2013-04-20 05:26:04 - New Energy research report from Business Monitor International is now available from Fast Market Research
BMI View: With the Egyptian economy unlikely to stage a more pronounced recovery in the near term, power demand is exposed to downside risks. This notwithstanding, a continuous and reliable supply of electricity is paramount for Egypt's socio-economic development, and a series of politically-charged electricity outages over summer the second half of 2012 has illustrated that power is a hot political issue for a government that is under pressure to improve the quality of public service provision. Yet, the challenge of ramping up supply is immense; not only does it require a re-prioritisation of natural gas feedstock away from exports and towards domestic consumption, but weak economic activity and political uncertainty are set to take a toll on the government's
ability to channel investments towards the sector.
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With economic growth hinging on the provision of adequate and reliable power to vital sectors (ranging from industry and agriculture to tourism and transport), the expansion of Egypt's electricity infrastructure is a key priority for the country. An ambitious power sector investment programme has been under implementation since 2002 - aiming at additions of 7,000 megawatts (MW) and 11,850MW during the first (2002-2007) and the second phases (2007-2012) respectively; yet, power shortages have fully displayed the need to improve capacity and made the development of the sector an even more urgent policy priority for President Mohamed Morsi. Most notably, in March 2013, the Ministry of Electricity and Energy decided to maintain a state of emergency in all electricity projects nationwide to face all emergency circumstances, as well as increasing the number of diesel generators in public squares to provide electricity at the time of need.
These short-term measures aside, we reiterate our view that the state's long-term strategy for the electricity sector should be bifurcated; on the one hand, it needs to ensure more feedstock availability for existing and planned gas-fired generating capacity by prioritising domestic users. On the other hand, the government needs to push for more diversification, increasing hydro and renewables capacities, given that nuclear remains off the near-term agenda.
Key trends and recent developments in the Egyptian electricity market appear indeed to suggest that the government is looking to pursue a privatisation and diversification strategy, with:
* Egypt's ministry of energy and electricity announcing plans to tender three local power generation projects with a total capacity of 5,500MW in March 2013. The projects, which will have a combined cost of nearly EGP50bn, will comprise 2,250MW from Dayrout city projects, as well as 1,300MW from a steam power project in Qena and 1,950MW from a project in Beni Suef.
* Plans have been presented in late 2012 for a tender in 2013 for the construction of a wind power station in Gabal el-Zeit in the Gulf of Suez. The 200MW station will require a total investment of EGP2.8bn (US $457.13mn) and become operational in April 2014. The station, featuring 100 turbines, is part of the country's effort to boost the wind power generation capacity to 720MW by 2020.
Yet, we highlight that a number of key challenges push risks to the downside, with repeated twists in the ongoing saga of Egypt's nearly two-year old political transition. The Egyptian economy is stuck in a rut, from which it does not appear likely to escape anytime soon. What is needed most - namely an end to frequent outbursts in violent unrest, and greater clarity on the medium-term policy trajectory - are those for which we are the least optimistic on in the near term. Much is often said about the need to sign a longawaited IMF Stand-By Arrangement (SBA), which would certainly help by providing a key source of external financial assistance and force necessary structural economic reforms. However, we reiterate that an SBA is by no means a panacea and will simply buy authorities with a little extra time (the US$4.8bn programme amounts to approximately one month of imports). The fundamental issue undermining fixed investment and consumption patterns centres on the country's protracted democratic transition, which is a process that appears set to unfold for several more years yet.
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