Wednesday, 22 December 2021

She’ll be coming round the mountain in ‘21

2021 in infrastructure- Part I: A big year for transportation. Egypt was not spared from the horrors of train accidents and derailments in 2021. By our count there were at least six major train accidents taking the lives of over 60 people and injuring hundreds more, besides dozens of more minor incidents. These are just the latest in a string of train accidents in Egypt over the years. It should then come as no shocker that the government doubled down on its plan to overhaul not just our ailing railway networks, but our entire transportation infrastructure.

Rethinking transportation: The year saw the government sign new agreements and contracts on a host of major projects that were already either part of its years-long plan to upgrade railway infrastructure or new lines meant to link up the new urban communities being built. But beyond trudging along with planned projects, Egypt appears to be executing a rethink of how we use our infrastructure. From converting our cars to run on natural gas to setting up a new rapid transit system and, perhaps more transformatively, giving greater leeway to the private sector to get a hand in the sector. These moves appear to be working, securing us plenty of DFI funding and having large contractors competing for our projects.

Just how important was transportation (fiscally speaking)? The sector received the biggest proportion of investment in the infrastructure public spending plan for FY2021-2022. The budget for the transport sector was penciled in at EGP 245 bn, which covers roads, bridges, and river ports, while the railway budget alone stands at EGP 27 bn.

Much of that went towards our ongoing efforts to fix the railway and improve the metro: Rehabilitation projects that were in the pipeline for years began to see notable steps. Among the biggest was the EUR 1.6 bn project to convert Alexandria’s Abu Qir railway into an underground metro, which is being largely financed by European institutions. The Transport Ministry this year received bids from a total of 16 local and international consortiums to implement the project. Meanwhile, agreements were signed with France’s Alstom to provide Cairo Metro Line 1 with 55 new subway trains and rolling stock. Finally, Alexandria’s Raml Tram will be restored by a consortium of France’s Systra and Egis Rail and Egypt’s ACE Moharram Bakhoum and Projacs — after they were awarded an EGP 410 mn tender.

This also included local manufacturing of railway parts: The government plans to reach a 25% local component quota for the nation’s railway system over the next two years, which will rise to 75% in six years. In preparation of this, South Korea’s Hyundai Rotem and the National Egyptian Railway Industries Company (NERIC) signed an MoU back in May to locally produce railcars, signaling systems, and control and driving equipment. The country is also establishing a facility that will produce rail cars in the Suez Canal Economic Zone, with four companies currently in the bidding.

But a whole lot went towards advanced transportation that connected our new cities: Plans for the high-speed electric rail began to materialize this year as construction kicked off. The high-speed railway will connect the Red Sea to the Mediterranean and the government signed a USD 4.5 bn agreement with several companies to install and maintain the first 660 km line which should take two years to complete. Meanwhile, work is ongoing on the two planned monorail lines that will link 6 October City to Giza and Nasr City to the new administrative capital. A consortium of Bombardier Transportation, Orascom Construction and Arab Contractors were tapped to implement the USD 4.5 bn project in May 2019.

Meanwhile, the light rail train (LRT) project seems like it could be the first project to come to life. The 103.3 km network that runs primarily through East Cairo’s new desert cities connecting El Salam, to Al Obour, Al Shorouk, Badr, Rubiki, 10th of Ramadan and Belbeis has begun test runs and is about 95% complete, Transport Minister Kamel El Wazir had said. The trials are set to wrap by the end of March, with an eye to launch in April.

But when it comes to urban transportation, the government is rethinking things, starting with the Cairo Ring Road’s new BRT system. The Ring Road is undergoing a major EGP 7.3 bn overhaul which is set to widen the congested 106 km freeway to 16 lanes as well as include an exclusive BRT (bus rapid transit) lane that could soon replace microbuses and other forms of public transit. The project was previously expected to be completed by the end of this year.

But nothing seems to be more transformational than the plan to transition our cars to run on natgas: The government launched the multi-year natgas transition plan in March which aims to replace car engines powered by traditional fuels with dual-fuel engines that run on both gasoline and natural gas. The first phase was expected to see 250k outfitted with new engines by the end of 2023 while the entire initiative would affect 1.8 mn cars over the course of a decade. However, the plan soon ran into problems as the global chip shortage derailed the timeline and caused prices to increase. Last we heard, the scheme gave out almost 7.7k natgas-run cars, almost half of the targeted 15k cars for this year.

An overhaul brought to you by the private sector: Back in April, plans were announced that would allow private rail companies to be brought on as operators of new trains the government is adding to Egypt’s existing railway network. The government is separately looking to set up a JV with the private sector to own Egyptian National Railways’ cargo transport arm and set up companies to house several railway workshops in a bid to boost the efficiency and quality of rolling stock maintenance. Since then, nine private sector companies have been contracted to manage and operate several of Egypt’s upcoming transportation projects, especially those in the railway sector.

…And enabled by the PPP Act: The Public-Private Partnership (PPP) Act was given final approval by The House in mid-November. The piece of legislation aims to streamline partnership contracts between the public and private sector in fields including transport, energy, communications, and healthcare. It would add provisions meant to ensure higher quality standards and simplify the tender process through which government contracts with private businesses. Several big projects are already underway under this partnership model including several housing projects by the Mortgage Finance Fund, the Cairo monorail, as well as the Sixth of October and Tenth of Ramadan dry ports.

This pivot towards a private sector-managed infrastructure appears to have lured companies in: International companies have also jumped into the mix to do everything from constructing or operating the projects to upgrading or providing trains and metro cars. Egypt signed 21 new agreements with foreign firms in November at the Transmea Conference.

…And foreign funding: Egypt received several loans and credit lines from international finance institutions to cover the costs of implementation. The International Bank for Reconstruction and Development (IBRD), Japanese International Cooperation Agency, European Bank for Reconstruction and Development (EBRD), World Bank, JPMorgan, and European Investment Bank (EIB) were among the most notable financers for our transport-related ambitions this year.

But will all this be enough to stave off railway crashes? Following a string of railway accidents earlier this year, we posed this question to industry insiders, who told us that while infrastructure upgrades were key, much of what is hurting us on the railway front was the lack of training afforded to its workers. This assessment was backed by the World Bank, which said about 1k train accidents happen annually in Egypt due to the lack of safety enforcement and human errors. The government has made promises since to double down on training staff and issued regulations that could see public-sector employees be automatically dismissed if they test positive for illegal substances.

Your top infrastructure stories for the week:

  • Mitsubishi interested in Egypt green hydrogen projects? Representatives of the Japanese firm discussed working with the Oil Ministry on clean energy projects such as green hydrogen and carbon capture.
  • Al Nowais eyes Egypt desalination, hydro projects: Emirati investment company Al Nowais is looking to get involved in desalination and green hydrogen projects in Egypt.
  • Aswan-Toshka rail: The Transport Ministry is in negotiations with five international financial institutions to help fund the construction of the planned Aswan-Toshka railway line.
  • A commercial and logistical zone is coming to Dakahlia’s Talkha, where investors will be able to purchase units in 1Q2022.
  • Rebates for liquefied natural gas (LNG) carriers will be dialed back from 1 January until 30 June 2022, according to a Suez Canal Authority circular. Rebates for carriers out of Singapore and other Far East ports will now be set at 70%, while Gulf carriers will pay 35% less. Ports located between India and Singapore will get a 55% break.

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