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Wednesday, 16 November 2016

More industries calling for government to renegotiate contracts

It’s not just pharma anymore: Other industries are calling for the government to renegotiate contracts after the float. Business across the industry spectrum are calling for a revaluation of government contracts after the Ismail government’s economic reform program saw the EGP allowed to flat and fuel prices raised as much as 40% at the pumps.

Companies planning to sign on to phase two of the feed-in tariff (FiT) will request that the tariff rate be increased, Al Borsa reports. Under phase two terms, the Electricity Ministry will pay 30% of the 25-year contract in USD at the exchange rate set on the day of the announcement of the rate back in September, while 70% will paid at the rate set on payment day. FiT companies are also worried about rising costs of developing their projects since the float. Furthermore, rooftop-installed solar arrays will be paid in EGP, stoking fears among companies that the float will offset any gains in the 35% reduction in the costs of solar panels. The New and Renewable Energy Authority held a meeting on Tuesday to determine the impact of the float of FiT projects and will present its recommendations to the ministry this week.

International contractors working on the Cairo Metro are also pushing to revise contracts with the National Authority for Tunnels, according to the newspaper. Digging on the third phase of the Cairo Metro Line 3, which was scheduled to begin at the beginning of the month, has been delayed by France’s Vinci, said a source from the Transportation Ministry.

Fertilizer companies have also gotten on the bandwagon, stepping up requests that the government liberalize prices of domestic fertilizers and provide farmers with a cash subsidy instead, Al Borsa reports. Production costs since the float have risen 60-70%, said the CFO of Delta Company For Fertilizers and Chemical Industries Magdy Abdel Fattah. The company had anticipated a managed float, and had budgeted for an exchange rate of EGP 9.25 to the greenback. Gas pricing is also an issue, the story suggests.

These sectors now join the embattled pharma industry which has been trying to get the government to allow it to raise retail prices, which the Health Minister Ahmed Rady had declared would not happen. On that front, October Pharma announced that it would temporarily cut output by 50% and halt the manufacturing of 30 SKUs once stocks run out in 45 days’ time. CEO Ahmed Zaghloul told Al Borsa that the company has incurred EGP 16 mn in losses since the float.

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