7 ELECTRICITY SECTOR DEVELOPMENTS IN EGYPT …
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situation, in which fuel and food subsidies have been reduced, while inflation and taxes have increased. Some of Sisi’s economic policies, such
as subsidy reform and floating the currency, have largely been directed
by the International Monetary Fund (IMF). The policies have brought
macroeconomic stability and significant economic growth through the
imposition of structural reforms and austerity measures. 21 However, the
policies have concurrently increased living costs for ordinary Egyptians,
who are experiencing stagnant wage growth and rising poverty. As of
late September 2019, more than 2,000 people had been arrested in the
protests.
Increasing signs of political risk and challenges to the continuity of the
Sisi administration could begin to impact the alternative energy investment landscape. For example, Egypt’s renewable energy projects thus
far have been financed by development finance institutions (DFIs), along
with some commercial lenders. In this regard, the International Finance
Corporation (IFC) organized a consortium of nine banks to finance a
portion of the BenBan Solar Park in the Aswan Governorate in Egypt’s
southeast. The $653 million debt package included participation from the
African Development Bank, the Asian Infrastructure Investment Bank,
the Arab Bank of Bahrain, CDC of the UK, Europe Arab Bank, Green
for Growth Fund and the IFC, among others. As the sector matures
and investments in major energy projects with private sector participation
prove successful, such opportunities are de-risked for the international
investment community, facilitating the participation of private commercial
lenders and affording the sector more capital and growth opportunities.
Increasing levels of internal instability and political risk, however, reduce
the likelihood of commercial lenders entering the market on a widescale,
inhibiting sector growth and dynamism. Political risk can also increase the
risk premium on the cost of capital for energy projects, a cost that would
ultimately be passed on to electricity retail customers.
The recent protests may be an isolated incident, and it is unlikely
that the Egyptian public has the appetite for another revolution. Yet
the protests demonstrate the public discontent and potential political risk
under the surface. While Sisi is expected to stay in power for the foreseeable future, Egyptian politics have been characterized by unpredictability
in recent years, with the staying power of the Sisi administration, and
by extension the current alternative energy policy and regulatory agenda,
subject to this uncertainty.
193
situation, in which fuel and food subsidies have been reduced, while inflation and taxes have increased. Some of Sisi’s economic policies, such
as subsidy reform and floating the currency, have largely been directed
by the International Monetary Fund (IMF). The policies have brought
macroeconomic stability and significant economic growth through the
imposition of structural reforms and austerity measures. 21 However, the
policies have concurrently increased living costs for ordinary Egyptians,
who are experiencing stagnant wage growth and rising poverty. As of
late September 2019, more than 2,000 people had been arrested in the
protests.
Increasing signs of political risk and challenges to the continuity of the
Sisi administration could begin to impact the alternative energy investment landscape. For example, Egypt’s renewable energy projects thus
far have been financed by development finance institutions (DFIs), along
with some commercial lenders. In this regard, the International Finance
Corporation (IFC) organized a consortium of nine banks to finance a
portion of the BenBan Solar Park in the Aswan Governorate in Egypt’s
southeast. The $653 million debt package included participation from the
African Development Bank, the Asian Infrastructure Investment Bank,
the Arab Bank of Bahrain, CDC of the UK, Europe Arab Bank, Green
for Growth Fund and the IFC, among others. As the sector matures
and investments in major energy projects with private sector participation
prove successful, such opportunities are de-risked for the international
investment community, facilitating the participation of private commercial
lenders and affording the sector more capital and growth opportunities.
Increasing levels of internal instability and political risk, however, reduce
the likelihood of commercial lenders entering the market on a widescale,
inhibiting sector growth and dynamism. Political risk can also increase the
risk premium on the cost of capital for energy projects, a cost that would
ultimately be passed on to electricity retail customers.
The recent protests may be an isolated incident, and it is unlikely
that the Egyptian public has the appetite for another revolution. Yet
the protests demonstrate the public discontent and potential political risk
under the surface. While Sisi is expected to stay in power for the foreseeable future, Egyptian politics have been characterized by unpredictability
in recent years, with the staying power of the Sisi administration, and
by extension the current alternative energy policy and regulatory agenda,
subject to this uncertainty.