Currency risks hold back renewable energy funding in Egypt

Billions of dollars in renewable energy funding is waiting to flow into Egypt — but currency risks are stalling investment, according to industry insiders.

Egypt’s ministry of electricity and renewable energy and the Middle East Solar Industry Association (Mesia) sponsored a two-day roadshow in Cairo, which kicked off yesterday, to bring together international investors.

Mohamed El Sobki, chairman of Egypt’s New & Renewable Energy Authority (NREA), said at the event yesterday that the country was targeting 18,000 megawatts of renewable energy projects — mainly wind and solar — over the next five years. He said that this would require an investment of more than US$20 billion. In addition, Egypt aims to achieve financial closure on up to 500MW of solar energy projects by next summer, he said.

However, officials at the event were unable to allay investor concerns over the convertibility of the Egyptian pound, a key factor in assessing risk, amid scarcity of available US dollars.

“Currency and convertibility is arguably the No 1 issue at the moment,” said Marc Norman, Dubai associate at the New York-based law firm Chadbourne & Parke, which is advising companies looking at Egypt’s power sector. Draft terms for renewable projects were publicised for consultative purposes by the government this month.

The tariff mentioned for large-scale projects has been set in US dollars but will be paid in Egyptian pounds. The government will guarantee conversion of 15 per cent of any amount paid at a fixed rate of 7.15 pounds to the dollar. The remaining 85 per cent would need to be converted at the prevailing market rate.

Yesterday, the Egyptian pound traded at 7.63 to the greenback.

Vahid Fotuhi, the president and founder of Mesia, estimated that at least $750 million in renewable energy investment was ready to be funnelled into Egypt over the next two years, but currency risks were shadowing investor appetite.

“All of these companies want to invest millions and millions of dollars, yet the regulatory framework and currency issues are clouds over the renewable energy sector, ” he said.

Official measures to cap dollar deposits at Egyptian banks, in efforts to stamp out the forex black market, have reduced foreign exchange liquidity in the country. Saudi Arabia’s Acwa Power said that it was looking to local lenders to help fund its projects to mitigate currency issues.

The company is partnered with Abu Dhabi-based Masdar in the North African country on two agreements covering solar, wind and coal, valued at a total of $9.4bn.

The Acwa chief executive Paddy Padmanathan said that local funding could be secured for smaller-scale projects.

“It would be possible to borrow in Egyptian pounds and maximise and keep repayment in the same currency,” he said.

However, for larger projects, at about $1bn, external financing would be necessary, he added.

The currency issue is “a challenge because only a limited amount of [project] capacity can be delivered” until the situation is resolved, Mr Padmanathan said.

The central bank’s head of monetary policy is scheduled to be at the Cairo conference today.

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LeAnne Graves

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