Egypt Infrastructure Report Q4 2009

Egypt seems to be weathering the global economic slowdown better than anybody, including its government, expected. The government said in August that its deficit for the fiscal year that ended in June was 6.9% of GDP, better than most forecasts, despite a big increase in public spending to offset the slowdown elsewhere. The government’s support for the economy has not spared the country’s infrastructure sector, but the fiscal performance gives it a bit more room to manoeuvre in the future.

Given that next year will bring a worsening of the economy, the room is likely to be needed.

It is expected that the construction industry’s value will grow a mere 1.73% in 2009, and the pace of growth will decline even more in 2010, to a rate just over 0.0%. We do not expect the growth rate to get above 2% until 2013, when it should reach 3.25%. Construction will account for a smaller and smaller portion of the country’s GDP over that period. Our forecast for economic growth is 3.7% in 2009, although the government is still expecting a more rapid pace. In 2008, growth was 7.2%. The slowdown will continue in 2010, when we expect growth of 2.5%, before it picks up to 3.3% in 2011.

The government announced a quarter earlier that it would double its planned EGP15bn (US$2.65bn) stimulus package, but projects are harder to find than money. The latest quarter showed a marked slowdown in announcements, and one government official acknowledged the shortage of projects. But activity was strong enough for the government to loosen up the rules to allow cement to be imported more quickly and it extended its ban on exports.

The government did take another step on one of its biggest projects, the construction of its first nuclear power station. After a consulting contract with Bechtel Corp. collapsed amid legal issues, the government hired Australia’s WorleyParsons Ltd. to handle the consulting. Russian President Dimitry Medvedev, apparently eager to get some of the nuclear work for Russian contractors, paid a two-day visit to Egypt to improve trade ties.

In January 2009, the World Bank announced that it will lend Egypt US$600mn for the construction of the Ain Sokhna power plant. The World Bank loan will be partly financed by the African Development Bank and the Arab Fund for Economic and Social Development. The loan is to help the Egyptian Electricity Holding Company (EEHC) finance the plant, which will be a supercritical steam turbine plant with a capacity of 1,300MW. The plant will consist of two 650MW turbines and will be mostly powered by natural gas. The plant will be managed by the East Delta Production Company, a subsidiary of EEHC, and is expected to be completed in 2013.

There has been a clear strategy of constructing power plants in Egypt recently, and the World Bank notes that 1,300MW of new capacity is being installed per year. In March 2009, as reported by Reuters, Egyptian construction firm Orascom received a contract to construct a US$258mn, 1,300MW thermal power plant in Alexandria. The client for the project is the state-run West Delta Electricity Production Company, which is currently constructing a number of power plants in Egypt and Algeria. The projects will have a combined generating capacity of 4,150MW.

The government also invited international companies to bid for a 250MW wind farm, the first part of a phased plan that will see the state paying for a little more than 2,000MW of wind-generated electricity capacity. Reports on the number of interested companies ranged from the mid 20s to more than 70. Even the lower reports reveal strong interest.