Despite the corona crisis, the Egyptian government maintains its target of 6-7% economic growth in the current fiscal year 2019/20. The International Monetary Fund (IMF), meanwhile, forecasts Egypt will reach a 5.9% growth in GDP.
Though fiscal reforms and reduction in subsidies have won Egypt the confidence of credit rating agencies and foreign investors, the immediate effect has been a fall in living standards. Between 2015 and 2018 the proportion of Egyptians living below the poverty line increased sharply. This means that not only are the benefits of reform not being felt, the reforms are actually causing pain and public unrest.
Avoiding blackout to appease the public
The political imperative to avoid blackouts and to ensure the consistent availability of electric power at peak times has been a defining feature of the Sisi presidency, analysts noted. The collapse of the Mubarak regime and the brief rise and fall of the Brotherhood's Mohamed Morsi took place against a backdrop of a severe energy crisis. The long-term mismanagement of the gas production and export industry meant that by 2012 Egypt not only had to cease gas exports, it also had insufficient production to supply domestic industry and power generation.
“Morsi's failure to respond to these economic challenges was an important factor behind his downfall. It is certainly the case that after taking control in July 2013, the military swiftly resolved the most debilitating aspects of the power supply crisis,” ResearchandMarkets commented.
Three Siemens-build mega plants add 14.4 GW
To avert future power shortages, President Sisi struck an 8 billion Euro deal with Siemens to build the three mega power plants – Beni Suef, New Capital and Burullus (4.8 GW each) – together with its consortium partners, Orascom Construction and Elsewedy Electric. The three CCGTs, along with some smaller wind and solar PV installations, helped raise Egypt’s installed power generation capacity to over 47 GW, and boosted the available reserve to 25.7% of installed capacity.
“It was President Al-Sisi’s decision to trust Siemens with this enormous national power project. Joe Kaeser and Al-Sisi shook hand on this deal,” Peter Ullrich, overall project director CCPP Megaproject Egypt told Gas to Power Journal. Precondition for an order of this size, in his view, was a political interest at European level to stabilize Egypt as a country.
To realize the mega power projects, state-owned EEHC had to finance nearly 85% of the cost of 6 billion Euros ($6.7 billion) through a loan provided by Deutsche Bank, HSBC and KfW-IPEX.
Blackstone affiliate Zarou as well as Edra Power Holdings of Malaysia in May 2019 both expressed interest to purchase three Siemens-build CCGTs from the Egyptian state-run owner and operator EEHC. A sale would ease Egypt’s burden of treasury-guaranteed debt that equalled 20.4% of GDP in the 2019/20 state budget. About a quarter of that debt is being owed by electricity companies.
