CAIRO: Egypt is studying sovereign guarantees and measures to mitigate currency risk to encourage companies to bid for public private partnerships (PPP) over the coming months, a Finance Ministry official said.
Economists say PPP may an important vehicle to channel some of the billions of dollars pledged by donors in the last month to help Egypt fill an estimated $11 billion balance of payment gap in the fiscal year that begins next month.
"We’re taking some measures to give the private sector more comfort in their pricing, especially in forex risk, especially for the bids that will be submitted prior to the elections," Atter Hannoura, deputy director for PPP, told Reuters.
"Some of the banks willing to finance are looking for a sovereign guarantee in terms of insuring the government will make its payments on time and, in case of termination of the contract, the termination compensation stated in the contract will be paid by the government," he said, speaking in an interview last week.
Parliamentary elections are scheduled for September and presidential elections two to three months later.
Hannoura said the government was discussing different scenarios with the different entities that are willing to lend support.
These include the European Development Bank, the African Development Bank, the World Bank’s Multilateral Investment Guarantee Agency (MIGA) and the US’s Overseas Private Investment Corporation (OPIC).
The mitigation measures would probably apply only to bids submitted during the three to five months before and after elections, Hannoura said.
The government has four PPP projects in different stages of procurement, including a hospitals project in Alexandria, two wastewater treatment plant projects at Sixth of October and Abu Rawash near Cairo and a road project from Sixth of October to the Rod El-Farag area, Hannoura said.
The hospitals project was the furthest along, but bids submission has been delayed twice from its original March deadline until Aug. 15 because of uncertainty in the wake of the popular uprising that toppled the government in February.
Bidding for all four projects is expected to be completed by mid-2012, he said.
Guarantees
Other projects in the PPP pipeline include schools, three to five roads, two metro trains and water, wastewater and desalination plants.
Potential bidders have sought currency guarantees on the hospitals projects because the income would be in Egyptian pounds, while up to 40 percent of the costs would be medical equipment bought mainly from abroad using foreign currency.
"We are taking measures to make bidders and lenders more comfortable, so they don’t exaggerate their pricing because of an exaggeration of risks," Hannouna said.
The government’s supreme PPP committee, headed by the prime minister, is due to meet in the coming days to decide on the measures, he added.
Hannoura said Egypt’s total PPP pipeline now included 34 projects, and new ones were constantly being added.
But the government was now re-prioritizing these to focus on those that would improve the quality of life for country’s poor as quickly as possible, giving more weight to utilities, transport, health, education and low-cost housing.
It was also focusing on projects that were labor intensive to soak up unemployed workers, he said. At the same time, it was removing some projects from the PPP pipeline to get them started as soon as possible, Hannoura said.
Because they are more complicated, PPP projects can take up to three years before ground is actually broken, whereas a construction project directly tendered by the government might start up within months.
"The government would prefer to take one or two of the projects from PPP and tender them out under the conventional procurement system, directly, so they can bridge over the two year," Hannoura said.
Until now, Egypt has awarded only one PPP project, a wastewater treatment plant in the suburb of New Cairo on the outskirts of the capital.
