, according to information gathered in Egypt late last year. This subsidization is a result of a transfer of subsidy from the Egyptian General Petroleum Corporation (EGPC) which sells its oil products at a sizeable discount to international prices. Prices for electricity for Egyptian consumers are periodically reviewed and raised by EEA.
Growing Supply of Natural Gas
The official reserves of Egypt's natural gas are approximately 26 trillion cubic meters. Minister Abaza, however, related that the the figure is closer to 50 trillion cubic meters as the Egyptians are aggressively prospecting for natural gas and finding more. While visiting with him in Cairo late last year, Abaza said that three new gas discoveries were reported to the Council of Ministers.
Natural gas sells to Egyptian households at 88% discount to average international prices while the discount to industry is 73%. Heavy fuel oil, which together with natural gas accounts for 78% of Egypt electricity generation, sells at a 52% discount to average international prices, according to reports published by EFG-Hermes Securities Brokerage in the fourth quarter last year. Minister Maher Abaza related to World Cogeneration that natural gas to the Intergen consortium would sell for 15 piasters or US$0.0441 (at the exchange rate of E£3.4 =US$1) per cubic meter versus an 'unsubsidized price' of 25 piasters or US$0.0735 per cubic meter.
Energy Demand
Demand for electricity has grown rapidly in Egypt over the last two decades. Electric power generation grew at a nearly 4% average from 1980 to 1988, increased to an average annual growth of 7% until 1992, then increased again over the last six years to reach 15%, according to U.S. Government Foreign Commercial Service reports. Egypt's available power capacity is about 12,000 MW, and new power generation units, with a total capacity of 1,950 MW, are under construction.
Generating facilities currently consist of 69 steam turbine generating units with a total nameplate capacity of 6,175 MW, 64 gas turbine generating units with a total nameplate capacity of 2,970 MW, and 25 hydraulic turbine generating units with a total nameplate capacity of 2,713 MW. While the total nameplate capacity of the system is 11,858 MW, EEA is normally only able to dependably produce 9,000 MW due to de-ratings caused by ambient air conditions, equipment age and maintenance.
The peak demand for electric energy, which occurs annually in December, was 9,500 MW in December 1997 and is projected to reach 11,500 MW in the year 2000 and to 20,000 MW in the year 2010. The total energy generated to meet customer requirements in 1997 was 66,400 million kWhr, of which 17,264 million kWhr (26%) was supplied from hydro units, and the balance of 49,136 million kWhr (74%) was supplied from gas and steam turbine units. The fuel mix for the steam and gas turbine units was nearly 54% natural gas and 46% mahout (No. 6 Oil).
Privatization of the Sector
In parallel with the BOOT process is an attempt by the EEA to privatize existing assets of the electrical power infrastructure. According to printed reports, consultants have been solicited to assist in the valuation of electricity companies and the determination of a fair market price and the preparation of the information documentation and marketing plan for the offering of shares in accordance with Law 18 passed in February 1998. This law provides for the restructuring of the sector followed by sales of the assets.
For Further Information
Ministry of Electricity and Energy (MEE) / Ext. Of Ramsis St., Abbassia / Cairo, Egypt, Tel: 2-02-261-6317 / Fax: 2-02-260-2888, Contact: H.E. Eng. Maher Abaza, Minister. Egyptian Electricity Authority (EEA) / Ext. of Ramsis St., Abbassia, Cairo, Egypt, Tel: 2-02-261-6306 / Fax: 2-02-261-6512, Contact: Dr. Eng. Mostafa Sweidan, Chairman.
