Al-Ahram Weekly   Al-Ahram Weekly
7 - 13 September 2000
Issue No. 498
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Overhauling the power sector

By Mona El-Fiqi

Ali El-Sa'idi
Ali El-Sa'idi
In recent years, the government's policy on the ownership of the electricity sector has changed. With the increase in demand for electricity and the urgent need to shift state resources to other projects, private sector participation in the generation and distribution of power has come to be viewed as an attractive option.

Since the cabinet reshuffle in October 1999, measures to privatise a portion of the sector have been accelerated. Plans are afoot to privatise all distribution and it has been determined that, for the near future at least, all new electricity plants will be built under the BOOT system.

During the past few years many news items have been published about privatisation of the electricity sector. Thus far, however, no concrete steps have been taken. What is the government's plan for liberalising the electricity sector?

The government's general policy is to privatise [electricity] distribution companies after they are separated from [electricity] production lines. But we have no intention of privatising production lines as long as the BOOT system is used for all new power stations. The private sector's share of production is currently 2000 megawatts (MW) out of Egypt's total production of 15,000 MW.

What are the concrete procedures taken by the ministry in this connection?

The first step was the transformation of the Egyptian Electricity Authority (EEA) into a holding company in July 2000 following the approval of the People's Assembly. With a total capital of LE60 billion, the EEA was formerly one of six authorities affiliated with the Ministry of Electricity.

The newly created Egyptian Electricity Holding Company owns seven companies, each of which has power stations and distribution lines.

Another important step in preparations for privatisation is to make the production lines independent of the distribution networks in these seven companies. Once this has been done, only the distribution companies will be offered for sale.

What is the aim of the ministry's policy to separate production lines from distribution networks in the seven companies affiliated with the Egyptian Holding Electricity company?

We are moving now to replace the previous system based on monopoly [by one company controlling the entire electricity sector] with a vertically integrated structure. The current system is based on generating companies and distribution companies which provide power to the consumers through a general network.

We are planning to implement a new segregated structure in which electricity will be moved from generating companies -- whether local, BOOT or independent -- through an integrated network for transmission, owned by the state, directly to consumers or distribution companies.

Within the framework of the government's efforts to liberalise the electricity sector, we hope to establish a specialised bourse for the sale of electricity from a network owned by the government. The purpose of the bourse is to create competition between companies to provide energy at cheap prices.

Do you think that it will be easy to sell the distribution companies? And who will assess the companies' assets?

The distribution companies will be sold easily because they have no debts and they are profitable since they buy the power and then sell it with a profit margin.

In preparation for offering the distribution companies for public subscription, a ministerial committee has almost completed its assessment of the companies financial position. Local and international evaluating companies will participate in the re-evaluation of the distribution companies assets. [Companies were already evaluated some two years ago.]

After privatising the distribution companies, how will the relationship between the consumer and the distributors be regulated?

Last week, a presidential decree established a comprehensive regulatory and supervisory body which will protect the consumer. It will be set up prior to the start of privatisation [of distribution companies].

The self-sustaining Electricity Sector Regulatory and Consumers Protection Board will fight monopoly in the electricity sector. It will ensure transparency in the dealings among the state, the provider of the service and consumers. The board will work to guarantee the quality and the price of services offered by the companies. It will be responsible for keeping electricity prices lower than the ceiling price determined by the cabinet. Seven members of the 10-member board will represent consumers.

What are the ministry's debts and how will they be dealt with?

In preparation for privatisation, a ministerial committee is working to clear the Ministry of Electricity's LE9 billion debt to the Ministry of Finance. On the other side of the coin, public enterprises and private companies owe the Ministry of Electricity about LE7.3 billion.

We are considering giving a portion of the electricity companies to the National Bank for Investment or the Ministry of Finance as a way of clearing some of the ministry's debts.

What are the steps taken by the ministry against businessmen who refuse to pay their electricity bills -- some of which are in the millions of pounds?

The ministry really faces a big problem because Egyptian businessmen usually do not take into account electricity costs in their feasibility studies for their projects. When electricity costs turn out to be high, they simply refuse to pay their bills. We always try to avoid cutting electricity to these projects so as not to bring their activities to a halt. Instead, we try to arrange payment of their bills by instalment.

"We are moving now to replace the previous system based on monopoly [by one company controlling the entire electricity sector] with a vertically integrted structure."


What are the ministry's plans for expanding projects for power generation by wind?

Apart from the first wind parks in Hurghada which have a capacity of 5MW, the biggest wind project to date is the Zafarana Wind Park which has a potential capacity of 600MW. The park began with 30MW, an amount that should rise to 300MW by 2005.

The German government pledged its support for 85MW of the total, as well as for a third expansion stage still on the drawing boards.

Due to the unharnessed potential of high winds in Egypt, particularly in Zafarana, and within the framework of the Kyoto Protocol for Global Environmental Protection [signed during the early 1990s], many countries are viewing Egypt's wind projects as a 'clean development mechanism' (CDM) for power generation. Moreover, the Global Environmental Fund, an international fund for environmental protection, is providing soft loans for some wind projects in Egypt.

What are the ministry's plans for expanding projects for generating power using solar sources?

The ministry announced an international tender for the establishment of the first BOOT hybrid solar/fossil thermal power plant in the Kurimat region ( South of Giza). The plant, which will be the first of its kind in the Middle East, will be an integrated solar combined cycle system (ISCCS) using a natural gas fired process alongside a solar thermal power system. The ISCCS will have a total power output of150MW.

Kurimat was chosen for its high solar radiation and existing natural gas infrastructure. The station is to be financed by private sector investments using the BOOT system. The ministry is scheduled to announce the technical requirements that bidders need and choose the best offer for the Kurimat station by the end of 2000.

In cooperation with the United States, another project is under way for an experimental solar energy plant with a capacity of 10MW.

We are trying to harness all capacities for hydro power offered by the Nile River. The Esna station was established at its barrages while Naga' Hamadi and Assiut stations are under construction. [All three places are located in southern Egypt.]

Will the consumer be able to pay his electricity bill by credit card? Does the ministry have plans for other special facilities for consumers?

A study is currently being conducted on using credit cards to pay electricity bills.

We are also considering the feasibility of using prepaid electricity cards. These would be especially for dwellings used seasonally rather than the year round. Such cards will be easy to use and will help rationalise the consumption of electricity.

Is the demand for equipment used in the production of electricity met locally, or is this equipment imported?

Locally produced equipment is of high quality and is, in fact, competing in foreign markets.

For generating electricity, we make the necessary equipment for low and medium voltages, that is up to 66[UNITS]. For equipment used in distribution, 100 per cent of this is produced locally, including transformers, switches, protection equipment and towers. But for distribution of high voltages, beginning at 220[UNITS], only about 50 per cent of the equipment is locally produced.

Will the local production of equipment for generation and distribution be increased to cover all power needs within the coming few years?

We will never be able to produce all equipment locally because the market is too small to do so economically. Instead we choose to produce a portion of the equipment and to import the rest.

A factory for producing insulators is now in its testing phase. This will meet the demand for insulators used in all low and medium voltage generators and a portion of those used by high voltage generators. This factory will be the first of its kind in the Middle East.

Moreover, all new power generation stations and those being upgraded will use locally produced boilers, condensers desalinators and auxiliary boilers. While materials for some of these are imported the equipment itself is manufactured in Egypt. Companies for engineering, project management and construction are all Egyptian.

For the establishment of all power generation plants in Egypt, 45 per cent of costs were spent locally.

How will the Sidi Kreir power plant [on the Mediterranean coast west of Alexandria], part of which is being established under the BOOT system, help to increase output?

Sidi Kreir power station consists of four units. Two of these are government-owned, each of which has a capacity of 325MW. The other two -- built under the BOOT system -- have a capacity of 340MW each.

One of the units owned by the government is being tested, but will be ready to be inaugurated soon by President Hosni Mubarak.

The BOOT units are scheduled to be operational by the beginning of 2002 although it is expected that work on them will be completed earlier. An American company and an Italian one, Intergen and Edison respectively, are the owners of these units. About 28 per cent of the cost is equity [capital] and 40 per cent is provided through loans from local banks while the remainder was financed by loans from foreign banks.

Where will the next power station to be offered for BOOT investors be located?

With developers having been invited to bid on two BOOT projects with a combined total of 700MW for the North Cairo station, there will be a total of 8 BOOT power generating stations in Egypt.

The terms for bidding for the North Cairo facility were announced and the scaled-down of contenders will be made public soon.

With 8 BOOT stations scheduled to be on line soon, Egypt is considered an international model for applying the BOOT system to the electricity sector. The number of foreign companies bidding for these projects indicates that they view the [investment] climate as healthy and reliable.

What is the size of Egypt's electricity reserves and will a portion of these be exported?

By international standards it is considered wise to have 10 to 20 per cent of total capacity in reserve to prepare for the maintenance of one and perhaps two stations simultaneously. Added to this a country should always have 'hot reserves' which can be used if there is a sudden surge in demand.

We already export to Jordan, according to our reserves and their demand.


Related stories:
No Trojan horse 27 July - 2 August 2000
Privately, it's a snail's pace 11 - 17 May 2000
More private money in power sector 23 - 29 July 1998

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