Opportunities, Challenges for Investment in Egypt’s Renewable Energy Sector
A lively debate on Egypt’s renewable energy sector set the stage for this year’s ‘Invest in Egypt’ conference, which began in Abu Dhabi on Wednesday.
Speaker Mohamed Hazzaa, senior associate of Sharkawy & Sarhan Law Firm, paid special attention to investment opportunities in the context of Egypt’s legal and regulatory framework. He noted that in 2013, renewable energy accounted for only 1% of the country’s primary consumption and that given the severe electricity shortages of the past year the government is particularly keen on developing this sector.
A new policy regulating the price that the government would have to pay to purchase energy from privately-owned power plants, however, elicited some scepticism among investors and their legal counsellors. The feed-in-tariff mechanism essentially offers fixed payments per unit of energy, with higher payments for power plants with greater capacities.
The amount to be paid is set in U.S. dollars but the government would make the payment in Egyptian pounds.
“I see two risks for investors: there is the risk of government insolvency; and then the exchange rate risk,” said John Shehata, an energy and infrastructure specialist for Orrick, an international law firm.
“In fact, there is a third risk as well and that is conversion,” said Hazzaa. Given Egypt’s current shortage of foreign reserves, it is possible that the government may not be able to convert pounds in hard currency. Still, according to Hazzaa, the level of risk is “not unreasonable”.
“The government wants to attract investment,” said Essam Selim, Chairman of Ibis, a Cairo-based consulting form. “There is a new optimism among foreign investors, because compared to a few years ago there is less uncertainty about contracts and greater confidence that the government will implement business friendly policies.”
Some investors, however, worry that the legal and regulatory framework in Egypt might still be too weak. “The institutions are lacking, there is too much uncertainty,” said one businessman, who requested to remain anonymous because his company is currently bidding for a tender.
“Many investors worry about the military way of thinking,” said Selim, in reference to the involvement of Egypt’s armed forces in the national economy. “I believe there is goodwill on the part of the authorities but some of the new projects are not being implemented in the most professional way, in terms of feasibility studies and timetables for completion.”
The ‘Invest in Egypt’ conference is organised by Meed, a media brand that offers a variety of services, including business news and intelligence and high-profile conferences on investment opportunities in the Middle East and North Africa. The programme will continue on Thursday.
Source: Daily News
