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 V.I.P. INTERVIEWS
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| | Egypt has been endowed with enviable natural resources for power generation. In the past massive investment has been given to the energy sector, nowadays we are attendants to a new wave of investment, on this occasion, coming from private companies. How is it going to change the present picture of the energy sector in Egypt?
In every country the energy sector is controlled by the consumer side. You cannot put pressure on people to consume energy; you have to go with the demand, which is driven either by individuals or by companies' consumers in small or large groups. So if we look at the consumption development we will see, for example, starting from the 1970s where it had almost stagnant industries with stagnant level of life, we experienced a sudden boom in 1973 which was primarily based on the consumption side of goods, followed by a boom in the development of new enterprises. Then a boost in the standard of living instigated another boom in consumer goods, but that was not coupled with programs of energy development to satisfy consumption's needs. That is why in the late 1970s we had a lot of gray-outs sometimes even some black-outs. The government actually since the early 1980s started to take that on itself to overcome all the problems of energy supply and that came after president Hosny Moubarak, called to re-organize the economy on a well planned system. So now you can mark not only the growth of development but also the large drive to improve infrastructure: water, electricity, sewage, and transportation in every aspect.
The energy sector began a growth program by building large numbers of power stations and spreading the network all over the country, and we experienced a strong development and achievement from the early 1980s to the late nineties. For the time being we have around 15,000 megawatts of installed capacity, 20 percent of which is hydro - the high dam, the Aswan dam and Esna Barrages being the largest power stations and the rest being thermal whether steam power stations or combined cycles. Most of the energy mix of generation has to be a balance of technologies. Hydroelectric energy is available as one of the resources, and with respect to thermal we have to make a balance between combined cycle or steam power stations. In early 1980s for example, we had stations running with mazut and the gas was very limited, now we have plenty of gas, and therefore we are naturally switching to gas. That is why in late 1980s and early 1990s all power stations were designed to allow oil or gas. So whenever gas is available we will switch to gas, and if there is a problem in the availability of gas we use mazut.
Nearly 80 percent of our power stations are thermal. The future is also going to be along the same way. We have no more hydro so we have to continue on thermal.
Besides hydro, gas and oil Egypt has also a potential for power generation using wind and solar energy. What are your ministry's plans for these non-conventional ways of power generation?
Wind and solar technologies in Egypt are not as much developed as those applied to hydro, gas or oil. Therefore they did not appear in the international energy share with any appreciable percentage. However, here in Egypt we can say two things: with respect to wind we have areas like the Gulf of Suez where the wind speed is unique with a very high rate compared to other parts of the world, therefore, it is a very good place for installing wind farms. We have already small wind farms around the area, one of 5 megawatts and another one of 30 megawatts, which is going to be inaugurated soon, and we are adding more and more wind energy in that area. There are other areas, for example, along the northwestern coast and also the southwestern region, where the wind speed is quite high so that we can expect lots of wind farms being installed in these areas, although they are not as good as the ones on the Suez gulf region.
Solar energy can be used in two ways: in the conventional way of using the heat, or to heat up a medium with air, water, oil or hydrogen and then use that heated medium to operate turbines of any kind. Technologically, this is the most advanced system, but still more expensive than the conventional energy sources.
In those areas that are isolated, do you plan to implement micro-projects aimed at providing their people with the electricity they demand by installing solar-energy-operated systems?
This is a different way of producing electricity, which is called "photo-voltaic." Here we produce electricity directly from the photo-voltaic cells. This is a technology which is within our reach, and numerous countries are working to improve it and work on reducing its costs, because the cost of electricity produced from this technology is even higher than that produced by solar energy. So Egypt takes a part of this international effort to develop such technology and to find a way to produce it at lower costs. We have wind farms and we are producing equipment for producing those wind farms to be centered locally.
We already had a workshop, three weeks ago, to announce and invite interested companies for our first solar-thermal power station acquiring 150 megawatts, which uses the sun during the day and gas during the night for producing electricity. So as I said we have to look into all possible options available to supply the electricity needs.
What is today's supply/demand relation in Egypt regarding power generation, and what does the country do with the excess of production?
We definitely have a comfortable excess, meaning that you can cover any unforeseen outage of a large power station unit. It covers the necessity to shut down or stop a number of the hydro-turbines because we only operate the hydro plants according to the amount of water allowed to pass through the dams, which is dictated by the Ministry of Water Resources and Irrigation.
No water should go to the sea without being used, so what we try to do is to use that amount as a target of peak load. Of course it is seasonal, in summertime water fully unconsumed passes a lot more than in wintertime (December to January) where they limit the amount of water passing through for many reasons: for the maintenance of the canals, and the river and barrages and also for agriculture. Other times there is no need for much irrigation and hence for water, therefore the amount utilized is the only needed to keep a level for the passage of large cruises and consumption. This excess capacity is needed to have reserves to cover the hydro that is not operating for those reasons. In addition to that, we have what we call "reasonable" reserves to cover any unforeseen event.
Egypt is actively involved in a very ambitious project to link national electricity networks throughout Middle East, North Africa and Europe. Can you update us on the latest developments regarding this project?
We are interconnected with Jordan since 1998, Jordan and Syria have finalized their interconnection, which is being tested now, there is work now to interconnect Syria and Turkey, and Syria and Lebanon will also be interconnected. On the western side we are interconnected with Libya since 1998. We are interconnected through 220 kilovolts network with Libya, and through 400-500 kilovolts network with Jordan which is much higher. The interconnection between Libya and Tunisia is now under implementation, and we are hoping that before the end of this year they will be connected. Algeria, Tunisia, and Morocco are already interconnected, and Morocco is also connected with Spain. So once the link of Libya to Tunisia is executed, Egypt, northern Africa and Europe will be interconnected into one network.
Bearing in mind Egypt's increasing power generation capacity and the ongoing project to link the country's electricity network to other national networks, is it just a question of time for Egypt to become a net exporter of electricity?
If we are talking about Egypt and the interconnected network, we have to consider our needs and our government capabilities in that perspective; one area you could definitely think of is the overall interchange of energy and whether we can be exporters of electricity to the east or to the west.
| There are some 14 power plants either under construction or in development, and they are said to double Egypt's installed capacity by adding about 13 thousand megawatts by 2010. Could you tell us about these projects?
In fact, once those projects will be finalized they are meant to more than double the country's installed capacity at present. Oyoun Musa units I and II which are under commission. We have Sidi Krir III and IV steam, which is almost a replica of one and two, and then we have the Gulf of Suez and East of Port Said, which are steam, they all have the same size because we standardize the size and the type to save time and maximize localization.
We have the Suez Gulf and the East of Port Said which are both BOOT steam power stations. These stations, are to be connected to the grid to operate in the year 2003. Again we have a series of power stations but they will start with combined cycles.
Are they all private sector initiatives or is the Egyptian government also involved?
There will be a combination of private and public investment. So we have the first two BOOT combined cycle power stations, each of 500 megawatts, situated in the North of Cairo. Then we have one at Nobaria west of the Nile delta, another 500 megawatt combined cycle is planned to be acquired through soft loans, and there will be wind farms and the solar thermal energy plant, which I mentioned, to be inaugurated between the years 2004 and 2005.
Egypt's government has repeatedly expressed its preference for BOOT (Build, Own, Operate and Transfer) stations. What are the advantages of this system?
By using this system we attain two major goals: to attract foreign investment to Egypt and to bring the latest technologies in design and construction. We are trying to liberalize the electricity sector and one way to do it is to show examples of power stations and how they are operated.
Not only do we try to attract investment for large power stations, but we also attract investors willing to build smaller units in a large scale. They can have their own power stations interconnected to the grid so they can utilize them efficiently.
There are many reasons for putting the BOOT stations for international competition. Thanks to its location and good international relations, Egypt is also receiving some attractive loans that should be efficiently utilized so as not to put a fatigue burden on investors. At the same time, we utilize the available human resources and keep the system which we have, as well as the expertise which develops projects, designs, and manages such plants. So we are going with both systems: BOOT and soft loans. This is a sector that can generate its own revenues that can cover any loss.
You have stated in several occasions that privatization is a crucial step towards liberalization. On the liberalization side, what is the role of the Egyptian Electricity Authority and is the liberalization of distribution an ultimate goal?
As far as liberalization, we have already started by inviting independent partners since the whole system has changed. Although now it is not totally liberalized and the inputs and outputs are still controlled (for example, we are controlling the final prices on one side and tariffs are controlled on the other side), as far as they are independent producers respecting some limitations, they can operate. We are hoping that someday, with the development of privatization and further liberalization, we can reach the peak of independent power producers with no limitations. In other words, they evaluate and assess a precise type and size of plan, then sell on the grid and compete with other sources. The ultimate goal is to create the right climate for privatization as a way of gradual liberalization.
Privatization is transferring the state-owned companies gradually to stockholders, creating regulations and also developing the operation and management gradually to the modern means of management, as well as improving the financial situation. This will create competition and establish a system where the exchange of energy happens among different companies, and ultimately it will be a situation where customers can choose freely from which source they can get energy.
Is the liberalization process keeping the right pace?
I think so considering that we have started from a situation where the only player was the state. Switching to liberalization is not a simple job and you have to be very careful. You also need to find the best way to utilize all the resources you have, whether they are assets, equipment, land, stations, networks, or human resources.
You have mentioned medium to long-term goals, but could you also brief us on the immediate steps to be taken?
Number one is the Regulator. This is the area we are concentrating on today. Obviously, to enable the whole process to happen we need to set up the appropriate laws and decrees, but also to appoint the directors and the board. Once again, this is done keeping in mind that we are changing from a government system to a more liberal way of doing things.
Sometimes it is more difficult to change mentalities than the market structures themselves. Is this the case in Egypt?
Exactly. We are hoping that within the year, we can say that we have a mature regulatory body that can take over. In the meantime, we are working on the other side, that is to say, improving the financial situation of the companies, management and their way of looking at things, and creating competition.
Are we going to see any electricity company being floated in the near future?
First, you cannot put any shares in the market without having an effective regulatory scheme. Who is going to buy any share in the market if they do not know what they are buying? Secondly, we need to improve the financial position of the companies and that takes some time. Otherwise shares would have no value. No matter how many assets you have. In a situation where profits are not guaranteed, no one will come to you. We have to do that before any shares are made available to the market.
What would be your final message to potential investors, and what would you name as being the comparative advantages of investing in the electricity sector in Egypt?
First of all, this is a very stable reliable sector. In other words you can easily see and predict upcoming trends, so the risks are minimum.
Moreover, Egypt has a promising economy. In other words, if you put your foot in, be ready to put the other one in too because more opportunities are coming.
Here in Egypt we are not talking about a limited market. We are talking about a wider market, spanning through east and west, and the energy sector is not limited to this country, so whoever invests here can also access other markets in the region.
There is also another area: investing in the energy sector is not necessarily for transmitting energy, but also for the manufacturing of components. Equipment can be manufactured locally, to supply the equipment needed for all power stations here, and also to sell or export equipment to neighbouring countries.
With so many changes happening all around us, there are definitely more to come. We welcome any company or investor to Egypt for the management of electric companies, power stations, and many other areas. The energy sector is a diversified sector which is full of attractive business opportunities. |
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© World INvestment NEws, 2000.
This is the electronic edition of the special country report on Egypt published in Forbes Global Magazine. August 7th 2000 Issue.
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