Egypt’s recovering economy is calling for more electricity in the coming years, yet the country seems unsure about how far to reform its power industry in order to meet this demand.
Sitting at the crossroads of Europe, Africa and Asia, Egypt retains a pivotal role in the Middle East, both politically and economically. Its economy, which is gradually recovering from a sharp downturn in 2002, is reliant upon energy with major oil exports and an increasingly important natural gas industry. This recovery is driving up demand for power and the government recognizes that significant additional capacity will need to be added and finance found over the next decade.
Egypt has undertaken limited power sector reforms, toyed with industry privatization and started and then halted an external finance initiative. The country seems unsure about just what approach it should take in order for its electricity industry to meet the oncoming demand.
Egypt’s output of crude oil in 2003 was an average of 620 000 barrels per day (bbl/d), a sharp decline from its peak of 922 000 bbl/d in 1996 and slightly below the output level achieved in 2002. With oil exports on the decline, exports of natural gas will quickly overtake them in importance once the two initial LNG terminals become operational in 2004 and 2005. Egypt was producing over 99 million cubic metres per day (mcm/d) of gas by December 2003 but production is expected to rise to around 142 mcm/d by 2007, with much of the increased volume being exported as LNG.
Given these resources, natural gas has quickly grown to become the dominant fuel for Egypt’s electricity industry as thermal plants have switched away from oil to gas. Around 83 per cent of Egypt’s installed electric generating capacity is thermal (natural gas). The remaining 17 per cent is accounted for by hydroelectric power generation, mostly from the Aswan High Dam. All oil fired power plants have been converted to using gas as their primary fuel. Combined cycle power generation now accounts for 16 per cent of installed capacity. Egypt has no commercial nuclear power generation and plans during the 1980s to develop nine nuclear power plants to add around 10 000 MW were dropped in the wake of the Chernobyl nuclear disaster.
Over the past two decades Egypt has experienced an average annual growth rate in electricity demand of 6.5 per cent. Egypt predicts electricity demand to grow at an annual rate of 7.5 per cent between 2003 and 2006 and by 7.6 per cent from 2007 to 2012. Annual electrical energy production stands at around 83 TWh with an average growth rate of 7.0 per cent. Real GDP growth is forecast at 3.6 per cent for 2004, with an upward trend toward 5.5 per cent by the end of the decade. This has prompted forecasters to predict a requirement for approaching 12 000 MW of additional generating capacity by 2010. Most recent figures show Egypt’s current installed capacity at 17 360 MW.
Egypt’s Ministry of Electricity and Energy has put in place an energy strategy up to the year 2010 involving the construction of new power plants, the upgrading and uprating of existing ones, the extension of the country’s transmission and distribution networks and the construction of new energy management centres. These energy supply management centres are spread across the country to receive information about the network, achieve the economic operation and stability of the network.
Egypt’s power sector currently comprises seven regional state-owned power generation and distribution companies, which up until 2000, were held by the Egyptian Electricity Authority (EEA). Limited reform did take place in July 2000 with the EEA being converted into a state-owned holding company the Egyptian Electric Holding Company (EEHC).
The Egyptian government is looking to step up its general programme of privatization among state-owned enterprises, including those in the power sector. Initial enthusiasm for privatization, prompted by pressure from foreign creditors, waned in 2000. Selling off stakes in parts of the sector to private investors would generate funds to help build more power plants. However, progress to date has been slow. Many state enterprises are burdened by large debts and labour problems.
Current reform proposals call for the separation of generation, transmission, and distribution. Distribution companies will eventually be privatized, while the EEHC will continue to hold transmission lines and power generation. New power generation would come almost exclusively from privately funded projects, which would sell power to the EEHC. However, previous plans for privatizing the electric utilities have stalled and it is not clear what future direction the government has for the industry.
In the recent past Egypt has been willing to utilize the build own operate and transfer (BOOT) financing model in order to attract private capital to invest in new plant. Egypt has several privately-owned BOOT projects. The first BOOT project was a gas fired steam power plant with two 325 MW generating units, located at Sidi Krir on the Gulf of Suez that went into commercial operation in late 2001. The plant cost $450m with US-based InterGen and local partners Kato Investment and First Arabian Development and Investment securing the 20-year BOOT contract.
A second BOOT project was awarded to Electricité de France in 1999 for two gas fired power plants near the cities of Suez and Port Said with capacities of 680 MW and 683 MW, respectively. Both power plants have been operational since 2003 and the concession duration for each power plant is 20 years after the commissioning.
While Egypt has embraced BOOT schemes in order to finance new power plants without increasing the country’s debt load, its appetite for these financing mechanism seems to have diminished. Recent government statements indicate that no new BOOT projects are likely in the near future. The future of BOOT financing in Egypt is unclear.
The EEHC is undertaking its own programme of construction to meet growing demand. The Fast Track Generation Programme aims to add 4500 MW combined cycle plants over the next four years at the sites Cairo North, Nubaria, Talkha and El Kuriemat.
The Nubaria plant in the Western Nile Delta consists of two 750 MW units with turbines supplied by Mitsubishi Heavy Industries and Tomen Corporation and is scheduled to commence operation in simple cycle during 2006. The Cairo North project is also made up of two 750 MW units with GE supplying the turbines, The project, which has been subject to a series of delays, is now moving forward now that funding has been secured from multilateral donors and both units should be operational by the end of 2005. Bids to supply turbines to the new 750 MW Talkha CCGT are under evaluation with Siemens favourite to succeed.
Smaller hydropower projects at Nag Hammadi (64 MW) and Asyut (40 MW) are being developed among a number of others and a contract has been awarded to Russia’s Power Machines Group for the refurbishment of turbines at the Aswan High Dam. The refurbishment will increase capacity from 2100 MW to 2400 MW and extend the operational life of the turbines by 40 years.
The EEHC has also started the development phase process for the addition of 8375 MW to come into operation in the period 2007-2012. This Power Generation Expansion Plan will see 4875 MW added in steam plants and 3500 MW in combined cycle. The EEHC has recently applied to the World Bank for a $250 million loan for one of these projects – the 650 MW El-Tebbine plant in southern Cairo. The $350 million project will replace five smaller oil and gas units at the same site and is planned to come on stream in 2009.
Egypt has taken steps over the last two decades to improve fuel efficiency through rehabilitation of old plants and the introduction of more efficient combined cycle facilities. This has led to a reduction in the average fuel consumption and the gross heat rate during the period from 3450 kcal per kWh to about 2215, almost a 50 per cent improvement, thus saving fuel oil and reducing gas emission. Several measures have been taken to improve the transmission and distribution losses, both technical and commercial, resulting in a reduction from 18 per cent to around 13 per cent in the same period.
Egypt has a number of possibilities to further develop renewable energy alternatives. The coastal areas and south western parts of the country have high wind speeds, with the Suez and Red Sea benefiting from high wind speeds all year round. In Zafarana, Egypt has wind farms totalling 68 MW and there are plans to expand the installed capacity in the region to 450 MW by 2010. Japan has announced it will share wind power technology with Egypt and is considering loans for a wind power project in Egypt.
Egypt falls within the solar belt and receives more than 300 days of sunshine per year. The solar thermal gas electricity generation plan up to the year 2010 includes the construction of three power plants. The first plant of 127 MW solar capacity is expected to be commissioned in 2006. Another example is the Noor Al Salam (Light of Peace) plant to be built near the Red Sea, which will generate electricity via solar power during the day and natural gas at night. The United States, Israel and Egypt have worked together to develop the design of the plant and the World Environmental Agency will contribute $65 million.
While privatization within Egypt power sector is still very much under consideration, no firm plans have been announced. A regulatory agency was established in 2000 and objectives set for restructuring at that time and spelled out in legislation. Nearly five years on, little has changed but these objectives remain the basis of the evaluation of the restructuring process that is taking place. Meanwhile, other techniques to increase private capital are being pursued. The only matter not in doubt is that there will be increasing demand for electricity and that Egypt needs to establish its path towards meeting this.