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Note: The first Egyptian PPP - New Cairo WWTP - was awarded earlier this year. With at least three more deals to be awarded in 2010, the sector has forward momentum. But despite equity interest, local banks may struggle with PPP debt tenors. By Michael Marray.
The bidding process for the 250,000 m3 per day New Cairo waste water treatment plant (WWTP) was completed in May and attracted strong interest from both international and domestic companies vying to become the first entrants into the Egyptian PPP market.
The Epound(s)2.646 billion ($472 million) project is the first of a series of waste water treatment facilities, drinking water desalination plants and toll roads, as Egypt moves to put PPP at the heart of its infrastructure plans. The pathfinder project has NSGB as financial advisor and will be banked as a club deal with possible multilateral involvement.
With a population of eighty million, the potential for the PPP market is sizeable and interest from foreign sponsors is high, as illustrated by the strong mix of local and international names bidding on New Cairo, which was won by a joint venture of local company Orascom Construction Industries and Aqualia, the water subsidiary of Spanish group FCC (they each hold 50% of a special purpose vehicle known as Orasqualia).
Orasqualia beat three other consortia, and during the pre-qualification stage and final tenders local groups teamed up with international players such as Passavent-Roediger, Befesa, Emasesa, Veolia Water, Mitsui, Babcock & Brown, Berlinwasser, Marubeni and Biwater.
Lengthening debt tenors
Whilst sponsor equity is not going to be a major hurdle for the development of the Egyptian PPP market, on the debt side the market is more difficult. Locally denominated lending is usually at quite short tenors, and falls well short of the typical 20- to 25-year concession period for PPPs before eventual transfer of ownership back to the Egyptian state.
The domestic bond market is also underdeveloped, and local sovereign issuance is typically in the one-to-four year range. Proponents of PPP would like to see pricing benchmarks created, via the issuance of long-term 15- to 20-year domestic government bonds, and the establishment of an Infrastructure Finance Facility Company (IFFC) to provide long term local currency funding and enable project developers to...