Sunday,22 July, 2018
Current issue | Issue 1302, (30 June - 13 July 2016)
Sunday,22 July, 2018
Issue 1302, (30 June - 13 July 2016)

Ahram Weekly

A cloud hangs over solar plans

Disagreements between the government and investors could affect investment in renewable energy in Egypt, reports Niveen Wahish

A cloud hangs over solar plans
A cloud hangs over solar plans
Al-Ahram Weekly

Differences over dispute procedures have brought around 20 renewable energy projects in Egypt to a halt. Among the halted projects is Cairo Solar’s plan to develop a 50-megawatt (MW) photovoltaic plant near Aswan in Upper Egypt at a cost of $108 million.

Cairo Solar planned to deliver the energy it was set to produce within the Feed-in Tariff (FIT) scheme that allows any person or company, public or private, to generate electricity from renewable sources such as wind and solar and sell it to the national grid. FIT was introduced by the Egyptian government in 2015 to encourage investment in renewable energy.

Now the whole project may be called off. The company had started working on the project earlier this year, despite delays in the government’s release of its Power Purchase Agreement (PPA).

“We believed the government and started working on the project, being sure it would not backtrack on its word,” Hisham Tawifk, chairman of Cairo Solar, told Al-Ahram Weekly. 

But when the PPA was published it was not to investors’ liking because of a clause saying that should a dispute arise between the government and investors the matter should revert to local arbitration.

International financial institutions, including the International Finance Corporation (IFC) and the European Bank for Reconstruction and Development (EBRD), that are helping fund many of the renewable energy projects had earlier requested that dispute settlements take place via international arbitrators.

The institutions provide hard-currency financing to the projects through their own resources as well as those of other financiers.

“We were reassured in April when one of the versions of the PPA included international arbitration, which is why we continued work on the project. But that version was later cancelled,” Tawifk said. He added that the international financial institutions are now withdrawing their support for at least 20 projects.

He said that 90 per cent of the funding for the projects was foreign, and added, “It is nonsense to forego their demand for international arbitration.”

Tawfik lamented the time and money that has been invested in the project so far. “LE41 million has already been invested — between consultancy fees, opening letters of guarantee and other expenses,” he said.

Work on the project was set to start in September. In an attempt to reach a solution, Tawfik said that the affected investors have signed a petition to the minister of electricity. A prior request to receive part of their revenues from the government in hard currency had been turned down, and this had been accepted by the investors, he said.

The Cairo Solar project is located within Egypt’s New and Renewable Energy Agency (NREA)’s 1.8-gigawatt (GW) solar park, which includes 39 separate project plots.

“If this issue is not resolved, not even a fraction of the targeted capacity will be produced,” Tawfik said. “This is not to mention the effect it will have on Egypt’s attractiveness to investment, whether domestic or foreign.”

Ahmed Zahran, CEO of KarmSolar, a solar technology and integration company not affected by the dispute, said the issue of arbitration between the government and investors will affect investment in Egypt beyond the renewable energy sector.

“It is a very bad reputational issue,” he said. Zahran added that it could be the result of miscommunication on the part of the government, which had not delivered clear information and had given the impression that it was going to agree to international arbitration.

The renewable energy sector however might be better off this way, he said. The feed-in tariff agreements had opened the market to global players at attractive prices, he said. This would have resulted in revenues being repatriated by the companies concerned.

“Huge companies would have had unfair advantages over the smaller companies in the market,” he said, adding that there were other ways to provide solar energy to the market. H is company is providing solar energy to one of Egypt’s top food producers in a 25-year project that does not involve feed-in tariffs as it is selling the energy directly to the company.

Zahran said that solar energy is a good investment despite lower global fuel prices. The energy is cheaper over the total span of projects but high investment is needed upfront. However, the technology is getting cheaper by the day, he said.

In order to attract investors to apply for the feed-in tariff projects the government offered attractive rates to those who bid to provide energy during the first regulatory period, running from 2015 to 2017.

Some observers said the government has chosen to stall implementation of the projects because of the disagreements over dispute settlement. If the deadline expires and the investors have not implemented their projects they will have to wait for the second regulatory period, for which the government is likely to offer reduced rates.

Tawfik could not recall a similar case where the government had refused to include international arbitration.

Choosing local arbitration should not be a concern for investors, said one legal counsellor who asked to remain anonymous. A 2014 report titled “Assessment Report of Arbitration Centres in Côte d’Ivoire, Egypt and Mauritius”, published on the website of the African Development Bank (AFDB), a regional multilateral development bank that follows the same guidelines as the World Bank, testifies to that, she said.

The report evaluated the Cairo Regional Centre for International Commercial Arbitration (CRCICA) and found that it satisfies all the criteria the report set out to measure.

“The centre remains one of the best arbitration centres across the African continent and can readily be recommended for use by parties from both the African continent and elsewhere,” the report said.

The legal counsellor said that CRCICA meets one of the most important requirements for international financial institutions: neutrality of the venue in cases of commonality of origin between one of the parties to the arbitration and the state in which the centre is located.

She explained that a further guarantee of fairness is that each disputing party is free to choose one arbitrator, with both agreeing on the third. If they do not reach an agreement the head of the centre appoints the third arbitrator, or they choose someone else as appointing authority. Furthermore, they can stipulate that the third arbitrator does not hold the nationality of either party.

“So there is nothing to worry about in terms of arbitration,” she said. “Nor is the enforcement of arbitration rulings a problem.”

In fact, the AFDB report states, “It has been noted that Egyptian courts generally take a favourable approach to the enforcement of awards, including foreign awards, rendered against Egyptian nationals or Egypt itself.”

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