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Monday, 26 December 2016

Deregulation

The Electricity Act and the Natural Gas Act, which would deregulate their respective sectors were two of laws that excited us the most when they were announced. With so many sectors of the economy still under government control, it would almost seem inconceivable that such strategically vital sectors would be slated for privatization for Egyptians and foreigners. At the time they were proposed, Egypt had become a net importer of natural gas and suffering through critical power shortages. It was hoped by allowing the private sector in supply and distribution would be made more efficient by introducing competition, spur domestic and foreign investment in the sector, and reduce the immense expenses incurred by the government as a result of being the sole operator. More crucially, it would help ease the government’s transition away from subsidizing electricity and gas to the Kramers. Neither law has been implemented as of the end of 2016, but slow progress is still progress.

The Electricity Act would see the state become the regulator and (separately) owner of transmission infrastructure, but not the sole market player. Initially, there will be two markets: one competitive and one in which prices are set by the state, the state said in 2015. The executive regulations mandated that the Egyptian Electricity Transmission Company would be the sole entity charged with transmission of power, regulating the market, and setting a strategy for deregulating and expanding the national grid over 5-10 years. As of the November, the EETC had begun procedures to splinter off from the Egyptian Electricity Holding Company and restructure to meet its new role. This will continue at what we hope will be a quicker pace in 2017, although some in the industry have warned us they do not expect much in the way of deregulation this coming year given the state’s investment in excess generation capacity.

More likely, they said, is that the Natural Gas Act will move forward, reducing the state’s role reduced to that of a regulator, with private sector players allowed to directly trade gas using the pipeline and network infrastructure. The act would also establish a new authority that will regulate the gas market. Unlike the Electricity Act, the Natural Gas Act had been moldering in the shelves of the Egyptian Council of State for over a year before it was finally sent to the House in November. But all good things come to those who wait, as the law received preliminary approval from the House and is expected to be passed in 2017, said Oil Minister Tarek El Molla. Right on time, as the giant Zohr field is set to come online next year.

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