CAIRO: A draft law on private sector participation in infrastructure and public utilities is in the final stages of preparation, according to Egypt’s State Information Service.
The bill, which is being heavily promoted by Minister of State for Legal and Parliamentary Affairs Mufid Shehab, is meant to encourage the direct involvement of Egypt’s private sector in infrastructure and public facilities projects.
“This draft law is designed to create jobs, without prejudice to the obligations of the state towards its citizens, said Shehab in a statement Saturday.
The Egyptian government has been aggressively promoting privatization as a way to improve efficiency and bolster economic growth, especially in the area of infrastructure.
“Egypt has an infrastructure deficit; there’s a history of underinvestment in railways, river transport, ports, road transport and that makes doing business more expensive.
“A lack of transport infrastructure, for example, makes it costly to export goods and reduces Egypt’s competitiveness. It also contributes to domestic inflation and waste, explained Simon Kitchen, an economist at EFG Hermes in Cairo.
In late 2008 the government announced a mass privatization program that would facilitate the transfer of shares in state-owned companies to 41 million Egyptian citizens.
The government has also adopted progressive public-private cooperative strategies to promote development, according to Business Monitor International’s Egypt Infrastructure Report.
“The government has embraced build-operate-transfer (BOT) schemes as a means of shifting the burden of its massive infrastructure plans to the private sector. This is rapidly becoming the procurement method of choice for new power stations, airports, roads and water schemes, the report states.
This approach allows the government to partner with the private sector to develop a project over the long term, explained Kitchen.
“The government is promoting a public-private partnership that they hope will generate LE 15 billion of investment over the next year, he said.
According to Kitchen, this approach is new to Egypt but has been successful in Britain and other European countries. Through this type of cooperation, the government compensates for a small infrastructure budget by commissioning projects from the private sector. The government then pays an annual fee over a period of between five and 30 years, after which they take over ownership of the asset.
While this type of cooperation can be profitable for the private sector, it requires a long-term approach to profit-taking and a strong legal framework to structure partnership agreements.
The new draft bill, when passed, will provide the legal framework necessary to support large-scale public-private cooperation. It will then be up to the government to attract long-term private sector investment to their program of infrastructure projects.
One this happens, there is plenty of work to be done, according to Kitchen.
“Power needs to be invested in as well as gas pipeline infrastructure and waste water treatment; basically all the things necessary to support population growth in the country, he said.
The proposed public-private partnership will build on the government’s LE 15 billion stimulus package, which was implemented in late 2008 in response to the global financial crisis.
