Egypt's government develops several large-scale projects in cooperation with private sector

 

Egypt established a public-private partnership (PPP) Central Unit at the Ministry of Finance in 2006 as part of a new long-term government policy of pursuing partnerships with the private sector “to provide a new source of investment capital and financing required infrastructure projects, reduce the government of Egypt’s sovereign borrowing and associated risks and reduce the burden on the budget”. Today, the role of the unit is to provide technical and legal expertise to relevant ministries as they negotiate with private players for priority PPPs, while sometimes negotiating deals directly. A number of specific contracting rules are laid out under Concession Law No. 67 of 2010, which was put in place specifically to govern PPPs.

The current political environment is particularly supportive of the PPP model as spending on large-scale infrastructure projects continues, and the government looks to carefully balance its spending to avoid increasing deficit and debt levels.

The establishment of the unit has been considered largely successful, with more than 20 PPP projects in the current pipeline, five projects in various stages of the tendering process and four projects already contracted. The World Bank’s PPP Knowledge Lab reports that the regulations are “generally considered in line with international best practice”.

IMPROVING THE PROCESS: Egypt’s tendering process, governed by Public Tender Law 89/1998, has also been amended in recent years, to streamline the process for both government officials and bidders. The Ministry of Finance completed key amendments in July 2016. These included articles specifying the training required for employees tasked with purchasing and contracting in the government’s administrative units, applying the tender law to funds and the private accounts of administrative units, as well as loans or grants obtained from international agreements.

So far, a number of private sector players have seen this as progress. “PPPs and concessions are the way forward because the private sector is able to operate with greater efficiency and to respond to demand in a more direct way than is possible for a government entity,” Hassan Allam, chairman of Hassan Allam Holding, told OBG. “This will help to drive growth and allow the government to focus of the efficiency of the regulatory framework.” This should also increase competition and allow for submissions from new players as well as from smaller contractors.

According to Waleed Abdel-Fattah, senior vice-president and North Africa regional manager at construction consulting firm Hill International, the engineering, procurement and construction (EPC) and PPP models are not well known or developed yet in Egypt. “As the rules are clarified and the models become more popular, the sector will benefit greatly,” he said.

CONTINUED GOVERNMENT SUPPORT: Egypt has signed several major PPPs in recent years. According to the World Bank, Egypt has received $5bn of private investment in active PPPs since 1990, while the PPP Central Unit has signed four projects to date – two wastewater treatment plants and two hospitals. The first wastewater treatment plant – and PPP – was awarded in June 2009 to a consortium led by Spain’s FCC Aqualia and Egypt’s Orascom Construction to design, construct and operate a new wastewater treatment plant in New Cairo, which was completed in March 2012. The second treatment project, a €2.4bn contract for the construction and operation of the Abu Rawash water treatment facility, went to another Aqualia-led consortium including, Orascom Construction Industries, Veolia and local business ICAT. The plant is expected to treat 1.6m cu metres per day.

The unit is currently working on an additional five tenders at different phases of procurement. In cooperation with the Ministry of Supplies and Internal Trade, the unit is supporting the tendering of a project to fully automate commercial registry offices nationwide, alongside a similar initiative at the Ministry of Communications and Information Technology (MCIT) Notary and Commercial Registry Office Refurbishments. In addition, the MCIT is tendering out the second phase of the Maadi Technology Park to construct seven additional buildings.

The unit is also involved with the upgrade of the Nile River Bus Ferry, which was tendered on May 17, 2016. The project will include adding 15 additional piers covering the three governorates of Greater Cairo.

According to Atter Hannoura, director of the PPP Central Unit, the unit intends to follow this tender with the Safaga and the Abu Tartour Port project, upgrading the export capabilities of the ports to export manufactured liquid phosphate and import livestock and grains, currently in the pre-feasibility study phase.

Lastly, the Ministry of Education (MoE) launched the tendering process for a project to finance, construct and operate language schools to help relieve the pressure of classroom overcrowding. The government will provide the land on which the winning bidders will operate the schools for a 40-year period, with the properties ultimately reverting the MoE. The first stage of the project – estimated as a 9-12-month endeavour – will include the construction of 200 schools.

LOOKING AHEAD: There are expected to be more partnerships in the immediate future. In mid-2016 Hannoura projected a pipeline of around 20 PPP projects worth nearly $4bn to be tendered by the end of 2016 to both Egyptian and international companies.

As projects at the top of the priority pipeline, the unit has highlighted the construction of a wastewater treatment plant in Alexandria in partnership with the Ministry of Housing, Utilities and Urban Development, as well as the development of three additional ports along the Nile, with proposed locations in Qennah, Sohag and Assuit. Among these is Egypt’s New Urban Communities Authority’s plan for the construction of a new phase of PPP development projects with a combined value of $25bn across 6th of October City, Sheikh Zayed City, New Aswan and New Damietta. As of August 2016 shortlisted developers included Egyptian firms Palm Hills Developments, Mountain View and Al Ahly for Real Estate Development.

The unit is also working closely with the Ministry of Planning to start selecting appropriate PPP projects specifically in the Suez industrial corridor to study and eventually tender, a process which takes approximately two years overall. Hannoura projects that the attention is now shifting towards hospitals, schools, desalination and wastewater treatment plants, football stadiums and dry ports (with Ministry of Transportation). By FY 2017/18, the unit hopes to award five large projects in these areas.

STRATEGIC USE: Despite the proliferation of major developments – ranging from a planned new capital city to the recently constructed New Suez Canal to potential new power plants – in the country having opened up space for PPPs, not all of the projects offer the right factors for pursuing this type of private sector collaboration. “The projects that the government needs to be implemented or constructed within a year or two are not PPPs by nature,” Hannoura said, emphasising the often long timelines of PPPs, which require in-depth risk assessments and due diligence before financial closure can take place. Hannoura gave the example of three desalination plants that were almost tendered as PPPs recently – El Alamein Seawater Desalination Plant, El Tor and Safaga – but which were ultimately transferred to an EPC contract because the treated water was needed so urgently.

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The Report: Egypt 2017

Construction chapter from The Report: Egypt 2017