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Tuesday, 28 May 2019

Edra and Blackstone’s Zarou express interest in operating Siemens power plants

INVESTMENT WATCH- Blackstone portfolio company and Edra express interest in operating Siemens power plants: Blackstone Group’s Zarou and Malaysian company Edra Power Holdings have both expressed an interest in taking over the operation of the three Siemens-built, combined-cycle power plants inaugurated in July, Electricity Minister Mohamed Shaker told Bloomberg, adding that both offers were under consideration. Neither Edra, which already runs three gas-fired thermal power plants in Egypt, nor Zarou have formally confirmed their interest in acquiring the plants.

Where does Siemens stand in all this? Shaker said that Siemens would continue to work alongside any new operator. The German conglomerate currently holds an eight-year contract to operate the plants. Siemens Egypt CEO Emad Ghaly has previously said the company is committed to operating and maintaining the power plants until 2024.

A move to get debt associated with the plants off the government’s balance sheet? A transaction could “set the stage for [Zarou or Edra] to assume responsibility for any financial dues,” Bloomberg’s Mirette Magdy suggests. The power plants cost EUR 6 bn to construct, with about 85% of the cost being financed by a consortium of lenders including Deutsche Bank, HSBC, and KfW-IPEX Bank, all backed by a sovereign guarantee.

Treasury-guaranteed debt reportedly stood at 20.4% of GDPas of the end of 2018, with about 25% of that owed by electricity companies.

Background: The Electricity Ministry had initially planned in 2017 to establish three companies to separately manage the plants and then list each of them on EGX as part of the state privatization program. Later, the Egyptian Electricity Holding Company (EEHC) issued an open tender for the operation and maintenance of the plants, for which ten companies bid in early 2018. The plan spin off the plants and list them on the EGX was reportedly shelved in September 2018 when the EEHC signed a USD 352 mn, eight-year contract with Siemens to operate, maintain, and manage the facilities.

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