Ahead of privatizing electricity: The Egyptian government hands over the electricity sector to “international consulting firms”

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The Egyptian Ministry of Electricity announced yesterday that it had cooperated with an international consulting firm to develop a strategy for what the ministry called the optimal technical and economic mix of energy in Egypt.

Dr Hani Al-Noqrashi – an energy expert and member of the Presidential Advisory Council in Egypt – is one of the experts who objected to this step, considering that the participation of foreigners in developing the electricity and energy plan in Egypt represents a threat to its national security and that this vital sector should not be handed over to foreign experts under the name of encouraging investment and the private sector. Al-Noqrashi, who is the son of former Egyptian Prime Minister Mahmoud Fahmy Al-Noqrashi during the royal era, considered this step hazardous and represented the beginning of the privatization of the electricity sector, pointing out that Egypt has many experiences that can use in this field.

In the same context, informed sources at the Ministry of Electricity confirmed that the Unified Electricity Law and its executive regulations, which encourage investment by private companies in the field of electricity production, aim to privatize vital utility services by separating the activities of transmission, display and distribution of electric energy, and transforming the electricity market from a government market to a competitive market, in connection with the liberalization of the selling price of electricity to consumers.

Egyptian President Abdel Fattah El-Sisi ratified Law No. 70 of 2021 and significantly amended some provisions of the Electricity Law promulgated by Law No. 87 of 2015, known as the Unified Electricity Law. The amendment of the law stipulates that “the Egyptian Electricity Holding Company and the production and distribution companies owned by it are required to adjust their positions by the provisions of the law within a period that cannot exceed ten years from the date of its application, in a manner that qualifies them to deal in the competitive electricity market and to deal with other (private) companies in coordination with the Electricity Holding Company during the transitional period. For the second year in a row, there were no electricity subsidies in the state’s general budget for 2021-2022.

The Egyptian government had announced an increase in electricity prices by between 8.4% and 26.3%, starting from last July’s bill for the eighth time in a row, since the electricity prices were raised for the first time with Sisi’s assumption of power in 2014. According to the sources, the unique step of handing over the electricity sector to international houses of expertise represents the first application of the new law and the move towards the privatization of a vital industry in Egypt.

The sources confirmed that the Ministry of Electricity is currently planning to involve the private sector in every stage of post-electricity generation, starting from the stage of manufacturing and installing meters to operating payment systems through electronic payment companies such as Fawry Khalis and e-finance. According to the sources, the Egyptian government is seeking to expand the role of the private sector beyond the stage of electricity generation to include the stage of distribution to the collection of bills. The government is currently making prepaid meters available through specialized private suppliers.

Privation of electricity in new cities

The sources indicate that with the Egyptian government taking more liberalization of the electricity sector, it will start implementing its vision towards privatization in the new areas to generalize it during the coming period. Among these new areas targeted are the new administrative capital and the new city of El Alamein. The Sovereign Fund of Egypt announced its intention to acquire 30% of the electricity stations built by the German company Siemens, operate on the combined cycle system, and sell the remaining 70% shares to a foreign investor or more.

The government has already received offers to acquire these shares from Zaro, a subsidiary of the international Blackstone Group, and the Malaysian company, Edra Power. Both companies have expressed their readiness to take over the responsibility for operating the stations and taking responsibility for the payment of debts amounting to 6 billion euros. The Sovereign Fund of Egypt is a fund established by Law No. 177 of 2018 on August 21, 2018. The Official Gazette published the decision of Egyptian President Abdel Fattah El-Sisi to establish the fund. According to this decision, the fund’s mission is to manage state-owned assets in private ownership, and it consists of assets such as land, stocks or bonds or other investment devices.

Observers accuse the Egyptian government of establishing the fund specifically to sell state assets to the private sector. The sources confirmed that the International Monetary Fund and the World Bank imposed conditions on the Egyptian government to liberalize the electricity sector and place more power stations in the hands of the private sector.

Overabundance

Sources pointed out that with the Egyptian electricity sector suffering from an overabundance, it seeks to export about 15 gigawatts of surplus capacity to neighbouring countries in Europe, Africa and the Gulf states. This overabundance has slowed the pace of renewable energy projects led by the private sector.

The electricity network in Egypt is currently connected with its counterparts in Jordan, Palestine, Libya and recently Sudan and hopes to move forward with the electrical interconnection agreement with Saudi Arabia, amid expectations that the project’s launch will be postponed until the end of 2023. It is scheduled to witness the first phase of the EuroAfrica project, which costs 4 billion dollars and will connect the electricity network in Egypt with its counterpart in Cyprus by December 2022.