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Wednesday, 7 September 2022

Electric and gas utilities players give their two cents on the state’s privatization plan

What do electric and gas utility companies think of the state’s privatization plan? As part of its state ownership policy document, the government is looking to open the door to more private sector involvement in electric and gas utilities. Stakeholders in the electric and gas utility industries gathered late last month to share their thoughts on what the sector needs and to lay out recommendations on how to bring the private sector on board.

The takeaway: There is plenty of potential for private sector players to enter the sector — particularly in renewable energy, EV charging stations and green hydrogen — but most industry players agree the government should still have a hand in electricity distribution and pricing mechanisms that take socioeconomic conditions into account.

A refresher on the state’s privatization drive: Every Sunday and Tuesday, workshops are held as part of a series of public consultations over the policy document — which lays out privatization plans on specific industries. These come as the government seeks to widen private sector involvement in the economy over the next three years, and aims to draw new investments worth some USD 40 bn over the next four by selling stakes in state-owned assets to local and international investors. You can refresh your memory of what went down with the pharma industry, FMCG players, textiles and garment manufacturers, and the education and higher education industries in our previous coverage.

Some think the door is wide open to the private sector: Private sector electricity and gas utility companies — there are at least 56 of them in the country — are welcome to invest in the industry while the government regulates their activities, Nassim Youssef, a member of the engineering industries division at the Federation of Egyptian Industries (FEI) told Enterprise. There’s a clear distinction between state-owned enterprises and private companies in terms of their operations, Youssef says, which is why we’ve been seeing lots of private investment in the sector come in over the past couple of years.

But the private sector wants to see more incentives: When it comes to the production, transmission, and distribution of electricity, private sector players want to see more lucrative incentives offered from the government, Ahmed Megahed, a representative from MEG told us. This is especially important for those looking to get into solar power generation and EV battery manufacturing, Megahed said. We need a comprehensive system in place for the private sector to produce and distribute electricity, especially in renewable energy, Infinity’s Hesham El Gamal told us.

Locally manufactured electrical equipment could be a good entry point for private sector players: Locally manufacturing electrical equipment — which includes things like electrical meters to e-payment services -– really needs more private investment, Hossam Afifi, president of North Cairo Electricity Distribution, tells us. This view is shared by other industry insiders like Sherif Zohair, head of the Egyptian Electric Utility & Consumer Protection Regulatory Agency (Egyptera), who noted that the Energy Act gave the private sector wider access to energy production and distribution, as well as building out network infrastructure such as manufacturing and setting up distribution cables.

New cities might also be a good place for the private sector to get involved: The private sector is also already involved in electricity production and distribution — especially in new cities and the new administrative capital, Zohair says. But there remains a wealth of potential avenues for the private sector to get involved in electricity distribution in new cities, Basma Amer, director of the electricity division at Encom Energy told us. Private sector players are capable of efficiently managing electricity distribution services in new urban areas, Amer adds. This kind of arrangement would support government efforts to provide stable electrical power to dense urban areas, she explained.

Bill collection could also be a sub-sector that private sector companies get into, Enjaz Energy Chairman Said Azzouz said.

The electricity distribution market is quite lucrative right now, Ahmed Nady, director of operations at Epower, told us. That’s because private sector companies are currently capable of managing electricity and gas distribution for homes and vehicles, Mohamed Zakaria, vice president of Taqa Arabia explained.

So is supplying natural gas: Supplying natural gas to vehicles through extending stations’ supply lines, building new stations or simply securing the rights to operate them are increasingly attractive areas of investment for private sector players, Gastec President Abdel Fattah Farahat tells us.

And there’s room for state-owned enterprises and private companies to work together: Public-private partnerships in municipal natural gas distribution are already in play, Gasco president, Yasser Salah El Din, says, but government investment in natural gas distribution is still needed. The sentiment is shared by EGAS Vice President Ashraf Habib, who says that while private sector players are key partners in natural gas extraction and distribution as well as production of other gas derivatives, the government should maintain its role in transporting gas.

A PPP setup would be particularly beneficial from a cost and efficiency perspective: The costs of building out cable networks and electricity distribution companies are hefty — and often too big for private companies, Elsewedy Cables Vice President for Projects Ashraf Ahmed told us. It would therefore be a more efficient setup for the government to invest in the infrastructure and then bring in private sector companies through a PPP framework to increase the efficiency of the network. Private sector companies could also help remedy inefficiencies in the overall system by taking charge of electricity generation through a usufruct framework, Ahmed suggests.

Your top infrastructure stories for the week:

  • A bidding round for Borg El Arab dry port? A consortium led by Alpha Capital is reportedly among companies planning to submit an offer in October to establish, operate and manage the dry port at Borg El Arab at an investment cost of USD 180 mn.
  • It’s going to get easier today for owners of overseas yachts to pitch up in Egypt: The Transport Ministry is launching its one-stop-shop for yacht owners to get the permits they need to come to Egypt and moor at marina’s across the country.

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