Egyptian renewable energy disinvestment over price and arbitration disagreements
Italy’s Enel Green Power has exited the renewable energy market in Egypt and is seeking compensation for investments it has already injected, according to Al-Borsa newspaper. The move comes as international investors and the government disagree on the government’s insistence over domestic arbitration and pricing concerns due to lingering fears of further devaluation of the Egyptian pound. It is expected that a consortium of international investors in Egypt’s renewable energy industry are going to pull out of the market.
A source in the Electricity Ministry told Al-Mal that Enel had taken the choice to disinvest over the ongoing investigation into the murder of Italian student Giulio Regeni. However, Enel had previously warned of backing off investment earlier in the month, citing domestic arbitration and excessive red tape, sources told Al-Borsa newspaper.
Domestic arbitration is the cause cited by Électricité de France, which has been considering pulling out its investments from phase one of the feed-in-tariff (FiT) project company, sources told Al-Borsa newspaper earlier this month. EDF’s consideration comes after the European Bank for Reconstruction and Development pulled its funding from EDF’s solar power joint venture with Sewedy Electric in Banban.
Financing has come up short for domestic companies to continue with the project and is currently awaiting the launch of the second phase of the FiT plan in October. However, Cairo Solar’s Hisham Tawfik was not optimistic when speaking with Al-Shorouk newspaper about the second phase, as issues with the first phase have not been adequately addressed and may result in the entire FiT programme failing. Investors are highly sceptical of the success of the second phase after government restrictions and red tape. Tawfik stated that the government should have resolved the crisis in the first phase before moving onto the second.
Speaking to Daily News Egypt, Tawfik stated that the main issue revolves around pricing concerns, in which the government has exhibited irresponsible behaviour. The main issue is convertibility, as investors have already endured a loss of 30% of their investments due to the devaluation of the Egyptian pound and the lack of foreign currency.
Tawfik stated that private investors took a risk in the convertibility issue, but for the government to go back on its promise of international arbitration and pricing represents a serious betrayal of the government’s word and promise. While the FiT programmes were decent for large-scale construction power plant of over 50 mW, it cannot return profit for medium and small scale operations.
Tawfik stated that investors had presented the government with alternatives, but were rejected.
While banks have stated that they would assist in financing, Tawfik said that the banks cannot carry through on their offer due to the lack of foreign liquidity. These currency constraints will only result in the ability to finance up to five of the planned projects.
This represents a “failure due to mismanagement on the government’s part”, Tawfik explained. If the government does not make the prices more competitive, it will have to scale back the proposed projects, he added. There is already a lot of dissatisfaction that has been voiced by international investors due to more than a year in implementation delays in phase one and phase two, Tawfik pointed out.
By: Nicholas Mehling
Source: Daily News Egypt