meed-logo

line1 line2 line3
SIGN IN / REGISTER

Egypt’s construction sector faces delays

22 February 2023

This package on Egypt’s construction and transport sectors also includes:

> Egypt’s El-Attal launches $229m development

> Qatari Diar selects New Cairo project contractor

> Japan inks a new Cairo metro loan

> NMDC to execute $272m Egypt dredging works

> Bidders prepare Egypt dry port proposals

> Egypt qualifies firms for schools PPP

 

After seven years of continuous growth, Egypt’s construction sector is showing signs of wobbling amid the country’s economic troubles.

The value of construction and transport contract awards in Egypt has grown every year since 2015 and rose to record highs in the past two years, according to regional projects tracker MEED Projects. It grew by 44 per cent to $19.3bn in 2021 – from $13.4bn in 2020 – before rising again by 31 per cent to $25.4bn in 2022.

In January, however, the value of construction and transport contract awards fell to less than $200m. This was the lowest monthly total since July 2016, and well below the $2.6bn of contract awards in January 2022.

Although the general outlook for the construction sector is strong, economic volatility presents downside risks, at least in the short term.

“Things are at a standstill for the moment,” says Salwa Elbakry, business development director for Egis in Egypt. 

“Several tenders were set to be issued in early January and February, but due to the current economic situation, including devaluation, there were some delays.”

This slowdown started in June, when the currency crises deepened. Companies remain optimistic, however, as “Egypt has proven to be a versatile economy”, says Elbakry.  “There are a lot of positive outlooks for 2023. By the end of the first quarter or the beginning of the second quarter, things will get better.”

As Egypt’s major projects are backed by sovereign funds, international investors and institutions, it is “business as usual”, she adds.

Cairo’s positioning as a destination for international investment has grown in recent years. In 2021, Egypt’s International Cooperation Ministry secured $10.2bn in development financing, of which $8.7bn was dedicated to public sector projects and $1.5bn to private sector development.

GCC investors continue to believe in the Egyptian market as well. “The ties between the GCC and Egypt go way back,” says Elbakry.

Focus on key projects

While the IMF suggested in January that Egypt should curb its project spending, the government has said its major projects are vital for the country’s development and a vehicle for GDP growth.

Recently, Egyptian president Abdul Fattah al-Sisi pledged that national projects would continue. Ongoing infrastructure schemes include a high-speed railway network; roads and bridges; hospitals; and several new cities, including the $20bn new capital, to the east of Cairo.

“Egypt continues to be driving ahead with a lot of big projects,” says Raouf Ghali, CEO of Hill International. “It is the first time I have seen Egypt working on projects and programmes that rival the GCC, and this is very unusual.”

Other sectors that are expected to initiate new developments are tourism, healthcare and education, as well as logistics.

“This year will witness several public-private partnership schemes related to tourism, ports and industrial zones,” says Elbakry. “There is also a lot of buzz around the hospitality sector.”

Rail versus real estate

Railway projects make up $10.5bn, or 90 per cent, of the $11.7bn-worth of construction and transport projects in the bidding phase in Egypt.

The two largest upcoming projects are for work on the Cairo Metro: a $5bn Line 6 package and an $800m package for phase one of Line 4. Both schemes are in the bid evaluation phase.

Schemes on the Alexandria Metro are the next biggest pending awards. The National Authority for Tunnels is receiving bids for two $750m packages for the line between Abu Qir and Misr Station.

With the ongoing currency and inflation crisis, Egypt is trying to use more local resources and further reduce its imports of construction materials. The demand for foreign expertise remains strong in sectors such as rail, however.

“While the Egyptian market is rich in engineering and architectural skills, some projects like aviation, rail, ports, smart cities or water require international know-how,” says Elbakry.

The World Bank Group approved a further $400m in financing in 2022 to support railway network development in Alexandria and Cairo.

Real estate has been another booming sector in recent years, driven largely by domestic demand. Yet the outlook might be shifting now, with projects in the sector appearing to be scaling down and foreign funding showing signs of drying up.

“Egyptians rely on real estate as an investment,” says Elbakry, adding that the market is currently at a standstill because “the only people able to invest in real estate at the moment are high-income individuals”.

For the moment, “everybody is watching what the Central Bank is going to do with the currency and the exchange rate”, says Ghali.

“For construction companies, it is great to get these big contracts, but devaluations after signing contracts do not help profitability. 

“It also creates a lot of insecurity because you have a lot of cash in the country that you cannot export, which makes it a very challenging environment,” he adds. 

“Overall, we are bullish, but also very cautious because of the currency situation.”

MEED's March 2023 special report on Egypt also includes:

> GOVERNMENT & ECONOMY: Egypt faces up to economic reality

> POWER: Crisis dampens Egypt’s energy diversification

> WATER: Egypt turns to private sector for water

> BANKING: Interesting times for Egypt’s lenders

 

https://image.digitalinsightresearch.in/uploads/NewsArticle/10585786/main.gif
Eva Levesque

Register for MEED's guest program now to access this article.

Click here to register
Exclusive from Meed
Related Articles
  • Decarbonising the global energy grid

    3 May 2024

    As the effort to tackle the climate crisis continues, global demand for renewable energy has been increasing. Unfortunately, the windiest and sunniest parts of the world are not necessarily where the need for energy is highest. This is where transmission plays a big role, linking energy generation to energy use as a product of global interconnection, and diversifying production from renewable sources to create a steadier supply of clean power. 

    Transporting energy across vast distances is not easy though. From the regulatory complexities of navigating cross-border infrastructure projects to the high costs of financing and the need for long-term planning and advanced technical capabilities, the challenges involved in successfully deploying long-distance transmission projects are varied. Overcoming these challenges is not a single party affair, but requires close collaboration across government, industry and non-governmental organisations. 

    We conducted a study with nearly 600 industry experts from across the world who highlighted the pressing need for co-ordinated global action to rapidly develop grid infrastructure. Integrating renewable energy into existing grids was cited by participants as one of the most significant barriers to achieving net-zero objectives, alongside supply chain vulnerabilities and ability to access the required capital.

    Multiple challenges

    From a technical standpoint, there are multiple considerations when implementing cross-border interconnections. Regions can operate using different technical parameters, such as different voltages or frequencies. Even within the same country, interregional variations can create bottlenecks. Adopting regional or international grid codes could mitigate these issues.

    Further challenges emerge when we take trading into account. This is where regulation can act as an enabler, facilitating the flow of electricity between countries. The European Union’s efforts to co-ordinate the design of its member state’s energy markets enables an increasingly smooth transmission of energy across the continent. Alongside this, existing infrastructure is outdated, requiring significant upfront investment to upgrade. Clarity on regulatory requirements and more transparency around plans for grid buildout, derisk funding for capital-intensive mega projects.

    Coordinated action is vital for the transfer of energy across borders and access to renewable sources of energy

    Positive benefits

    Despite these challenges, the upside must be stressed. Integrating power systems across borders has many positive societal benefits, decreasing costs and hence energy bills through economies of scale, increasing energy security and lowering the environmental impact of operations. On the latter more specifically, larger power systems are able to integrate higher shares of variable renewables. Globally, the sun is always shining and the wind blowing somewhere. 

    A common element, therefore, emerges: the need for increased cross-border co‑ordination. Whether it is bilateral, multi-lateral or unified, different models of inter-jurisdictional arrangements are needed for large-scale projects to support global energy interconnections. Our Xlinks project, which is using high-voltage direct current (HVDC) for transmission, is a standout example. 

    Such projects represent what is needed more in the world, the combination of infrastructure and renewable power across borders, bringing together the public and private sectors for energy security, supply and affordability in an environmentally friendly way. Transporting clean energy using HDVC cables is a crucial step in powering a net-zero and equitable future, and more of this is needed to aid the transition to lower-carbon and prosperous economies. 

    Political, technical and market hurdles can be overcome through collaboration and partnerships. Leveraging the collective expertise and resources of governments, regulators and the private sector can help ensure interconnections are developed quickly enough to support the energy transition. Grid buildout takes time. We have the resources required to meet ambitions, but stopping now is not viable. We must continue planning, building and maintaining large-scale infrastructure projects to meet the rising demand.

    Coordinated action is vital for the transfer of energy across borders and access to renewable sources of energy. This was the message from Cop28 and the UAE Consensus: to help progress and secure a cleaner, brighter future for us all, we must break down barriers and come together. 

     

    https://image.digitalinsightresearch.in/uploads/NewsArticle/11736994/main.gif
  • Libya allocates $1.2bn for upstream oil project

    3 May 2024

     

    Register for MEED's guest programme 

    Libya has allocated LD6bn ($1.23bn) to develop the Hamada NC-7 concession in its latest budget, which was approved by Libya’s eastern-based parliament on 30 April, according to industry sources.

    The field development project was previously estimated to be worth between $4bn and $5bn.

    The project aims to develop 2.7 trillion cubic feet of gas reserves in the NC-7 block of the Ghadames basin.

    A consortium led by Italy’s Eni and including France’s TotalEnergies and UAE-based Adnoc operates the block.

    Development of the field was included in the 2024 annual budget of LD90bn ($18.5bn), excluding an item for development projects, which the Benghazi-based government of Osama Hamad unanimously approved.

    Hamad came to power in March 2023 and is allied with the military commander Khalifa Haftar, who controls the east and large parts of the southern region of Libya.

    Progress on developing the Hamada NC-7 concession has been slow amid concerns among politicians about the involvement of foreign oil companies in key hydrocarbon assets.

    On 15 December 2023, the Tripoli-based Ministry of Oil & Gas issued a statement condemning the terms of the planned gas development contract between Libya’s state-owned National Oil Corporation (NOC) and the consortium led by Eni.

    In the statement, the Ministry of Oil & Gas described the deal as a “violation of Libyan legislation on oil contracts”.

    Earlier this year, NOC announced a plan to execute 45 greenfield and brownfield projects to try to boost the country’s oil production from 1.25 million barrels a day (b/d) to 2 million b/d.

    Farhat Bengdara, the chairman of NOC, said that the projects had a total estimated cost of $17bn-$18bn.

    Bengdara also confirmed plans to launch an oil and gas licensing round at the end of 2024 or early 2025.

    Libya is aiming to hit its 2 million b/d target within three years.

    Bengdara said that gas monetisation will remain a strategic focus as the country pushes to increase exports to Europe.

    Libya is only using 25% of the capacity of its Greenstream pipeline to Italy.

    The North African country also flares significant volumes of natural gas and has 12 projects under way that aim to reduce gas flaring to almost zero, according to Bengdara.

    In recent years, Libya has struggled to execute large projects amid significant political instability.

    https://image.digitalinsightresearch.in/uploads/NewsArticle/11735260/main.gif
    Wil Crisp
  • GE Vernova invests in Xlinks

    2 May 2024

    US-headquartered GE Vernova has invested $10.2m in Xlinks First, the investment company established by UK-based startup Xlinks to deliver the $18bn Morocco-UK power project.

    This investment equates to a minority shareholding in the company, which is developing a project comprising wind and solar generation as well as battery storage, with a total combined capacity of 3,600MW, to be transmitted from Morocco to the UK.

    Xlinks said the investment will “further accelerate delivery and buildout of the project”.

    GE Vernova joins at least four other investors in the project.

    Other investors include Africa Finance Corporation, which invested $14.1m in April; Abu Dhabi National Energy Company (Taqa), $30.7m; the UK’s Octopus Energy, $6.23m; and France’s Total Energies, $25.4m.

    The planned electricity generation and battery storage facilities, located in south Morocco, will be connected exclusively to the UK via 4,000-kilometre high-voltage, direct current (HVDC) cables.

    In December last year, Xlinks signed a contract with Canada-headquartered WSP to provide technical advisory services for the project.

    WSP will support Xlinks with route optimisation, power systems and interface management for the plan to construct the project.

    The Morocco-UK power project entails building 10,500MW solar and wind farms in Morocco’s Guelmim-Oued Noun region and sending 3,600MW a day of energy exclusively to the UK via four 3,800-kilometre HVDC cables.

    The HVDC network is envisaged to run from the UK’s south coast, passing France, Spain and Portugal undersea and then onshore to a planned solar and wind energy project in Morocco.

    This renewable energy-sourced electricity amounts to nearly 8% of the UK’s current requirements, equivalent to powering 7 million homes by 2030.

    https://image.digitalinsightresearch.in/uploads/NewsArticle/11734222/main5830.jpg
    Jennifer Aguinaldo
  • Awards buoy Oman’s green hydrogen strategy

    2 May 2024

    Commentary
    Jennifer Aguinaldo
    Energy & technology editor

    Oman has awarded two additional land blocks designed to develop green hydrogen projects.

    The latest land block concessions in Dhofar were awarded to two consortiums. One comprises a team of France's EDF Group and EDF Renewables, with partners Japanese Electric Power Development Company (J-Power) and the UK-headquartered Yamna Company.

    Another team comprises UK investment firm Actis and Australian metals firm Fortescue.

    This brings the total number of land blocks awarded through the public auction process spearheaded by Hydrogen Oman (Hydrom) to four, exclusive of the four legacy initiatives signed or agreed upon already.

    *Budgets are MEED estimates if not publicly disclosed. Sources: MEED, Hydrom

    A limited gas supply and network strongly incentivises Oman to build a green hydrogen-centric downstream sector that will provide feedstock to domestic industrial plants and generate derivatives for the local and export markets.

    Stakeholders have implemented a strategy, including setting up an infrastructure company catering to these projects. The target is to generate 1 to 1.5 million tonnes a year (t/y) of green hydrogen by 2030 and 7.5 to 8.5 million t/y by 2050.

    The blueprint envisages a complete green hydrogen ecosystem, from the production of renewable energy and its distribution to electrolysis plants and hydrogen derivatives conversion plants to storage and export terminals.

    Omani ports' existing relationships with European stakeholders and growing alliances with other countries could also help seal future offtake agreements for the planned facilities.

    As things stand, the consortiums that won the land auctions and the legacy initiative partners provide much gravitas to Oman's green hydrogen programme. They comprise energy old guards such as BP and Shell that are keen to decarbonise, private companies aiming to balance their investment portfolios with clean energy investments, and offtakers or trading companies that are grappling with net-zero targets.

    Yet the most obvious question remains. Given the eye-popping foreign direct investments these complex projects entail, not all are likely to achieve a final investment decision within three years. This seems to be the window required for the projects to start production before 2030.

    But like any emerging industry, the risks can only be properly assessed and mitigated as the first projects move toward the execution phase.

    https://image.digitalinsightresearch.in/uploads/NewsArticle/11733331/main.gif
    Jennifer Aguinaldo
  • Operationalise loss and damage fund says Al Jaber

    2 May 2024

    Steps must be taken to ensure a fully functioning Loss and Damage Fund, following an agreement at Cop28 to operationalise the fund, according to Cop28 President Sultan Al Jaber.

    “While delivering an agreement to operationalise the Fund at Cop28 was a huge breakthrough for climate progress more needs to be done,” Al Jaber said during the first board meeting of the fund on 30 April.

    The Loss and Damage Fund, which was first proposed in the 1990s, aims to help developing countries cope with the impact of extreme global warming events such as droughts and floods.

    Al Jaber cited the need to build a fully functioning fund, which will be endorsed at Cop29 in Baku, which will be “disbursing funds soon after and a Fund that delivers lasting, positive, socio-economic impact for decades to come."

    "While it took over three decades to establish this Fund, climate change has not stood still. Every region of the world is now vulnerable…the impacts of climate change are a clear and present danger to lives and livelihoods everywhere."

    Al Jaber’s message resonates closer home given the recent storms hitting the UAE, which brought some emirates to a standstill in mid-April.

    Heavy rainfall inundated Dubai and the Northern Emirates on 16 April, causing flooding and significant property and infrastructure damages.

    A total of $792m has been pledged for loss and damage funding arrangements – of which $662m has been pledged to the Fund to date – including a $100m contribution each from the UAE and Germany and $75m from the UK.   

    https://image.digitalinsightresearch.in/uploads/NewsArticle/11732746/main.jpg
    Jennifer Aguinaldo