EGYPT: An Introduction to Projects & Energy
The following Overview featured in Global 2023 and is awaiting update from the firm.
The Egyptian projects and energy market was dominated in 2022 by the United Nations Framework Convention on Climate Change (UNFCCC) Conference of the Parties (COP27) taking place in Sharm El Sheikh on the Eastern coast of Egypt. The hosting of this global event in Egypt has encouraged a number of policy updates and market trends favouring sustainability and action against climate change.
This market has also been impacted by the general slowdown in the wake of COVID-19 and the Russia–Ukraine war, which has culminated in several devaluations of the Egyptian pound and Extended Fund Facility from the International Monetary Fund. The IMF arrangement outlined the implementation of a comprehensive policy package to preserve Egypt’s macroeconomic stability – and pave the way for sustainable, inclusive and private-sector-led growth – by enacting reforms to reduce the State footprint, level the playing field across all economic agents, and strengthen governance and transparency in the public sector.
These trends continue to make headlines in 2023. The Egyptian government announced a new wave of privatisation and IPOs in February 2023, with an initial offering of 32 companies in various sectors – including stakes in three prominent banks, as well as in insurance, electricity and energy companies, hotels and industrial and agricultural plants.
The investment in Egypt’s road networks, power production capacity and rail infrastructure has expanded rapidly in recent years, underpinned by population growth, a desire to increase exports, and efforts to capitalise on the country’s strategic location. In 2023, investment is expected to focus more on commodity sectors in general – with agriculture, industry, energy, and construction likely to account for the biggest portion of government spending.
The following selection of highlights and legal framework updates can be considered representative of developments in the Egyptian projects and energy market throughout 2022–23.
Launching Egypt’s Hydrogen Strategic Framework at COP27
Egypt signed eight framework agreements for the development of large green hydrogen projects in the country’s Suez Canal Economic Zone (SCZone). This came after the country witnessed the commissioning of the first phase of Egypt Green Hydrogen’s 100 MW project, in which green hydrogen production will be used as feedstock for green ammonia.
Since the announcement of these projects, Egypt has experienced increased interest in the green fuel production sector. A number of large global developers have invested in the field by joining the first batch of private-sector signatories with government-side sponsors.
Despite the initial incentives package (announced by way of update to the Egyptian Investment Law No 72/2017 and its executive regulations in respect of green hydrogen and ammonia projects), additional support is required from the government in order to make the first projects by this market’s early movers a reality. It is worth noting the substantial appeal of fiscal incentives provided in a number of developed countries – for example, the hydrogen tax credit provided for in the US Inflation Reduction Act (IRA). Also, as Europe is the natural export market for these projects, Egypt must facilitate the integration of the projects’ output with the new EU rules concerning low-carbon and green hydrogen.
Increasing Gas Exports to the EU
In line with Egypt’s intention to serve as a regional energy hub for natural gas and the EU’s attempts to phase out its reliance on Russian fossils, a memorandum of understanding was signed in 2022 between Egypt, Israel, and the EU. The signatories will work together on the efficient utilisation of infrastructure to increase gas shipments to the EU, as well as to reduce methane emissions and explore carbon capture projects.
Another memorandum of understanding signed in 2022 – between Egypt and Greece – will see the two countries work more closely on LNG marketing, exploration and production activities in the eastern Mediterranean, and consider setting up a new subsea pipeline linking them.
Optimising the Use of Natural Resources
The establishment and inauguration of the black sand factory in the city of Burullus in Kafr El Ssheikh is one example of adding local value to maximise the benefit from exports. The project aims at dredging and separating rare earth elements from black sand ore to reach critical minerals involved in strategic industries for use in the local market. Any surplus will be earmarked for export – primarily to Europe and Asia.
Strengthening Egypt’s Water Security
A PPP unit is working with the Ministry of Housing, Utilities and Urban Communities, the New Urban Communities Authority, and The Sovereign Fund of Egypt to launch tenders for 21 new desalination plants that will process a combined 3.3 cubic metres of water per day once fully operational in 2025. A tender for five sewage stations is also expected, in addition to other tenders for industrial and drainage projects, new dry ports and logistics areas, and other green projects.
Working With Development Finance Institutions
The European Bank for Reconstruction and Development (EBRD) is focusing on the energy pillar of the Egyptian government’s Nexus on Water, Food and Energy. The government is working with multilateral institutions to increase private-sector investments in renewables, with the aim of attracting USD10 billion in investments by 2028.
Establishing Africa’s First Voluntary Carbon Market
During COP27, the Egyptian Exchange announced the set-up of Africa’s first voluntary carbon market, whereby companies working on emissions reduction projects in Egypt and Africa can trade carbon emissions reduction certificates (CERs) to be purchased by companies wishing to offset their greenhouse gases emissions. This comes after Egypt supported the issuance of 19-year USD334.5 million non-recourse Green Project Bonds in the region for the first time in order to refinance the non-recourse project debt for 380MW solar power plants in Benban, Egypt.