The expansion of Egypt’s renewable energy sector has hit a snag after financiers objected to revised terms for government projects that exclude the possibility of international arbitration.
Companies have long been interested to tap Egypt’s renewable energy sector with the government originally targeting 4.3 gigawatt (GW) of wind and solar projects to come online next year.
While the renewable energy programme also includes wind, the most advanced is the solar segment amounting to billions in investment including a plant in Benban in Upper Egypt, with a capacity of 1.8GW. Currently none of the projects have met all of the contractual obligations for financing and project agreements, and only have until October to do so.
The Egyptian Electricity Transmission Company (EETC), leading the tendering process, acknowledges there will be delays.
“Many of the 39 developers say that they’re close to reaching financial close, but not all will,” said Lamya Hady, the head of private sector projects for the EETC, on Wednesday at the Menasol conference in Dubai.
Ms Hady said there were some other requests from companies to sign power purchasing agreements, but this could not proceed until lenders got on-board.
And one of the major lending factors are development financial institutions (DFIs) such as the International Finance Corporation, European Bank for Reconstruction and Development and the Overseas Private Investment Corporation (Opic). While these institutions have said that they would not be able to finance all of Egypt’s renewable energy needs many companies are banking on DFIs to pick up a hefty chunk of the tab.
Nancy Rivera, Opic’s managing director of structured finance, said support would go to projects with a long-term view with proper risk allocation but that the DFI community could not finance all Egypt’s needs.
“There is a need for a greater variety of financing intermediaries to come into the market. Local commercial banks are also an important element to this conversation,” she said.
Earlier this month, the government tweaked its contract terms to exclude the option of international arbitration. DFIs had pushed Egypt into including the option of international arbitration, which is a standard clause in legal contracts, but the government has revised project terms to only allow for arbitration to happen in Cairo.
“The DFI community is speaking with one voice and international arbitration is an essential element,” Ms Rivera said, adding that it didn’t depend on the country. “If you’re doing a project in Europe, you’d have international arbitration. You don’t get a free pass because you’re a more developed country.”
DFIs met government officials last week to discuss the issue. Ms Hady said she expected a “solution to this problem soon”.
lgraves@thenational.ae
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