Document of The World Bank
FOR OFFICIAL USE ONLY Public Disclosure Authorized
Report No: 46695-EG
PROJECT APPRAISAL DOCUMENT
ON A
PROPOSED LOAN Public Disclosure Authorized
IN THE AMOUNT OF US$600 MILLION
TO THE
ARAB REPUBLIC OF EGYPT
FOR AN
AIN SOKHNA POWER PROJECT
January 8,2009 Public Disclosure Authorized
Sustainable Development Department Middle East and North Africa Region
Public Disclosure Authorized This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS (Exchange Rate Effective October 20, 2008)
Currency Unit = Egyptian Pound (LE) LE5.5 = US$l US$0.179 = LE 1
FISCAL YEAR July 1 - June 30
ABBREVIATIONS AND ACRONYMS
AfDB African Development Bank BOT Build Operate Transfer CAS Country Assistance Strategy CASPR Country Assistance Strategy Progress Report cc Combined Cycle CCGT Combined Cycle Gas Turbine CEPC Cairo Electricity Production Company CTF Clean Technology Fund EEHC Egyptian Electricity Holding Company EETC Egyptian Electricity Transmission Company EEUCPRA Egyptian Electric Utilities and Consumer Protection Authority EGEAS Electric Generation Expansion Analysis System ERR Economic Rate of Return ESIA Environmental and Social Impact Assessment EIB European Investment Bank EPC Engineering, Procurement, and Construction ESMAP Energy Sector Management Assistance Program FDI Foreign Direct Investment FMU Financial Management Unit FY Fiscal Year GDP Gross Domestic Product GEF Global Environmental Facility GWh Gigawatt hour GOE Government of Egypt IPP Independent Power Producer KfW German Agency for Development Assistance kWh Kilowatt hour MMBTU Million British Thermal Units sc Steam Cycle Tcf Trillion Cubic Feet TOR Terms of Reference USAID United States Agency for International Development US$ US cents
Vice President: Daniela Gressani Country Director: Emmanuel Mbi Sector Director Laszlo Lovei Sector Manager: Jonathan Walters Task Team Leader: Anna Bjerde FOR OFFICIAL USE ONLY
EGYPT, ARAB REPUBLIC OF
AIN SOKHNA POWER PROJECT
PROJECT APPRAISAL DOCUMENT
MIDDLE EAST AND NORTH AFRICA
MNSSD
Date: January 8,2009 Team Leader: Anna Maria Bjerde Country Director: Emmanuel Mbi Sectors: Power (1 00%) Sector Manager/Director: Jonathan D. Walters Themes: Access to urban services and housing (PI Project ID: P100047 Environmental screening category: Category A (Full Assessment) Lending Instrument: Specific Investment Loan
[XI Loan [ ] Credit [ 3 Grant [ ] Guarantee [ ] Other:
For Loans/Credits/Others: Total Bank financing (US$m.): 600.00
Development Total: 702.30 1,487.50 2,189.80
Borrower: Ministry of International Cooperation 8 Adly Street Cairo, Arab Republic of Egypt Tel: (+20-2) 391-2815
Responsible Agency: Egyptian Electricity Holding Company Ramsis Street Extension Abbassia Cairo, Arab Republic of Egypt - 1 15 17 Tel: (+20-2) 401-2368 kvassin@,moee.gov.eq / www.egelec.com
This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not be otherwise disclosed without World Bank authorization. Project implementation period: Start May 3 1,2009 End: June 30,201 5 Expected effectiveness date: May 3 1,2009 Expected closing date: December 3 1,20 15 Does the project depart from the CAS in content or other significant respects? [ ]Yes [XINO Ref: PAD I.C. Does the project require any exceptions from Bank policies? Ref: PAD IKG. [ ]Yes [XINO Have these been approved by Bank management? [ ]Yes [ IN0 Is approval for any policy exception sought from the Board? [ ]Yes [XINO Does the project include any critical risks rated “substantial” or “high”? [ ]Yes [XINO Ref: PAD IILE. Does the project meet the Regional criteria for readiness for implementation? [XIYes [ ]No Ref: PAD IKG. Project development objective Ref: PAD ILC., Technical Annex 3 The project development objectives are to (i)ensure continuous electricity supply to meet demand in a sustainable manner through investment in new generation capacity; and (ii)improve the sector’s financial sustainability by providing assistance to the Egyptian Electricity Holding Company (EEHC) to support sector revenue improvements.
Project description [one-sentence summary of each component] Ref: PAD II.D., Technical Annex 4 The proposed project is a 1,300 MW supercritical steam turbine power plant comprising two 650 MW steam turbines using natural gas as the main fuel (and mazout as the back-up fuel). The plant will be under the management ofthe East Delta Production Company (EDPC), one of EEHC’s subsidiaries.
A technical assistance component is aimed at further enhancing the on-going energy sector policy dialogue with GOE. The assistance will mainly comprise ofstudies and policy support including rapid response support to EEHC in the implementation ofthe time-of-use tariff and further tariff adjustment recommendations from the on-going Energy Pricing Strategy work. Which safeguard policies are triggered, if any? Re$ PAD IV.F., Technical Annex 10 Environmental Assessment (OP/BP 4.0 1) - Given the project’s environmental classification, in accordance with Operation Policy (OP) 4.0 1 on Environmental Assessment, a full Environmental and Social Impact Assessment (ESIA) report was prepared for the project.
Involuntary Resettlement (OP/BP 4.12) - Associated with the Ain Sokhna power plant, there are about 130 kilometers of proposed new transmission lines. Most of the routing pathways are located in uninhabited, desert land which is state owned. However, the Operational Policy on Involuntary Resettlement (OP/BP 4.12) is triggered, because the exact location of all the sections of the transmission line is not yet known. The areas in question are largely uninhabited public land; however, in order to handle any potential future changes, a Resettlement Policy Framework (RPF) was prepared.
Significant, non-standard conditions, if any, for: Re$ PAD III.F. Board presentation: There are no conditions of Board presentation.
Loadcredit effectiveness: Subsidiary Loan Agreement signed between Ministry of International Cooperation and the Egyptian Electricity Holding Company (EEHC).
Covenants applicable to project implementation: Contractual Agreement signed between EEHC and EDEPC no later than one month after the effectiveness date. Establishment of the PMU, with qualified staff and in adequate numbers no later than two months after the effectiveness date. Adoption of the Implementation Manual (including procurement and financial management) no later than two months after the date of signature of the contractual agreement between EEHC and EDEPC.
EGYPT. ARAB REPUBLIC OF Ain Sokhna Power Project
CONTENTS
Page
I. STRATEGIC CONTEXT AND RATIONALE ...... 1 A . Country and sector issues ...... 1 B. Rationale for Bank involvement ...... 8 C . Higher level objectives to which the project contributes ...... 9
I1. PROJECT DESCRIPTION ...... 10 A . Lending instrument ...... -10 B. Project development objective and key indicators ...... 10 C . Project components ...... 11 D. Lessons learned and reflected in the project design ...... 12 E. Alternatives considered and reasons for rejection ...... 12
I11. IMPLEMENTATION ...... 14 A . Partnership arrangements (ifapplicable) ...... -14 B. Institutional and implementation arrangements ...... 15 C . Monitoring and evaluation of outcomeshesults ...... 17 D. Sustainability ...... -17 E. Critical risks and possible controversial aspects ...... 17 .. F. Loan conditions and covenants ...... 19
IV. APPRAISAL SUMMARY ...... 20 A . Economic and financial analyses ...... 20 B . Technical ...... 23 C . Fiduciary...... 25 D. Social ...... 27 E. Environment ...... 27 F. Policy Exceptions and Readiness ...... 32
Annex 1: Country and Sector or Program Background...... 33
Annex 2: Major Related Projects Financed by the Bank and/or other Agencies ...... 37 Annex 3: Results Framework and Monitoring ...... 38
Annex 4: Detailed Project Description ...... 40
Annex 5: Project Costs ...... 45
Annex 6: Implementation Arrangements ...... 46
Annex 7: Financial Management and Disbursement Arrangements ...... 48
Annex 8: Procurement Arrangements...... 57
Annex 9: Economic and Financial Analysis ...... 64
Annex 10: Safeguard Policy Issues ...... 80
Annex 11: Project Preparation and Supervision ...... 116
Annex 12: Documents in the Project File ...... 117
Annex 13: Statement of Loans and Credits...... 118
Annex 14: Country at a Glance ...... 120
Annex 15: Maps ...... 122 I. STRATEGIC CONTEXT AND RATIONALE
A. Country and sector issues
Country Issues
1. As a result of a comprehensive reform program launched in 2004 aimed at trade liberalization, reduced and improved administration of taxes, consolidation and privatization of the banking sector and overall improvement in the business environment, Egypt’s economic growth has remained high and broad-based. Indeed, Gross Domestic Product (GDP) increased 7.2% in 2007/08, up from 7.1% in 2006/07. The reforms are also focusing on stepping up public-private partnerships (PPPs), reducing energy subsidies and reforming the social sector, including safety net mechanisms to support the reduction of energy - and other - subsidies. As a result of increased economic growth, unemployment declined from 9.4% in 2006/07 to 8.8% in 2007/08’.
2. The reform program was largely formulated to address Egypt’s rising fiscal deficit, which rose from 3.9% in 1999/00 to 9.2% 2005/06 as well as to stimulate growth and reduce poverty through structural reform. The reforms have shown positive results with the deficit as a percentage of gross domestic product (GDP) dropping to 7.5% in 2006/07, and 7.3% in 2007/08. The GOE plans to reduce the deficit further by 1% per year until 201 1. Furthermore, total investment as a percentage of GDP has increased from an average of 17.1% over 2001- 2004 to 22.3% in 2006/07.2 Egypt ranked among “top reformers” in Doing Business 2008 reflecting the friendlier investment climate and the associated positive private sector response. It needs to be noted that the reform program was formulated to be implemented gradually, and with careful monitoring of economic impact as well as overall acceptance by the population. Indeed, reforms in Egypt tend to be undertaken gradually and cautiously.
3. The positive indicators of Egypt’s reform success have recently come under pressure, with the economy slowing down in the fourth quarter of 2007/08 when growth dropped to 6.8% (compared to 7.6% for the same quarter the year before). This is primarily due to the impact of higher inflation had in slowing down consumer spending. The sharp increase in inflation was due to rising food and energy prices. Inflation rose from about 7% at the end of 2007 to over 25% in August 2008; a drop to about 21.5% has been reported for September as commodity prices have fallen. Public spending is also on the rise, mainly due to increases in food and energy subsidies which increased to 1.8% and 6.7% of GDP, respectively in 2007/08. Inflation remains a serious challenge facing the Government of Egypt
4. To alleviate the social impacts of higher prices, President Mubarak, in early May 2008, announced a 30% increase in salaries for civil servants (estimated at about 30% of the total workforce) and also called on the private sector to raise wages by the same percentage for its workers. In his announcement, President Mubarak stressed the Government’s continued commitment to the on-going economic liberalization program but stressed the need for stepping
1 Source: Egypt, Economic Monitoring Report, September 2008, the World Bank, Middle East and North Africa Region. 2 Source: Egypt Country Assistance Strategy Progress Report, July 17,2008.
1 up the expansion of social security (the food ration card scheme has been extended to more low-income families) and restructuring of subsidy-agencies.
5. Going forward, although in the short-term real GDP growth in Egypt is expected to remain high; there will be a slowdown as a consequence of the global financial crisis and recession in developed countries. Talks are underway in the Government on the appropriate combination of policies to mitigate the external shock, including stepping up public investment plans and a temporary freeze on some of the energy price increases recently announced (see below). The challenge, therefore, will be to maintain the appropriate balance between the short-term stabilization objective of stimulating aggregate demand and the long-term growth requirement of sound fiscal accounts and predictable future policies essential to business- friendly environments.
6. A series of energy price increases was started a few years ago, in light of the growing subsidy burden of the sector. As mentioned above, energy subsidies reached 6.7% of GDP in 2007/08, mostly due to subsidized gasoline in the transport sector and liquefied petroleum gas (LPG) widely used for cooking. In early 2000, gasoline price increases were introduced to bring the prices closer to their market values. Further in 2004, annual increases to the electricity tariffs were approved, and in June 2008, the Government announced that the price of natural gas for energy-intensive industrial users would be increased from US$1.25/mmbtu to US$3/mmbtu with immediate effect. Likewise, the electricity price for energy-intensive industrial users was increased in one-step to US$6.3/kWhY US$4.6/kWh and US$3.8/kWh for medium, high voltage and ultra high voltage, respectively (see more on energy prices in paragraphs 17- 18 below). The energy price adjustments in recent years constitute a significant step by the Government towards reduction of energy subsidies, and the acceleration of some price increases recently demonstrates the strong commitment to price reform. There is however a risk that concerns about declining growth will slow down the planned phase-out of subsidies as well as the overall planned divestitures (especially in the labor-intensive manufacturing sector).
7. As described in the Country Assistance Strategy Progress Report (CASPR), Bank support to the energy sector is a key element in the cooperation between the Government of Egypt and the World Bank, and the assistance provided by the World Bank in the energy sector to date has made substantial progress towards the goals that were articulated in the CAS discussed by the Board on June 15, 2005.3 Indeed, Bank support to the energy sector, including the proposed project has and continues to play a key role in achieving the CAS goal of enhancing the provision of public goods through modernized infiastructure services to achieve higher growth.
Sector issues and Government strategy
8. The Egyptian electricity sector is going through substantial change and is evolving fast with the GOE seeking alternative and more efficient means to meet demand and secure energy. Sector reforms are starting to yield results laying the groundwork for market liberalization and re-entry ofthe private sector.
Report Nr. 32190-EG.
2 9. Reform of the electricity sector in Egypt began in the mid-1990s with the unbundling of the electric utility and the decision to introduce private sector financing through Build Own Transfer (BOT) arrangements (see Box 1 for a timeline and summary of the electricity sector reforms).
10. The most significant reforms to date include (i)the unbundling of the sector and setting the stage for future competition and privatization; (ii)the creation of the regulator and its work to date on performance benchmarking Box 1 - Timeline of Electricity Sector Reforms in Egypt and the drafting of the new Electricity 1893 Electricity was introduced in Egypt (privately owned). Law (see Box 2 for the main features of 1962 The sector was nationalized. the proposed law); (iii)the introduction 1998 Seven vertically integratedelectricity companies were of BOT projects; and (iv) price formed and geographically organized. increases. 2000 The seven companies were placed under a Joint Stock Holding Company. 2000 Egypt’s Electric Utility and Consumer Protection 11. After the currency devaluation in Regulatory Agency was created by Presidential 2003, the GOE put a hold on additional Decree. BOT transactions. In essence, years of 2002 The sector was unbundledto form 14 companies 100% low consumer tariffs had not prepared owned by EEHC; and the National Control Center (NCC) was created. the electricity sector to absorb sudden 2002 Creation of the cost-based power pool with bilateral increases in tariffs to IPPs consequent agreements among power companies (Gencos with the on the currency devaluation. The Transco and the Transco with the Discos) under the Government is now considering PPP in holding structure. the sector that does not rely on the 2002 Two IPPs operational (Sidi Krir and Port Said). single-buyer model. Combined with the 2003 Third IPP operational (Suez). 2003 Introduction of Performance Based Budgeting for all tariff increases, moving away from the subsidiaries with performance targets. single buyer model is expected to 2004 Implementation of the first electricity price increase in introduce a more sustainable form of 12 years (8%, followed by 5% annual increases for risk-sharing with the private sector. following five years). The Government has taken initial steps 2007 Delta Production Company breaks into two (East and West Delta) due to size. towards this with the stipulation in the 2007 Further price increases for large industrial users draft law that no new licenses will be implemented. issued to supply electricity from the 2008 (a) Formulation of a new Electricity Sector Law national grid to new energy-intensive endorsed by the Cabinet and to be submitted to industries. These consumers will now Parliament. build their own power generating (b) In June, the GOE increased electricity and gas prices to energy intensive industrial consumers. facilities. In cases where the national (c) The GOE issues an RfP for engineering and design grid will be used to transport the for its first nuclear power plant. energy, a license for using the network (d) The GOE announces a target of 20% of installed and a charge to the transmission capacity for renewables. company will applye4 Technical
The wheeling charge will be as follows: US$0.35/kWh for 500/220 KV voltage level; US$O.SS/kWh for 66KV voltage level and US$l.O3/kWh for Medium KV voltage (22, 1 1 or 6.6 KV.)
3 assistance on exploring new PPP approaches as well as on the overall allocation of risks between the public and private sector is included in the programmatic technical assistance provided to the Government by the World Bank (see more under paragraph 29).
12. In addition to the re-entry of the private sector in financing new power plants, privatization of existing assets is also part of the future sector plans. In conjunction with the unbundling ofthe sector and the creation ofthe EEHC in 2002, it was envisaged that up to 40% of generation and distribution assets would be up for privatization. According to the legislation governing the sector, the commercial companies’ law #159, 100% of the assets could be privatized. This strategy is currently under review as part of the Technical Assistance on exploring new PPP approaches.
13. In terms of timeline for private sector re-engagement, new entrants in the generation segment can be licensed at any time, and the regulator has experience of issuing licenses to private generating companies. The new law will greatly enhance the number of new generation companies through the stipulation that no new licenses will be issued to supply electricity from the national grid to new energy-intensive industries. These consumers will now build their own power generating facilities or purchase on bilateral basis from existing generating companies. In terms of privatization of existing assets, the forthcoming review of new PPP approaches will inform the Government of options and a proposed implementation time-table. The pace of re- engagement of the private sector is closely linked to continued tariff and subsidy reform to enable the development of a bilateral trading market with private financing.
14. Overall, the impact of the reforms is positive but significant further work still remains. On the one hand, access to electricity is very high throughout Egypt (at 99%), the technical performance of the sector is also good and at par with international standards, the reliability of service and timely implementation of infrastructure additions and reinforcement is very solid and sector management is efficient. On the other hand, the long period of constant electricity tariffs, concurrent with significant investment needs, has left the sector with serious financial problems. This will take time to correct, and will require both continued tariff adjustment as well as rationalization of investment to curb and/or shift electricity demand. The World Bank is assisting the GOE with these and other important sector measures (see Paragraph 29).
15. More broadly and over the past few years, the energy sector has gained increasing attention in the overall development agenda of the Government. This is driven by several factors: (i)the high international oil prices, which have increased the fiscal impact of energy subsidies; (ii)concerns about future energy security, notably natural gas; and (iii)the need for continued improvement of sector long-term financial sustainability.
4 16. Enern subsidies: Energy subsidies play an important role in Egypt’s political economy. Overall direct energy subsidies reached about LE 43 billion in 2006/07 (about US$8 billion eq~ivalent).~The estimated amount for 2007/08 is over LE 70 billion (US$12.7 billion), representing close to 6.7% of GDP. The largest shares of the subsidies are for gasoline (39%), LPG (21%), natural gas (14%) and diesel (14%). The electricity sector accounts for about 16% ofthe subsidies (LE 7 billion) with the largest share going to the transport sector at 43% (LE 18 billion). It is important to note that the subsidies to the electricity sector are primarily of an implicit nature, in that they are closely linked to the issue of gas pricing, which in turn is dependent on the level of gas reserves and export potential. Therefore, while the subsidy is large, the direct fiscal impact due to electricity pricing is not that large.
17. The Government has adopted a plan for gradual- elimination of the energy-. subsidies, in Box 2 -The draft Electricity Law parallel to the design and A new Electricity Law has recently been endorsed by the Cabinet implementation of mechanisms to and is scheduled to be presented to Parliament for ratification protect vulnerable consumers, in during the 2008/09 Parliamentary session. order to mitigate the considerable The new Law is expected to pave the way for significant changes in social and political risks (see Box 3 how the sector is financed and electricity supplied to consumers, including a much greater emphasis on development of renewable for the main features of the pricing resources. Key elements of the Law include: reform). The price adjustments A mandate to the Regulatory Agency to promote private started in 2004, when the electricity investment in generation and distribution activities within the tariffs were adjusted for the first time context of a competitive market and with due regard to consumer interests. since 1992 (from an average of Establishment of the Regulatory Agency as the entity for tariff US$2.2/kWh to US$2.4/kWh, today approvals. they average US$3/kWh). The Creation of a two-tiered electricity market, with a competitive increase was 8% in October 2004 and market for eligible customers (extra high voltage and high has been followed by Cabinet voltage customers free to choose among electricity suppliers endorsed annual increases of on a bilateral contract basis) and a regulated market for 5% ineligible customers (low voltage customers who are not free since,6 with greater increases to the to choose among suppliers). industrial users introduced in 2007 Separation of the Egyptian Electricity Transmission Company and again in 2008. In June, 2008 the (EETC) into a Transmission System Operator which grants third party access to the network. Government announced that, with Establishment of a feed-in tariff for renewable energy to immediate effect, the natural gas encourage private sector participation. price to energy-intensive industry would be US$3/mmbtu and the electricity price to industrial users was further increased to
“Energy and Development”; prepared by the Government of Egypt, 2007. Egypt imports a substantial amount of energy (in particular fuel oil and liquefied petroleum gas - LPG) and is increasingly purchasing fuel from foreign gartners active in oil and gas production in Egypt. After approval of the annual 5% increase, further Cabinet approval of and additional tariff increase of 2.5% per year was obtained bringing the total annual increase since 2006 to 7.5%.
5 US$6.3/kWhYUS$4.6/kWh and US$$3,8/kWh for medium, high voltage and ultra high voltage, respectively. These new prices are more closely aligned with the economic cost of serving these consumers, and are forecast to have a significant conservation impact on consumption’.
18. In terms of petroleum products, there have been consistent increases in prices, with the exception of Octane 80, mazout and LPG (the current prices are US$O. 16/liter, US$185/ton and just below US$0.50/12.5 kg cylinder, respectively). The prices ofthese fuels have not changed for a long time as these are fuels commonly consumed by low-income consumers. However, these products are included in the comprehensive Energy Pricing Strategy currently under formulation. The pricing options being developed will be under-pinned by’ targeted social protection measures to mitigate adverse impacts on consumers. The price levels for remaining products’ are as follows: Heavy fuel oil (HFO) US$170/ton, Octane 90 US$0.32/literYOctane 92 US$0.34/liter and Octane 95 Box 3 -The Government’s plans for energy pricing reforms US$O.SO/liter. Of the 8.5 million At the National Democratic Party Conference in 2007, President tons of HFO consumed per year, the Mubarak announced that the Government would implement a electricity sector consumes 35%. comprehensive reform of energy prices. The strategy for price reforms has the following key features: 19. Fuel security: Egypt’s crude Increases in the natural gas price, initially targeting energy- oil and natural gas reserves meet intensive industries, to encourage more investment in exploration and production. about 95% of its overall energy Enhance the transparency of the level of subsidies in order to needs.* In addition, Egypt is facilitate decision-makingwith regard to utilization of energy endowed with very significant products, fiscal resources and support a new system of targeted potential for renewable energy both subsidies to safeguard vulnerable and low-income groups. in terms of wind and solar, and it has Gradually implement price adjustments, initially to cover production and supply cost and eventually to cover the successfully developed large scale opportunity cost. Adjustments to cover all energy products. hydro resources to account for close Implementationof the price adjustments should also be to 12% of installed generation accompanied by the implementation of a re-designed targeted capacity. Electricity demand is subsidy system for poor, possibly based on the conditional ash- transfer mechanism. growing at 7-8% per year, which The detailed level of prices and the proposed phased implies an increase of new capacity implementation, along with the fiscal, macro-economic and social in the order of 1,500 MW per year impacts are being analyzed under the comprehensive energy pricing (current installed capacity is close to strategy that the Government is undertaking with the help of international consultants, funded by the World Bank. 22,000 MW) to keep up with demand. The Government’s power generation expansion plan is primarily based on natural-gas fired combined and steam-cycle technology. About 60% of the domestic natural gas production is utilized by the power sector.
20. The availability of sufficient natural gas is becoming an issue as the demand for natural gas is increasing in sectors of the economy beyond the power sector, and Egypt has also increased its exports of natural gas (through pipelines and LNG terminals) in recent years.g
7 The draft final report on “Development of a Load Management Program and Design of Time of Use/Seasonal Pricing” prepared by Economic Consultants Associates (ECA) forecasts a reduction in industrial demand during the reak period of close to 300 MW due to the increase in the electricity prices to these users. “Energy and Development”; prepared by the Government of Egypt, 2007. 9 Egypt is connected via the Arab Gas Pipeline with Jordan, Syria and Lebanon and by pipeline to Israel.
6 This is driven by the Government's aim to reduce the use of fuel oil, gasoline and LPG in the domestic market, to position itself as an exporter of LNG, and to foster regional integration through the interconnection of natural gas pipelines. Furthermore, the foreign partners engaged under production-sharing agreements (PSAs) in Egypt are increasingly demanding to be able to export their share of the natural gas produced rather than selling it into the domestic market due to the higher prices and (to some extent) better credit-worthiness that exports bring.
21. To address the multiple demands on Egypt's natural gas, the Ministry of Electricity and Energy (MoEE), with endorsement from the Cabinet, adopted a strategy comprising the followin : (i)increased use of efficient power production technologies (CCGT and supercritical boiler); *$(ii) large scale development of Egypt's renewable resources with the goal of having 20% of its installed generation capacity in the form of renewables by 2020;" and (iii)stepping up efforts for more efficient consumption of electricity. l2
Table I:Egypt 's Electricity Generation Expansion Plan
I CapacityCurrent I Current % I2008-2017 I % 2008-2017 I 2018-2027 I % 201E2027 I Total In MW I Total % I
22. As shown in the table above, the Government of Egypt plans to transform Egypt's electricity generation capacity mix through large-scale development of wind resources (estimated to reach 10% by 2027), as well as development of nuclear energy (estimated at 6.5% by 2027). Further development of its solar resource is also envisaged and will be pursued based on experiences learnt from the first solar-thermal project under implementation, and supported by the GEF. Based on a series of discussions between the Government of Egypt and the World Bank, Egypt has agreed to champion the development of renewable energy in the region. Already, Egypt has taken significant leadership in this regard through the creation of a regional Renewable Energy and Energy Efficiency Center, supported by KfW and Danida. Furthermore, Egypt has installed 225 MW of wind-energy capacity under power purchase agreements with the Egyptian Electricity Transmission Company (EETC). This capacity is performing very well with capacity factors in the range of 4550%.
loDuring 2002-2007, a fast-track program comprising 4,500 MW of CCGT was commissioned in Egypt. The medium-term program (2207-2012) comprises 6,925 MW of steam and combined cycle turbines. The share of CCGT in the Egyptian generation system is now about 30% up from 14% in 2000. By the end of 2012, the share is expected to be 35%. I1 12% of this is hydro-power but the remainder would need to come from wind and solar resources which currently comprise just over 1YO of installed capacity. 12 This will be achieved through the following key measures: expansion of the utilization of efficient light bulbs, load-shifting at peak periods, adoption of standard specifications for energy-intensive equipment and appliances and legislation for energy efficient building codes.
7 23. To develop Egypt’s large-scale wind resources, the Government requested Bank assistance to prepare a framework that relies increasingly on commercial principles and private financing/operation. The first phase of the work is close to completion (preparation of a wind development plan and bidding parameters) and the second phase (bidder workshop and finalization of bidding documents as well as pre-development) has started. Both phases are supported by the Bank. A proposal is at advanced stages of how this large-scale program can be supported by the Clean Technology Fund (CTF). The Government and the Bank project team plans to submit this to the CTF Trust Fund Committee as soon as it calls for proposals.
24. Electricity sector -finances: In electricity, under-pricing still is a major contributor to the high growth in consumption, with consequently heavy capital expenditure demands, and a constrained financial position of the sector. With the tariff increases that have been implemented over the past few years in the electricity sector, the Egyptian Electricity Holding Company (EEHC) - responsible for generation, transmission and distribution of electricity through 15 subsidiary companies - covers operating costs (with subsidies on the fuel). The tariff increase has also helped reduce the cross-subsidies in the sector with the ultra-high voltage and high voltage consumers being charged at cost-reflective prices now (the tariff schedule for the sector is attached to Annex 1). However, cash flow of the sector remains a significant problem as a result of a deterioration of cash reserves from the lack of tariff adjustments between 1992 and 2004; as well as the large annual investment program, substantial associated debt service and delays in payment for electricity consumption, primarily by the public sector.
25. Managing the cash flow is therefore the key challenge in the sector. To reduce the cash constraints, measures are being taken at several levels: (i)continuously increasing retail tariffs commensurate with what the market seems able to bear; (ii)further adjusting the tariff structure to introduce time of useheasonal pricing in order to shift demand from peak to non peak periods and therefore reduce the need for investment in new generation capacity to meet (peak) demand; and (iii)ensuring that prices remain cost reflective among large users to enable the envisaged liberalization ofthe market to take place.
26. The latter would enable new entrants (e.g., IPPs) to enter into viable contracts directly with large consumers and not through the single buyer model that was the arrangement with the previous BOTSin the electricity market. This is in line with the Government’s aim to support the development of a competitive market and also reduce the risk of the public sector as a party to private sector contracts.
B. Rationale for Bank involvement
27. The World Bank has become an increasingly important development partner in the electricity sector in Egypt following the El-Tebbin Power Project that was approved by the World Bank Board in February 2006.13 This project constituted a re-engagement by the Bank in the Egyptian electricity sector following a long period of no dialogue due largely to the Government’s view that the Bank was too dogmatic on issues related to energy policy reform and pricing. Since then, the Bank has assisted the Government in the preparation of its first l3The project is a 700 MW power generation project, with US$259 million of Bank financing.
8 solar-thermal power project (150 MW of which 20 MW solar) which includes a grant from the GEF in the amount of US$49.8 million, and represents Egypt’s first concentrated solar power plant. A World Bank loan was also approved in January, 2008 to assist in the expansion of natural gas infrastructure to sup ort the Government’s fuel switching strategy away from petroleum products for natural gasP4 .
28. In parallel to providing financing, the Bank has been active in providing quick-response technical assistance in the sector, including a series of workshops on demand-side management, generation planning and mix15 and analytical work on the economic value of natural gas. Between 2001-2004, the Bank also provided support through the GEF to identify institutional and technical barrier removal possibilities to larger scale deployment ofwind energy in Egypt.
29. The Bank’s engagement at the policy level has become substantial partly as a result of its investment support. In addition to an active policy dialogue across the Ministries of Finance, Energy and Electricity, Petroleum, Investment, Industry and Trade as well as Social Solidarity on energy matters, the Bank is assisting the Government with three very important policy activities: (i)Energy Pricing Strategy which will recommend a pricing path for each energy product consumed in the domestic market, along with social safety net for vulnerable consumers and fiscal accounting framework for social support/subsidies; (ii)Commercial Framework for Large-Scale Wind Development to assist the Government in achieving its ambitious plans for installed renewable energy capacity by 2020 based on competitive bidding and private financing with government support on a performance-based approach; and (iii) Development of a Framework and Risk Allocation Mechanism for re-engaging with the Private Sector in line with the envisaged market and private financing ofthe sector laid out in the new Electricity Law which is at advanced stages of consideration in the Cabinet. All three activities are closely related in that the largest barrier to both large scale development of renewables as well as private sector participation has been under-pricing and subsidies in the energy sector.
30. The proposed project is the next step in deepening the strong partnership between the GOE and the World Bank that has developed in the sector. It is an efficient component of the Government’s least cost expansion plan to meet energy demand and ensure energy security in Egypt, and is being prepared on the basis of advancing fundamental reforms related to sector efficiency, clean energy and improved sector financial performance - all prerequisites for continued high economic growth in Egypt as well as progress on its social inclusion agenda.
C. Higher level objectives to which the project contributes
31. Access to reliable and affordable electricity services is critical to achieve the sustainable growth and economic and social development goals articulated by the GOE in their five-year National Development Plan (2007/08-2011/12). Given the strong growth in demand, investment in new generation capacity of around 1,500 MW per year is estimated to continue to
l4“The Natural Gas Connections Project” comprises a World Bank loan in the amount of US$75 million and will expand the low pressure network supporting the replacement of LPG among residential and commercial consumers and petrol for CNG in the transport sector. l5Workshop on operational flexibility and O&M of large scale CCGT, together with AfDB and EIB.
9 meet these objectives, and the Ain Sokhna Power Project will make a substantial contribution towards this capacity requirement. In particular, the proposed project which will be the first power plant based on the supercritical technology in Egypt which will contribute to cleaner technology deployment which is part of the GOE’s energy strategy and the overall strategy to reduce emissions (see more under Section IV-B).
32. As described in the forthcoming Country Assistance Strategy Progress Report (CASPR), the assistance provided by the World Bank in the energy sector to date has made substantial progress towards the goals that were articulated in the CAS discussed by the Board on June 15, 2005.16 The most notable goal for the energy sector being to enhance the provision ofpublic goods through, inter alia, modernized infiastructure services to achieve higher growth. The CAS outcome indicators are rated as “likely to be reached”. The CASPR furthermore describes the assistance to the energy sector as one of four models that support reforms by underpinning sectoral reform through “brick-and-mortar” operations. As such, the proposed project is expected to contribute to continued trust-based sector dialogue and is included under the CASPR for support going forward. Planned lending activities for the FY09 to FY11 period covered in the CASPR have a total indicative amount of$3.2 billion.
11. PROJECT DESCRIPTION
A. Lending instrument
33. The proposed operation is a Sector Investment Loan. Within that context, the Borrower has requested it to be a Fixed Spread Loan (FSL) with a 2 1-year maturity, including a six year grace period. The Loan will be denominated in US Dollars.
34. As the sector continues to improve financially and risk-sharing models become more appropriate, it is envisaged that the Partial Risk Guarantees (PRGs) will be deployed to enhance the credit-worthiness of the sector and to assure investors against potential regulatory risks. Similarly, this will provide opportunities for IFC and MIGA support to the sector.
B. Project development objective and key indicators
35. The project development objectives are to (i)ensure continuous electricity supply to meet demand in a sustainable manner through investment in new generation capacity; and (ii) improve the sector’s financial sustainability by providing technical assistance to EEHC to support sector revenue improvements. Key performance indicators are listed in Annex 3.
l6Report Nr. 32190-EG.
10 C. Project components
The Ain Sokhna Power Plant
36. The proposed project is a 1,300 MW supercritical steam turbine power plant using natural gas as the main fuel (and mazout as the back-up fuel). The plant will be owned, operated and managed by the East Delta Electricity Production Company (EDEPC), one of EEHC’s subsidiaries responsible for electricity production in the geographical territory of the proposed power plant site.
37. EDEPC has retained a firm (PEGESCo) that will provide assistance in engineering, preparation of the detailed designs, procurement as well as construction management and supervision. This firm has worked on several power projects in Egypt in the past and is partly owned by Bechtel. This contract will be financed with EDEPC’s own resources. The proposed site of the new plant is an empty land area right next to an existing power plant that was commissioned about 5 years ago. The land in question is public (belongs to EEHC) and lays in an unproductive sandy area without any structures.
38. The proposed project includes the following: (i)two 650 MW steam turbine generators; (ii)two steam generators (once-through supercritical boilers); (iii)electrical equipment including transformers and switchyard; (iv) auxiliary mechanical equipment including pumps and drives, heat exchangers and de-aerators, critical piping and piping valves; (v) water and wastewater treatment systems and desalination plant; (vi) the implementation of the Environmental and Social Management Plan (ESMP), including environmental monitoring equipment; (vii) distributed control systems and instrumentation; (viii) engineering and project management services including design, procurement and construction supervision as well as commissioning, testing and start-up; (ix) civil works, yard tanks as well as medium and low voltage switchgear; (x) substations and transmission lines to interconnect to the national power grid; and (xi) insurance.
TechnicalAssistance
39. The technical assistance component is aimed at further enhancing the on-going energy sector policy dialogue with GOE. The assistance will mainly comprise of studies and policy support including rapid response support to EEHC in the implementation of the time-of-use tariff and further tariff adjustment recommendations from the on-going Energy Pricing Strategy work. Based on the successful TA implemented in the electricity, renewable energy and natural gas sectors since 2004, an annual programmatic Bank budget of US$250,000 a year for the next three years has been allocated to enable continued rapid-response assistance and support based on the trust and cooperation established in the sector. In addition, substantial trust fund resources from the Energy Sector Management Assistance Program (ESMAP) and the Public- Private Infrastructure Advisory Facility (PPIAF) have been mobilized.
40. More specifically, the TA under the proposed project will focus on implementation advice to incorporate the time-of-use tariff options into the overall and ongoing electricity adjustment effort.
11 41. In addition and in parallel to the implementation of the project, the following key activities funded under trust funds and the programmatic bank budget mentioned above will be carried out: (i) finalization of the comprehensive Energy Pricing Strategy (US$SOO,OOO); (ii) implementation ofthe Pricing Strategy, including training (US$ 100,000); (iii)development of a commercial framework for wind energy and assistance to the tendering process (estimated at US$500,000); (iv) development of a national energy conservation plan and implementation of energy-efficient lighting through the distribution companies (US$200,000); and (v) formulation of a plan for re-engagement with the private sector (US$75,000).
D. Lessons learned and reflected in the project design
42. The experience in the preparation and implementation of the Tebbin Power Project recognized the need for reforms in the power sector in Egypt, assuming that the reforms and the pace at which they are implemented are Government owned. The policy and sector reform dialogue developed in parallel to the preparation of the Tebbin Power Project and the proposed investment operation demonstrated that it is effective to underpin sectoral reform through investment lending for large-scale operations.
43. The preparation ofthe Tebbin Power Project has helped restore confidence between GOE and the Bank, which in turn has greatly facilitated the policy dialogue. This approach has generated Government requests for Bank involvement on key policy issues, including energy pricing and subsidy reform, public-private sector risk allocation schemes, large-scale deployment of wind resources under a commercial framework and demand-side management measures.
E. Alternatives considered and reasons for rejection
44. Several options have been considered as alternatives to the proposed project to meet the need for the additional electricity generation capacity. These include having the private sector undertake the investment; renewables; and regional integration and importing electricity.
45. Private financing of the proposed plant: In the late 1990s, the GOE implemented three BOT projects (650 MW each); two of which were supported by IFC. These BOT projects are considered highly successful and, when procured, achieved among the lowest PPA pricelkwh in the world (in large extent due to subsidized natural gas). However, the BOT program was put on hold when the Egyptian pound was devalued in 2003 and the price/kWh increased by 34%, in spite of government holding constant the price offuel (most of the costs under the PPA are US$-denominated).
46. The low final tariffs in the sector, combined with political constraints on increasing them and budget constraints on providing major injections of liquidity into the sector, made the Government unwilling to assume the high level of foreign currency risk implicit in the PPAs, particularly under the prevailing single-buyer model. This caused a loss of confidence in private participation, and a reversion to a combination of local financing and to foreign borrowing through Government channels.
12 47. The GOE is now keen to re-engage with the private sector under new models of risk- sharing. Indeed, capacity expansion needs are so large that they can be financed only through a mix of public and private sources. To do so, the new Electricity Law (expected to be passed in 2008/09) allows for private entry into most activities of the sector (generation, sales, and distribution). On the generation side, the new law requires developers to secure consumers through bilateral contracts, based on commercial arrangements. The Bank is providing assistance to the Regulatory Agency to review and recommend optimal risk allocation and risk sharing between the private and public sector in support of the new Law.
48. The potential for re-engagement of the private sector in the power sector has improved in Egypt in line with the continuous increases in the electricity tariff. However, a large increase in private interest in power generation in Egypt will take place only when tariffhubsidy reform is even further advanced and regulatory frameworks and institutional capacities are strengthened. This is expected to take some time; and the Bank is assisting the Government in this regard through the work under the Energy Pricing Strategy (see Paragraph 25 above) and technical assistance to the electricity regulator.
49. Renewables play a key role in the Egyptian electricity expansion plan. Around 1% of installed capacity (225 MW) of wind is operating at a high capacity factor and Egypt has gained useful operational experience in managing wind power plants. In April 2007, the GOE announced that it would seek to have 20% of installed capacity in the form of renewables by 2020, most of which would come from wind energy (an addition of 7,200 MW). To date, most of the wind energy projects have been developed with substantial soft financing and grant support from Denmark, Germany, Spain and Japan.
50. Recently, the GOE requested Bank assistance to develop a commercial framework under which the planned large-scale wind program would be implemented under a public-private partnership and on a competitive tendering basis. The development plan and key bidding parameters have been finalized and work is now underway on preparing the bidding documents, including holding a bidder’s conference to raise awareness of the program, investment opportunity and gauge market interest. Consultations have also been held with the GOE on the possible inclusion of this large-scale program under the forthcoming Clean Technology Fund (CTF) which is in the process of being established.
5 1. As illustrated in the expansion plan table on page 5, in addition to the significant planned additions of wind capacity, conventional power capacity is forecast to triple and Egypt is planning to launch the implementation of nuclear power plants. The issue is not whether to install renewable or conventional power plants; both are necessary to meet demand and ensure energy security. The cost of wind power plants remains higher than of conventional (around US$2,200/KW for recent bids compared with US$1,520KW estimated for the proposed project). The GOE is therefore looking to funding such as the CTF to off-set the higher cost in order to implement large-scale wind projects.
52. In addition to wind, the GOE is implementing its first solar thermal power plant. Provided the operational track-record is satisfactory and costs fall further, the GOE is interested in additional large-scale solar projects (the current plant is costing about US$2,500/KW). This may provide a basis for regional expansion of solar energy, since the Southern Mediterranean
13 countries have excellent insolation and proximity to the EU market in which renewable energy demand is increasing rapidly.
53. Other conventional technologies: As illustrated in Table 1, the least-cost expansion plan for electricity generation projects in Egypt comprises a diverse set of technologies including renewable, nuclear, combined cycle and thermal. The proposed project’s technology has been identified as the preferred candidate in the least-cost expansion plan based on its load-following capabilities and fuel-flexibility. Furthermore, the proposed technology also has substantial environmental benefits compared to the thermal generation technologies used to date including higher energy to power ratio and increased fuel efficiency (by 10%) and overall reduction in C02 and other emissions.
54. Regional integration and electricity imports: Egypt is interconnected to Libya and Jordan, and is exporting electricity to both countries as well as a small amount to Gaza. The interconnections with Libya and Jordan have been established at voltage levels of 220KV and 400KV, respectively and are part of the Arab Mashreq network which includes Egypt, Jordan, Syria, Libya, Lebanon, Iraq and Turkey. Around 120 GWh are exported to Libya and 700-800 GWh to Jordan (although the exports to Jordan dropped in recent years due to high demand in the Egyptian market). Egypt, in turn, imported 91 GWh from Libya in 2005/06 and 77 GWh from Jordan the same year. An interconnection with Saudi Arabia is also under consideration. Recently, Egypt also announced that it would export 200-400 MW to Lebanon (during off-peak hours).
55. Libya and Jordan are currently paying around 7-8 US$/kWh for the Egyptian power supply. As they are net importers, there is currently not much scope for large-scale electricity imports by Egypt through the interconnected networks; especially also considering the fast pace at which the domestic demand is growing in all three countries. In addition, the cost of electricity generation in both countries is much higher than in Egypt. There is currently no south border connection to Sudan, although there is an ongoing discussion in the context of the Nile Basin Initiative whereby Egypt could potentially import hydroelectric power starting in 2014-2015, provided a reasonable price and water right issues related to the Nile are agreed to.
111. IMPLEMENTATION
A. Partnership arrangements (if applicable)
56. Several donors are active in supporting policy reforms and financing projects in the power sector in Egypt, and the GOE is actively seeking financing to complete its sector expansion plans. The most prominent donors besides the World Bank are the African Development Bank (AfDB), the European Investment Bank (EIB), the Arab Fund for Economic Development, the Kuwaiti Fund for Economic Development and Islamic Development Bank. OPEC also provides financing, and the European Commission and KfW provide technical assistance. KfW has also funded wind development in the Zafarana area in Egypt.
57. The Bank’s team is in constant contact with donors active in the sector to ensure that there is a common understanding and agreement as to the measures that are needed to improve the sustainability of the sector. There have been joint workshops, such as the one on
14 operational flexibility and operation and maintenance (O&M) of large scale CCGT, in April 2007, supported by the World Bank along with AfDB and EIB. More recently - and following consultations held in Egypt on the CTF in April 2008 - the World Bank and AfDB have partnered to design support from the CTF towards large-scale development of Egypt’s wind resources. This support is likely to come through three types of interventions: (i)capitalization of the recently created Renewable Energy Fund to offset higher cost of wind energy technology; (ii)contribution to the financing of specific wind projects: and (iii)support to develop the transmission infrastructure required to evacuate the wind energy to load centers.
58. The proposed project is envisaged to be financed by the World Bank, AfDB, Arab Funds as well as local banks. There is a strong recognition among the donors that the engagement on sector policy that the Bank sought through the El-Tebbin Power Project has indeed been solidified, and as such the World Bank is regarded as a key development partner in the sector.
B. Institutional and implementation arrangements
59. The proposed project will be implemented between 2009 and 2013 and the implementation arrangements will be very similar to those under the El-Tebbin Project (which has a solid track record and performance). The project will be implemented by the East Delta Electricity Production Company (EDEPC), an affiliate of EEHC. EEHC will be responsible for the implementation of the time-of use pricing mechanism. The monitoring of improved sector financial performance will also be at the level of EEHC, given its role in overall financial management of the sector.
60. The implementation arrangements reflect the structure of the sector in Egypt, where EEHC, as the holding company, plays a large role in planning and designing projects, but the operational affiliates (generation, transmission and distribution companies) have the main responsibility when it comes to implementation and supervision ofproj ects.
61. The Cairo Electricity Production Company (CEPC), EDEPC and CEPC are electricity production companies closely supervised by EEHC and have the same procedures and guidelines established by the holding company (EEHC). Both companies have implemented several power generating projects and have similar managerial capacity. As with other power plant projects in Egypt (including the Bank-financed El Tebbin project), the affiliate companies are responsible for implementation and are assisted in this effort by a strong consulting firm acting as a Management Contractor. The role of the Management Contractor is to (i)design the installations; (ii)define the number of packages for procurement under supply and install (single responsibility) contracts for the different parts of the plant; (iii) carry out all procurement actions (with the implementing affiliate - EDEPC in this case - signing the contracts); (iv) integrate and coordinate the different contractors working in the project site; and (v) overall project management on behalf of the implementing affiliate.
62. For the proposed project the Management Contractor, Power Generation Engineering and Services Company (PGESCO)’~,has been hired by EDEPC financed by its resources. PGESCO
” PGESCO was established and registered in Egypt in 1993 and is 40% owned by Bechtel International, 40% by Ministry of Electricity & Energy and 20% by a local Egyptian bank. PGESCO services since then covered Sidi Krir
15 is a much respected consulting firm owned by Bechtel and the Government of Egypt and has already performed this role in several power plants in Egypt similar to Ain Sokhna. The Bank has had experience of working with PGESCo in the El Tebbin Power Project where PGESCo has had the same role. Their performance has been of excellent standard.
63. There will be a Loan Agreement between the Government of Egypt (Ministry of International Cooperation) and the Bank and a Project Agreement between EEHC and the Bank. By virtue of a Subsidiary Loan Agreement between the GOE and EEHC, the GOE will on-lend the Bank loan proceeds to EEHC (which manages cash-flow of the sector, as the affiliates charge uniform prices which don’t always recover their specific costs).
64. To establish and clarify the role of EDEPC in project implementation, a Contractual Agreement will be in place between EEHC and EDEPC. This Agreement, whose terms and conditions will need to be satisfactory to the Bank, will detail all of the implementation activities under the project (including procurement, compliance with ESIA, financial management, audits, payment processes, etc).
65. EDEPC will establish a Project Management Unit (PMU) at the project site. The PMU will be assisted in engineering, procurement, construction and project management by the engineering consultant funded by EDEPC (PGESCo). The PMU will have a project manager, 2-3 engineers, a procurement coordinator and an environmental specialist. The PMU will issue monthly progress reports to the Bank, and quarterly reports on the implementation ofthe ESIA.
66. In addition, within the PMU, a Financial Management Unit (FMU) will be established located at EDEPC’s main office to better integrate with the financial departments in EDEPC, such as investment audit, treasury, etc. The FMU will have overall responsibility for the project’s financial recording, budgeting, reporting requirements, and handling the loan disbursement arrangements, including supporting documentation. The FMU will comprise an FMU Manager, three Accountants and a Project Accountant, who will be located at the project site and will ensure smooth coordination between the remainder of the PMU and the FMU. Annex 6 provides more details on the overall implementation arrangements, while Annex 7 details the FMU responsibilities. In the meantime, the technical and finance departments of EDEPC have already contacted the PMU and FMU for the El-Tebbin Project to improve their understanding of the World Bank project implementation and financial management requirements.
67. Annex 6 and 8 outline in detail the implementation and procurement, including assessment ofcapabilities, aspects ofthe proposed project.
Units I& I1 (650 MW), Sidi Krir Units 3 & 4 (BOOT 660 MW), Ayoun Moussa Units I& I1 (650 MW), Cairo North Combined Cycle I(750 MW) and I1 (750 MW), Nubaria Combined Cycle (1 500 MW) and New Talkha Combined Cycle (750 MW), Kureimat Combined Cycle (750 MW), El Tebbin (2x 350MW), Nubaria I11 (750 MW), Kureimat 111 (750 MW), Cairo West (2 X 350 MW), Sidi Krir (750 MW), El Atf (750 MW) and Abu Qir (2 X 650 MW).
16 C. Monitoring and evaluation of outcomes/results
68. EECH and EDEPC will monitor the progress against the agreed performance indicators listed in Annex 3. Data and statistics on actual project output and outcomes will be gathered, analyzed, and included in progress reports to be submitted to the World Bank.
69. A professional engineering firm will supervise the project’s physical implementation; however, EDEPC, through the PMU, will monitor overall project progress, including contractors’ performance in accordance with the signed contracts. EEHC’s environmental department will monitor and ensure adherence to the Environmental Management Plan (EMP), in close coordination with the PMU.
70. Based on the review of progress reports by EEHC, EDEPC and World Bank, measures will be taken to ensure the project is completed without delay and achieves its planned outcomes.
D. Sustainability
71. Client commitment to the project and its objectives is strong, as evidenced by the speed in which project preparation documents were prepared, including the feasibility study and the forthcoming Environmental and Social Impact Assessment (ESIA).
72. The World Bank is engaged with the Government to enhance the overall sector policy framework and advance reforms aimed at improving sector sustainability. The annual tariff increases implemented since October 2004 represent the Government’s strong commitment to a financially sustainable sector in the long-term. Further measures to improve the sector’s financial performance are discussed in detail under Section D Appraisal Summary.
E. Critical risks and possible controversial aspects
73. Several of the identified risks for the El-Tebbin Project do not apply to the proposed project since El-Tebbin comprised a re-engagement and the implementation track record of the sector and EEHC were not known to the Bank. Today, El-Tebbin is one ofthe best performing projects in the Egypt portfolio, and the implementation track-record of EEHC has been proven. Indeed, a year after the loan was approved by the World Bank Board of Executive Directors, all Bank-financed contracts had been signed, All fiduciary aspects have been implemented smoothly and compliance with safeguards was rated Highly Satisfactory in the last ISR. The Independent Procurement Review (IPR) completed in the summer of 2008, found full compliance with the World Bank procurement guidelines and procedures.
74. Furthermore, the Government’s appetite for reform has substantially increased. This is evidenced by the numerous price changes that have taken place, the articulation of its renewable energy ambition and its willingness to engage with the Bank and others on policy dialogue and reforms on issues such as subsidies, social safety nets and Government incentives to enable the implementation of low-carbon energy solutions. Nevertheless, some risks to the project and to the sector remain and are summarized below. Furthermore, given the current
17 volatile global financial condition, there are macro-economic risks that may impact the project through reduced demand and/or slowed down reforms.
Risk 1 Risk Rating I Risk Mitigation Measure Achievement of Pro'ect Develo ment Ob'ective Reduced domestic demand as a result of The Government is seeking to attract foreign slowdown in domestic economic growth investors from the Gulf countries to compensate for following the global downward trend. the decline in investment from US and Europe. The government also plans to increase infrastructure spending, as well as promoting PPP. ,Limited ability to continue electricity price H This is a key risk, and already discussions are increases in light of price increases in other underway on a potential slow-down in the price commodities, notably food and overall increases to energy-intensive industrial customers. impact from slowdown in domestic economic In terms ofthe price increases to residential growth. consumers, the main mitigation measure is through ensuring that any price increases that adversely impact vulnerable consumers are mitigated through targeted social safety nets. The World Bank is assisting the Government in this regard, both through the Energy Pricing Strategy work underway but also more broadly through the re-design of subsidies and social safety nets.
Achievement of Component Results
18 Risk Risk Rating I Risk Mitigation Measure Achievement of Project Development Obje ve Insufficient volumes or delays in gas supply M There is already a gas pipeline to the nearby power to fuel the proposed power plant plant, which will be extended to enable gas supply to the proposed plant. Closer to the commissioning of the plants, gas supply agreements will be entered into. Should gas supply be interrupted the proposed plant will be equipped to switch to using HFO, but this will need to be carefully monitored in light of environmental impacts. Furthermore, with modifications, the proposed plant could also operate on coal. Difficult bidding and availability of plant M Due to overall high demand for power supply equipment equipment, EEHC has noted a reduction in the number and variety of bidders for its expansions. As with the El-Tebbin Project, the procurement process has been advanced as much as possible during project preparation, and the first few bid documents are expected to be issued to the market in the month of November, 2008. Furthermore, given that the proposed technology (supercritical boiler) will be procured for the first time to Egypt and that there has been very high demand for this technology world-wide in recent years, there is a concern that the market appetite for the proposed bid opportunity may be limited. To mitigate this, a workshop with potential bidders was held on August 27,2008 to present the proposed project and its bidding opportunities. There was significant interest expressed by the 70 workshop participants in the project. Also, the current global financial turmoil may result in a larger supplier market than anticipated in August and may be favorable in terms of number of interested bidders. Overall Risk Rating M
F. Loan conditions and covenants
75. Conditions of Effectiveness:
0 Subsidiary Loan Agreement signed between Ministry of International Cooperation and EEHC.
Standard Covenants:
0 Standard annual auditing requirements.
Dated Covenants: 0 Contractual Agreement signed between EEHC and EDEPC no later than one month after the effectiveness date.
19 0 Establishment of the PMU, with qualified staff and in adequate numbers no later than two months after the effectiveness date. 0 Adoption of the Implementation Manual (including procurement and financial management) no later than two months after the date of signature of the contractual agreement between EEHC and EDEPC.
IV. APPRAISAL SUMMARY
A. Economic and financial analyses
Economic Analysis
76. At a 10% discount rate, the project’s net present value (NPV) is US$1,598 million, yielding an economic rate ofreturn (ERR) of about 22%.
77. As can be seen in the summary results below, the economic rate of return is sensitive to changes in a number of ke variables, including: (i)a increase by 2.5 times on the gas price to close to US$8 per mmbtu, K (ii)an increase of 44% in total project costs (reflecting the current high demand for SC technology including supercritical and the current volatile inflationary environment), (iii)commissioning delays due to high worldwide demand for power equipment, causing delays in delivery of equipment to Egypt, and (iv) a consumer willingness to pay below 7.5 US6lkWh.
Present values discounted at 10% Sensitivity - ERR=lO% if: costs US$2,719 million Gas price increase beyond US$8.05 per mmbtu
Benefits US$4,468 million Increase of about 49% in the total project cost Plant’s full commissioning delayed by 6 years (to 2019120 for full operation) Net Present Value US$1,749 million Consumer’s willingness to pay reduces to 7.3 UStikWh ERR 23.6%
78. Given the relatively small size of the plant compared to the overall Egyptian electricity system,” the project has been assessed on an individual basis, comparing its costs to its benefits. The costs comprise those required to commission a 1,300 MW steam turbine plant, estimated to be US$2,006.8 million (including contingencies but excluding customs charges), and to operate and maintain the plant. The Ain Sokhna plant is expected to sell an average of 6 GWh annually over a 25-year period. No salvage value was included, as costs of dismantling the plant at the end of the 25 years are deemed higher than the benefits of selling the aging equipment. The quantified benefits consist of retail sales of additional electricity to the grid
As a point of reference the October 2008 average Henry-Hub price for Natural Gas was US$6.78 per mmbtu. 19 The Ain Sokhna power plant represents 6% ofthe total installed capacity in Egypt.
20 valued at willingness to pay less transmission and distribution losses. Willingness to pay of 12 US#/kWh was estimated on the basis of the weighted average cost of diesel-fuelled electricity located at consumers’ premises, with the weights being the average demand share by industrial and other users. Calculations were undertaken in 2008 prices.
79. The analysis did not take into account possible external effects ofjob creation. Although there may be positive effects, their impact on the project have been considered limited. The construction of the plant would provide jobs for 3,000 persons for thirty six months. Operation of the plant will yield net job creations of 1,000 and will improve the skills of EDEPC’s operational staff.
80. The analysis assessed the sensitivity of demand resulting from setting electricity prices at a higher level and implications upon the timing for building the Ain Sokhna plant. At higher prices, demand would be somewhat lower than the initial forecast used in EGEAS, deferring but not eliminating the need of additional investments in power supply capacity, particularly given a possible capacity constraint in 2010/2011, This is therefore not considered as a major risk for the Ain Sokhna plant, as it would only defer the plant’s construction for a short period.
81. The analysis also studied the impact of a decrease in residential consumers’ demand through a lower willingness to pay. The willingness to pay would have to drop from 12 US$IkWhto 7.3 US$IkWh for the ERR to drop to 10%.
Financial Analysis
82. The project will generate financial benefits to EEHC in the form of revenues stemming from the sale of the electricity generated by the new Ain Sokhna Power Plant, given current and planned tariff increases as well as the costs of building and operating the power plant. The analysis has been conducted in current terms based on net cash flows generated by the project over a 25-year period, and it shows that the project’s financial rate of return is 12%. The detailed analysis is presented in Annex 9.
PV 810% Financial Benefits $2,565,661 Revenue generated by Sokhna $2,565,66 1
Net Financial Benefit $320,480 Financial Rate of Return 12%
Financial Assessment of the Emptian Electricity Holding Company (EEHC)
21 Past and Current Performance of EEHC
83. EEHC’s revenues stem from the sale of electricity generated by its subsidiaries, the sales of electricity purchased from IPPs and the New and Renewable Energy Authority. Based on audited accounts for the past three years, the company has been profitable, mainly due to regular annual increases in electricity tariffs that resumed in 2004, after a 12-year period in which the retail price of electricity remained unchanged. EEHC’s revenues are estimated to increase by 18% in 2007/08; this growth is mainly attributed to the increases in the tariff (7.8% per year on average - higher than the originally planned 5% increase) and in the GWh of electricity sold due to increase in demand.
84. The rapid growing demand for electricity required large investments over the past few decades. These investments have been largely funded by borrowings. The company continues to face challenges in meeting its payables and debt obligations. Its collection performance has slightly deteriorated in 2007/08 to 86% (a 4% decrease) as a result of increases in several commodities such as utility bills, food and fuel. The company continues to make improvements in the collection of arrears from public entities, which is the consumer category that tends to have the highest outstanding payments.20
85. As a result of high investment needs, EEHC’s long-term debt is estimated to reach LE 43.9 billion (about US$8 billion) in 2007/08, of which the current portion reached LE 6.24 billion (US$1.1 billion). In addition, a large portion of the company’s current liabilities comprise of past due loan and interest payments owed to the Government and local banks. All together, current liabilities are estimated to reach LE 40.77 billion (US$7.4 billion) in 2007/08 against current assets of LE 25.24 billion (US$4.6 billion), resulting in a current ratio of 0.60 (Le., current assets measured as a portion of current liabilities) and a debt service coverage ratio of 1.48.
Future Financial Performance of EEHC
86. Projections to assess EEHC’s future financial position and performance have been carried out for the period 2008/09 - 2019/20. Assumptions are presented in Annex 9 with further details recorded in the project files.
87. In the base scenario, projections for future financial performance are based on the following key assumptions:
a. The natural gas price increases to 18.8 Pt/m3 in 2009 and subsequent annual increases of 9% are applied.21
20 According to EEHC, the collection rate ofpublic entities increased from 15% in 2005/06 to 70% in the first three quarters ofthe 2007/08 fmancial year. 21 There is an agreement between EEHC and E-Gas on annual increases of9% to the cost of natural gas. In addition, for the electricity generated for industrial consumers, there is a pass-through arrangement in place, in which EEHC collects the equivalent natural gas price of US$3 per mmbtu for the gas used to generate electricity to these consumers, and passes on the payment to E-Gas.
22 b. Annual increases to the electricity tariff of 7.5% on average for consumers as agreed by the Cabinet to improve financial performance. c. Restructuring of local debt into equity. d. Continued improvement in collection performance, reaching 95% by 201 1/20 12.
88. The implementation of the above ensures positive cash flow and a net profit for EEHC, enables the company to meet its current operating expenses and debt obligations, as well as for a gradual reduction in the levels of accounts payables. The company will also be able to finance up to 20% of its local investment needs from its own resources.
89. Introduction of energy conservation measures and a pilot on time-of-use tariffs, measures which are currently under discussion would further enhance EEHC's financial performance, reducing the overall annual increases in demand, which in turn would defer additional investment needs. In addition, potential settlements with the government of public arrears in the payment ofenergy charges and past due loan payments could accelerate the reduction in the level of accounts receivables and payables, further strengthening EEHC's balance sheet.
90. The end-of-project financial performance targets set for the El-Tebbin Power Project have been regularly monitored by the project team during supervision and are adequate for this proposed operation. These indicators are: (i)achieving a current ratio higher than or equal to 1; and (ii)maintaining a debt service coverage ratio higher than or equivalent to 1.4 by the end of the project.
B. Technical
91. The proposed Ain Sokhna power plant consists of two identical steam turbine units with a net rated capacity of 650MW per unit that are designed to generate rated capacity on either natural gas (primary fuel) or HFO (back-up fuel). A supercritical boiler will generate steam at 25 mega pascal (MPa) pressure and 565 degrees centigrade ("C) temperature and a re-heater will reheat the steam to 565°C. The advantage of supercritical technology is the higher temperature and pressure inside the boiler allowing for more energy to be converted into power, in turn increasing the overall efficiency of the power plant. The supercritical technology will help in: (i)increasing the plant's thermal efficiency by 2-3 %; (ii)saving 10% fuel; and (iii) reducing C02, S02, NO, and particulate emissions bylo%. While Egypt has decades of experience with the steam cycle using sub-critical technology, this plant will be the first to use a supercritical technology in Egypt (and in the region).22
92. This new technology requires large steam turbine units than the previously implemented 350 MW sized units in Egypt. As the first supercritical plant in the country, EEHC may be able to claim carbon credits for the Ain Sokhna Project and increase revenues by selling these credits in the market. It also can claim the plant as "CCS ready" (relying on the COz storage
22. The World Bank and IFC have supported supercritical technology in a number of countries, including the Waogaoqiao Project in China, and the Tata Mundra Project in India.
23 capacity of depleted off-shore oil fields), since C02 can be captured more cost-effectively by supercritical plants than by combined cycle gas turbine and subcritical plants.
93. The steam cycle technology with a super-critical boiler is being considered for the following reasons:
(a) Energy Security. When a power grid relies on a single technology (i.e., CCGTs) and a single fuel (Le., natural gas), the risk of power disruption increases. EEHC’s experience is that maintaining a balanced mix of technologies in generation facilitates operational flexibility and O&M cost control. EEHC tends to use combined cycle gas turbines (CCGT) as base load units,23given that in their experience, steam cycle (SC) has a superior record of cycling operation to follow the load curve. In addition, CCGT is more sensitive to ambient air temperature, Le., when ambient air temperatures reach a higher level, the output of the CCGT plants is reduced - which is a concern in Egypt where the reserve margin is already under pressure and the peak demand occurs in the very warm summer months.
SC units can use multiple fuels, such as gas, oil and coal with modification of boiler combustion systems, fuel and waste handling systems. Particularly in the current volatile oil market, many countries try to introduce internationally-traded coal as a back-up fuel. While coal can be used as a fuel in SC plants, in CCGT plants coal can only be used after it is gasified and forms an integrated coal gasification combined cycle plant. The integrated coal gasification combined cycle is still in its early stages of commercialization, while the supercritical technology has been proven in European, Japanese and US markets for decades. Finally, while CCGT and SC O&M costs are similar, the O&M cost of CCGTs increases significantly when a CCGT plant is used to follow the load (as opposed to serving base-load).
In the event that there would be a reduced supply of natural gas to the proposed power plant, it is most likely that in the short-term, it would have to operate on HFO. In order to assess the cost to EEHC and the environment, an analysis was carried out and shows that a 100% switch to HFO would incur a 20% increase in fuel cost, an increase of US$5 million every 5 years in O&M costs, and a 50% increase in C02 emissions. Furthermore, by using HFO, SO2 emissions would be in the order of 17,000 kg/hour, whereas there are very limited SO2 emissions when natural gas is used. However, this scenario is unlikely given that Egypt has strict environmental regulation that limits the use of HFO.
(b) Equipment Cost reduction trend through increasing competition in the international market. China is building many SC supercritical and ultra-supercritical coal-fired power plants, adding more than fifty supercritical units in 2007. As such, China has been able to develop a local manufacturing capacity of steam turbines and boilers, often through partnerships with Japanese and European suppliers of this technology. When the Chinese domestic demand slows down, which is expected now following increased demand associated with the 2008 Olympic Games, local Chinese manufacturers are likely to venture out ofthe Chinese market. They are already bidding for projects in India and Indonesia, and their participation is likely to result in a cool down of the heated market for supply of energy equipment. Given that the gas turbine market (especially large state-of-the-art gas turbine) is
23 The share of CCGT units in EEHC’s generation mix is 33.6%.
24 dominated by GE, Siemens, Mitsubishi and Alstom, it may take several more years for Chinese manufacturers to get into the state-of-the-art gas turbine market. Consequently, price reduction possibility of SC supercritical plants through the participation of Chinese manufacturers is higher than that of CCGT plants.
(c) Potential for making use of carbon capture and storage (CCS) technology. CCS technology is not currently used unless there is a good economic return from the sales of C02 for oil recovery; for example, the Weyburn project in Canada, where C02 from a coal gasification plant in North Dakota is purchased to enhance oil recovery in Canada. While CCS technology has been developed both for both gasification and once-through systems, C02 capture from exhaust natural gas of a CCGT plant is estimated to cost more, due to lower C02 concentrations in the exhaust gas. It is the Bank’s strategy to make sure that projects which could use the CCS technology are designed so that it could potentially be accommodated in the future. This means that (i)there is additional land around the plant which is deemed adequate to situate a capture installation; (ii)there is a reservoir or depleted gas field for storage within a 100 km radius or so; and (iii)there will be a right of passage to put the pipeline from the plant to the reservoidgas field. Ain Sokhna is considered as a CCS- ready plant for the future (when the CCS technology has been commercialized).
C. Fiduciary
94. Financial Management. A financial management (FM) assessment was carried out in the course of the preparation of the Ain Sokhna Power Plant Project. For that purpose, meetings with staff at EDEPC, the implementing entity, were held to obtain an understanding of the current applicable FM systems and to discuss and agree on the FM arrangements to be in place during project implementation. The findings of the FM assessment concluded that the current applicable FM systems can support the proposed project needs, although minor interventions will be required in order to enable the FM systems to adapt to the project needs. The overall FM risk was assessed as “Moderate” provided that the mitigating measures outlined in Annex 7 are carried out successfully.
95. Although EDEPC has experience in the operation and maintenance of existing power plants, the Ain Sokhna plant will be the first power plant to be constructed by EDEPC since its detachment from Middle Delta Electricity Company in April 2006. Therefore, arrangements have taken place, including visits during appraisal, for knowledge transfer to take place between the Cairo Electricity Production Company (CEPC) financial management staff, which are successfully supporting the El-Tebbin Power Project, and the EDEPC FM staff that will be in charge the Ain Sokhna project FM aspects. This included sharing information on the distribution of roles and responsibilities, the accounting system in place, as well as generated financial monitoring reports.
96. Within the PMU, a FMU will be established in order to undertake the FM responsibilities related to the project. The FMU will comprise of staff from the foreign exchange department, as well as staff from other financial departments in order to support the project (and future expansion projects).
25 97. With respect to accounting and reporting, EDEPC follows the Egyptian “unified accounting system” in preparing its financial statements and accordingly its systems are not designed to accommodate special purpose financial statements required for a Bank financed project. However, a simple automated accounting system that was internally developed is used to support the budgeting and reporting needs of EDEPC which may be adapted for this purpose. Agreements were reached with EDEPC to separately record and report on the project transactions using the existing automated accounting system. Periodic reporting on the project will be handled by the FMU. EDEPC will submit to the Bank semi-annual project financial statements, as well as annual financial statements audited by a private external auditor. In addition EEHC and EDEPC will submit to the Bank their respective annual financial statements audited by Egypt’s Central Auditing Organization given the local statutory requirements.
98. Procurement. Procurement of all contracts financed by the Loan will follow the Bank Procurement Guidelines. The procurement will be done using the Bank’s Standard Bidding Documents (SBD) for all ICB including the agreed modifications to accommodate the sequential opening of the technical and commercial envelopes. All packages financed by the Bank are subject to prior review. The packages not financed by the Bank will be procured in accordance with the guidelines of the corresponding financial institution (IFI) or the Egyptian law (for packages financed by the EDEPC own resources).
99. The EDEPC will be the Implementing Agency of the Project. A consulting firm will be acting as Management Contractor with the role of: (i)designing the installations; (ii)defining the number of packages for procurement under supply and install (single responsibility) contracts for the different parts of the plant; (iii)carrying out all procurement actions (with EDEPC signing the contracts); (iv) integrating and coordinating the different contractors working in the project site; and (v) overall project management on behalf of EDEPC. The Power Generation Engineering and Services Company (PGESCo) has been hired by EDEPC as Management Contractor for this project, financed by its own resources. PGESCo is a much respected consulting firm and has already performed this role in several power plants in Egypt.24 The Bank has had experience of working with PGESCO in the Tebbin Power Project where PGESCo has this same role.
100. An assessment of the capacity of the Implementing Agency to implement procurement actions for the project was carried out by the Bank on June 9,2008, updated in September 2008 and was finalized during appraisal. The assessment has reviewed the organizational structure for implementing the project and the interaction between the project’s staff responsible for procurement and the relevant unit for administration and finance.
101. EDEPC’s Project Implementation Unit will have one staff in charge of coordination, follow-up and reporting to the Bank on procurement actions; however, all procurement actions will be carried out by PGESCo. PGESCo has a procurement unit with twenty qualified
24 PGESCO was established and registered in Egypt in 1993 and is 40% owned by Bechtel International, 40% by Ministry of Electricity & Energy and 20% by a local bank. PGESCO services covered Sidi Krir Units I& I1 (650 MW), Sidi Krir Units 3 & 4 (BOOT 660 MW), Ayoun Moussa Units I& I1 (650 MW), Cairo North Combined Cycle I(750 MW) and I1 (750 MW), Nubaria Combined Cycle (1500 MW) and New Talkha Combined Cycle (750 MW),Kureimat Combined Cycle (750 MW) and El Tebbin (2x 350MW).
26 Procurement Specialists with strong knowledge of internationalrnank procurement, of which five will work full time for this project. The excellent performance of PGESCo in carrying out procurement actions for the El-Tebbin project is a recent confirmation of the quality and experience ofthis procurement team.
102. Today, the El-Tebbin Power Project is one of the best performing projects in the Egypt portfolio, and the implementation track-record of EEHC (with PGESCo’s support) has been proven. The overall project risk for procurement is assessed as Average.
D. Social
103. The proposed project falls under the World Bank environmental category A classification due to its size, location and potential environmental and social impacts. As such, an Environmental and Social Impact Assessment (ESIA) has been carried out. In the process of preparing the ESIA, extensive consultations with a variety of stakeholders were organized during March - August 2008. This included a scoping session convened on July 2, 2008, with 173 participants. This helped to define the scope of work, and focus on the most relevant environmental and social issues. A second consultation meeting with 105 participants was convened on August 6, 2008, announced in daily newspapers well in advance, along with invitations sent to all relevant stakeholders. Those consulted in the sessions expect the project to have significant positive social impacts as considerable additional local employment will be created. A more detailed description ofthese meetings as well as other consultation activities is presented Annexes A-D of the ESIA.
104. The Ain Sokhna power plant will be constructed on a site belonging to EEHC. The area in question is very dry with little or no vegetation. The site is located in an industrial zone and there are no existing residents or any economic activity taking place. All construction related activities will take place on this land. A labor camp will not be needed as the workers will be recruited locally and will commute by bus on a daily basis.
105. With regard to local livelihoods, the number of fishermen utilizing the waters near the proposed plant is estimated to be very few. Experience from other power plants along the Mediterranean indicates that the overall impacts on fisheries of slightly warmer water actually are positive. Consultations held with the fishermen also indicate that the catches in these areas have increased rather than decreased.
E. Environment
Project Environmental Classijkation
106. The project is classified as Category A, according to the World Bank’s Operation Policy on Environmental Assessment (OP 4.01). Therefore, a full Environmental and Social Impact Assessment (ESIA) report was prepared for the project by an independent Egyptian consulting firm (Engineering Consulting Group, ECG), following a Terms of Reference cleared by the World Bank. The ESIA includes an environmental and social management plan (ESMP), detailing institutional settings, mitigation measures, and monitoring plan for the potential impacts expected from the plant during the construction and operation phases.
27 Public Consultation and Disclosure of ESIA and RPF
107. To ensure that the views and interests of all project stakeholders are taken into account, public consultations were carried out according to the guidelines of the World Bank and the Egyptian Environmental Affairs Agency (EEAA). Major initiatives for stakeholder consultations included press advertisement describing the project and inviting interested parties to attend the public meetings and review the Draft Final ESIA and RPF Reports (published in Al-Ahram Newspaper -in Arabic- on Thursday 3 1'' July 2008); and distribution of an invitation and Arabic copy of the Non Technical Summary describing the context of the power plant, the technology employed, the impact on the environment, the mitigation measures and the ESMP. Two consultation meetings were held during the process of ESIARPF preparation. This included a scoping session on July 2, 2008, with 173 participants; and a second consultation meeting with 105 participants on August 6, 2008. A detailed description of these meetings as well as other consultation activities is presented Annexes A-D ofthe ESIA.
108. The ESIA and RPF were disclosed at the World Bank's Infoshop on September 11, 2008. In-country disclosure ofboth documents took place on September 14, 2008 in easily accessible places to the public, including EEAA, EEHC's Public Relations Department and EDEPC Public Relations Department.
Potential Environmental Impacts and their Mitigation
109. It is expected that the construction and operation activities of the power plant will have certain environmental impacts. During the construction phase, impacts are expected in the form of increased dust, noise, and vibration, etc. on land, along with the impact on the Gulf of Suez from construction of the intake and discharge structures on physical aquagraphy, water quality, and aquatic habitats. Furthermore, traffic impact may be expected to occur during a short period at peak construction in the form of increased congestion on the main roads to the power plant. All of these impacts are expected to be localized, short lived, and reversible. Mitigation measures are included in detail in the tables in Annex 10 of this document. All the mitigation, monitoring and management measures proposed will be adopted by the EDEPC and imposed as conditions of contract on the contractor and any sub-contractors employed to build or operate any part ofthe power plant.
110. During the operation phase, the main impacts can be summarized as follows:
Air aualitv from stack emission. The power plant will burn natural gas as its primary fuel. As a result, the principle pollutant during normal operation will be NO,. During emergency operation (and for no more than 2% of operating time), the burning of light fuel oil will result in emissions of particulate matter and SO2 along with trace amounts of other pollutants. Emissions from the plant will meet both Egyptian and World Bank Guidelines. Air quality dispersion modeling indicates that cumulative ground level concentration, taking into account surrounding industries, are within the World Bank and Egyptian standards. The ESMP recommended that an air quality monitoring system composed of 2 or 3 monitoring stations be utilized during operation.
28 0 Aquatic impact fiom cooling water withdrawal and discharge. Cooling water will be extracted at the rate of 36 m3/sec from the Gulf of Suez, and the heated plume will be then returned to the Gulf. The temperature ofthe returned cooling water at the point of discharge conforms to the Egyptian Standard, and the discharge as modeled satisfies the World Bank standard of a maximum increase of 3OC above ambient at the edge ofthe mixing zone (1 00 m from the point of discharge). In addition, the area affected by the highest temperature increases and therefore where aquatic ecology is likely to be most affected is localized. The aquatic habitats in this area have been found to already be relatively impoverished. Outside this area, more marginal increases in the Suez Gulf water temperature are likely to create new or improved habitats for flora and fauna.
0 Noise impact fiom the plant oDeration. The potential noise emissions from the plant during operation have been modeled to provide noise contours in the area around the site. The predicted operational noise levels at the site boundary and at all receptors are below the Egyptian and World Bank guidelines during both daytime and night-time.
0 The main potential impacts from the transmission lines include avian and aircraft hazards; induced effects from electromagnetic fields; vegetation damage, habitat loss, and invasion by exotic species along the ROW and access roads and around substation sites; and chemical contamination from chemical maintenance techniques. Proposed environmental mitigation measures include selecting the right of way (ROW) to'avoid important bird habitats, flight routes, and human activities; installing deflectors on lines in areas with potential for bird collisions; utilizing mechanical clearing techniques, grazing and/or selective chemical applications; selecting herbicides with minimal undesired effects; and maintaining naturally low-growing vegetation along ROW.
Environmental and Social Management Plan
1 1 1. Detailed tables summarizing the ESMP are included in Annex 10 on Safeguards Policy Issues. Institutionally, the ESMP delineates the roles and responsibilities for implementing the ESMP during construction and operation. Suitably qualified and experienced contractors will be responsible for the detailed design and construction of the power plant. Construction workers will be required to demonstrate appropriate skills, qualifications and/or experience prior to employment. During construction, the Project Management Unit/Environmental Management Staff (will include 3-4 staff members, with Bachelor of Science degrees and/or 5 years high technical education) and the Assistant Plant Manager in collaboration with the Site Manager will ensure that all contracts with Contractors and sub-contractors stipulate all construction management measures (as given in the ESMP), operational design criteria and environment, health and safety standards which must be implemented at the project site. Implementation of these measures will be enforced by PMU/EMS and the Assistant Plant Manager and supervised by the Assistant Plant Manager, supported by EDEPC Project Manager in collaboration with the Site Manager, who will have direct responsibility for the Environment, Safety and Quality Assurance program on site during construction and operation. The Assistant Plant Manager is responsible for ensuring that construction works comply with the requirements ofthe ESMP and all environmental permits.
29 112. During operation, direct responsibility for environmental compliance and the implementation of the mitigation, management and monitoring measures will continue to be with the Plant Environmental Staff under direct supervision of the Assistant Plant Manager. This position will report directly to the ChairmadGeneral Manager of EDEPC. The Assistant Plant Manager will be based at the site and will be responsible for recruiting, training and managing his staff. She will be responsible for implementing the mitigation and management measures described above and for monitoring and record keeping of key environmental issues. In this role, the Assistant Plant Manager will also be responsible for maintaining any pollution control equipment and for developing and implementing procedures for safe handling and storage of any hazardous materials used on site.
113. The Assistant Plant Manager will also be responsible for maintaining a written Environmental Register with respect to environmental impacts as required under Egyptian guidelines. The written records will identify the characteristics of discharges and emissions, details of periodic testing including results, procedures for follow-up environmental safety actions and the persons in charge of this follow-up. Should any prescribed standards be breached, the PMU/EMS, through the Assistant Plant Manager, will immediately inform the EEAA and disclose the procedures being taken to rectify non-conformity.
114. In addition, the project company must keep a record of any significant environmental incidents occurring at the plant including accidents and occupational illnesses, spills, fires and other emergencies. The Assistant Plant Manager will be responsible for ensuing that these records are maintained up to date and are available on site. The Assistant Plant Manager will supervise and lead the Environmental Department (ED) and the Environmental Management Staff (EMS) directed by the ED.
Cost of ESMP Implementation
115. The cost of ESMP implementation is estimated at US$1.85 million, which covers mitigation measures during the construction and operational phases, institutional aspects and training, and the monitoring program. The source of the ESMP implementation budget is EDEPC own resources, with possible contribution from the Arab Funds for the pre- commissioning monitoring equipment, as shown in the following table.
30 Cost in US$ '000 Source of No. Phase of Implementation Measures Monitoring Funding 1 Construction Phase 120 EDEPC Pre-commissioning 1,325 EDEPC Monitoring (ambient air (with possible quality monitoring equipment) support from the Arab Funds) All others 138 EDEPC - Training 155 EDEPC 2 Operation Phase 70 20 EDEPC Training 20 EDEPC
Sub.Tota1 I 190 1,658 I
Environmental Capacity Building
116. The Project Company will ensure that the power plant is manned 24 hours a day, 7 days per week. All staff employed at the plant will be trained in the following areas: general operation of the power plant; specific job roles and procedures; occupational health and safety; and contingency plans and emergency procedures. Training will include induction training on appointment; specialist training (as required for their prescribed job role); and refresher training as required.
117. In addition to this environmental training for all staff employed at the plant, special environmental training will be given to the environmental staff. They will receive training in the day-to-day monitoring activities; monitoring the stack emissions; collection and analysis of air quality data; monitoring the water effluents; collection and analysis of water quality information; use of monitoring equipment, operation and maintenance; industrial hygiene; occupational health and safety; and emergency and contingency procedures.
Safeguard Policies Triggered by the Project Yes No Environmental Assessment (OP/BP 4.0 1) [JI [I Natural Habitats (OP/BP 4.04) [I E41 Pest Management (OP 4.09) [I [JI Physical Cultural Resources (OP/BP 4.1 1) [I [JI Involuntary Resettlement (OP/BP 4.12) [JI [I Indigenous Peoples (OP/BP 4.10) [I [JI Forests (OP/BP 4.36) El [JI Safety of Dams (OP/BP 4.37) [I 141 Projects in Disputed Areas (OP/BP 7.60)* [I [JI Projects on International Waterways (OP/BP 7.50) [I [JI
' By supporting the proposedproject, the Bank does not intend to prejudice the final determination of the parties' claims on the disputed areas
31 118. Involuntary Resettlement (OP/BP 4.12). Associated with the Ain Sokhna power plant, there are about 130 kilometers of proposed new transmission lines. Most of the routing pathways are located in uninhabited, desert land which is state owned. However, the Operational Policy on Involuntary Resettlement (OP/BP 4.12) is triggered, because the exact location of all the sections of the transmission line is not yet known. The areas in question are largely uninhabited public land; however, in order to handle any potential future changes, a Resettlement Policy Framework (RPF) was prepared.
119. The key purpose of the RPF is to establish resettlement objectives and principles as well as organizational arrangements and funding mechanisms for any resettlement operation that may be necessary during the implementation of the project. If during implementation any land acquisition becomes necessary, a Resettlement Action Plan (RAP) or abbreviated RAP - depending on the scale and severity of impacts - will be prepared. The resettlementkind acquisition process should be completed prior to the start of physical works.
120. In the event the RPF needs to be applied: all project-affected people will be compensated for their losses at replacement cost with a view to improving or at least maintaining pre-project living standards and income earning capacity. The funding for the compensation, if any is needed, will be financed by the EEHC and their concerned affiliate companies.
F. Policy Exceptions and Readiness
12 1. Not applicable.
32 Annex 1: Country and Sector or Program Background EGYPT, ARAB REPUBLIC OF: Ain Sokhna Power Project
Country Issues: 1. Egypt’s economy is continuing its positive growth trend, with a GDP growth of 7.7% in the first half of FY06/07.25 The growth is the result of the Government’s efforts started in 2004 to stimulate foreign and domestic investment. This effort resulted in an increase in FDI to US$3.9 billion in 2004/05, US$l1.1 billion in FY05/06 and has reached US$7.8 billion in the first half of 2007/08.26 Large-scale development and export of its natural gas resources, including construction of liquefied natural gas (LNG) facilities as well as high international oil prices, have contributed significantly to economic growth in Egypt.
Energy Sector Issues: 2. Egypt began exports of LNG in January 2005, and soon after that commenced exports of piped natural gas, through the Arab Gas Pipeline, initially to Jordan. Recently, Egyptian piped natural gas also started flowing to Syria, via Jordan. Despite the large increase in hydrocarbon and other energy resource prices, cost of energy products in Egypt continues to be largely subsidized, this subsidy has reached 43 Billion LE (US$8.1 billion) in FY06/07 (or 6.4% of GDP).
3. The energy base of Egypt has more than doubled since the early 1980s to reach 73.3 million tons of oil equivalent (MToE) in FY06/07 of which local consumption has reached 54.7 MToE (75%). This expansion is expected to continue. Egypt is aggressively shifting to natural gas in thermal electricity generation (80% of power produced uses natural gas), industry and for domestic consumption, as a result of major gas discoveries in recent years. Energy and water are two of the most vital issues in this country.
4. As a result of declines in oil production, Egypt has become an oil importer.
Oil and Natural Gas in Egypt
Natural Gas I
34
Source. International knergy Agencq (2005)
5. The transportation sector is the largest energy consumer with 27.1% followed by the industrial and electricity sectors with 20.7% and 15.7% respectively. Egypt’s gas production in
25 Source: Egypt: Briefing on the recent wages and subsidies increase and offsetting budgetary measures, June, 2008, MoF 26 Source: www.investment.gov.edMO1 Portal.
33 FY06/07 was 41 million tons of oil equivalent, up from 23 million tons in FY01/02. Domestic gas consumption rose from 19 million tons/year in fiscal FYO1/02 to 26.6 million tondyear in fiscal FY06/07, with the electric power sector accounting for 63% of the total.
Energy institutional structure and pricing:
6. Egypt’s energy sector falls under the responsibility of two Ministries, namely (i)the Ministry of Petroleum (MOP), and, (ii)the Ministry of Electricity and Energy (MOEE). The MOP is responsible for exploration, production, refining, transportation and marketing of oil and natural gas. The MOEE is responsible for electricity generation, transmission and distribution through 6 generation companies, one transmission company and 9 distribution companies organized under a holding company structure and company (the Egyptian Electricity Holding Company, see more below). In addition to these two ministries, the Transportation, Water Resources and Irrigation, Trade and Industry and Environmental Affairs (MOSEA) ministries are also involved in setting policies for the sector. Furthermore, the Egyptian Electric Utilities and Consumer Protection Regulatory Agency (EEUCPRA) regulates activities in the electricity sub- sector and the Egyptian Environmental Affairs Agency (EEAA) handles issues related to environmental protection, including issuing permits to construct power plant and associated infrastructure based on environmental impact assessments (Law 4/1994). Finally, in 2006, the Prime Minister issued Decree No. 1395 for the formation of the Supreme Council for Energy to oversee the various policies and strategies of the sector.
7. In August 2007, the Egyptian government announced a 3 year plan to remove subsidies from Gas and electricity tariffs for energy-intensive industries (targeting specifically the steel, cement, aluminum and fertilizer companies). The in June 2008, this plan was accelerated for the increases to be implemented with immediate effect at the following prices: 20.2 Pt/kWh (3.8US$/kWh), 24.5 Pt/kWh (4.6US$/kWh) and 33.4 Pt/kWh (6.3US$/kWh) for UH, HV and medium voltage respectively. For other industrial consumers (e.g., engineering, food, textile and pharmaceutical sectors), the energy prices will increase to 17.8 Pt/kWh (3.35US$/kWh), 21.6 Pt/kWh (4.08US$/kWh) and 29 Pt/kWh(S,47US$/kWh) for the UHV, HV and medium voltage respectively over a three year period.
8. For natural gas, the price to the energy-intensive firms will increase to US$3/mmbtu, while for other industries the increase will be US$2.65/mmbtu.
Electricity sector structure: 9. In early 2000, the Egyptian Electricity Authority (EEA) was transformed into the Egyptian Electricity Holding Company (EEHC) under the ownership of the Ministry of finance. EEHC was restructured into 16 affiliated companies, including 6 generation, one transmission and 9 distribution companies and still operating within a single buyer model. All companies remain state owned under EEHC, although the forthcoming law envisages and allows for a sale of up to 49%. Indeed, the new law aims at encouraging the private sector to invest in generation and distribution projects. It will also establish the regulatory agency as the entity for tariff approvals and monitoring the performance of service providers. The law furthermore paves the way for the creation of a competitive electricity market, development of renewable energy, and encouraging the private sector’s involvement in renewable energy through competitive bids and feed-in tariffs. The law will also re-enforce the use of the renewable energy fund and provide
34 mechanisms to encourage co-generation and other EE measures. The electricity sector is under discussion in the Cabinet and aims to be presented to the Parliament for ratification during its next session (from November 2008 to June 2009).
10. EEHC plays a strong role in coordinating the plans and investments in the sector, and also manages the sectoral finances. To manage overall cash-flow, EEHC relies on cross- subsidies between the affiliated companies to achieve a levelized return on equity. Each company operates as a commercial entity with a management team, board, and a balance sheet. The EEHC board selects senior management for the affiliated companies. Therefore, to date several levels ofunbundling has taken place with the exception ofownership unbundling.
11. The EEUCPRA approves regulations under which the companies operate as well as issues and renews licenses. To date, given that the scope of sector regulation activities is limited, it also monitors the companies' performance through financial and technical benchmarking.
Electricity sector issues and strategies: 12. The electricity sector is facing a number of challenges and constraints in securing the electricity demand for Egypt in the coming decade. The most pressing issues include the having sufficient base and peak load capacity, ensuring the availability of natural gas for power production (at price levels that can be absorbed by the retail electricity tariff), succeeding with the ambitious renewable energy, as well as other energy efficiency measures and continuing the path oftariff and subsidy reform.
13. In response to the rapid electricity demand, EEHC has developed a least-cost generation expansion plan. This plan has two phases: a fast track phase (2002-07) and medium-term phase (2007-12), during which 4,500 MW and 7,375 MW of capacity have been and are being installed respectively. Financing for the medium-term phase is completed. The Ain-Sokhna power plant is part ofthe 20 12- 17 planning cycle.
14. To complement the implementation of conventional power projects, Egypt is working very hard to develop its renewable energy (RE) resources, including hydro, wind and solar. Hydro-electric power capacity has been almost fully explored with an installed capacity of 2,780 MW and annual energy production of about 12,650 GWh. Wind and solar energy are in the early stages of exploration and utilization. In April 2007, the Supreme Council for Energy adopted an ambitious plan which aims at having 20% of the country's installed capacity in the form of RE by 2020. Notably, over 10% of this is expected to come from wind energy, which translates into about 7,200 mega watts (MW) of grid- connected wind farms. The development of this at such a large-scale is being designed based, on a private-sector led strategy, of which the World Bank is providing technical assistance.
15. The New and Renewable Energy Authority (NREA), established in 1983, is the main agency for promoting RE technologies. At present, wind and solar energy projects are at the core ofNREA's current and future plans. A Wind Atlas for the entire country was issued in 2005 indicating about 20,000MW of wind potential in the Gulf of Suez area. A series of large-scale wind energy projects were constructed with a current operational capacity of 225 MW connected to the national grid. Egypt is also implementing its first solar thermal power plant of 140MW (solar share of20MW) south of Cairo, planned to be operational by 2010.
35 16. In 2007, the President of Egypt announced that nuclear power will become an integrated part of the local energy production system, with multiple new nuclear plants to be built. The first being 1,000 MW by 2017, and another comprising 4,000 MW by 2027. The nuclear plants are envisaged to be constructed using local expertise in cooperation with foreign partners. Legislative and structural modifications to the sector structure are also envisaged to implement the nuclear generation plan. A Supreme Council for peaceful uses of Nuclear Energy was given an additional role in setting policies and approving nuclear energy projects by a presidential decree. An RFP was issued by the Nuclear Power Plant Authority (NPPA) in early 2008 for consultants to review and update previous data prepared 25 years ago for the Dabaa site and to prepare the tender for the first plant.
36 Annex 2: Major Related Projects Financed by the Bank and/or other Agencies EGYPT, ARAB REPUBLIC OF: Ain Sokhna Power Project
Sector Issues Project PDO Rating
Private Sector Power Port Said and Suez East (IFC) Kureimat Power Project (World Bank U I 1992) Power Generation El-Tebbin Power Project (World Bank 12005) El Kureimat Power Project (AfDB) Walidia Thermal Power Station (JBIC) Power Development Abou-Zaabal Substation (JBIC) Sidi Krir Transmission and Substation Project (JBIC) Solar-Thermal Power Project (GEF) S KfW-sponsored Wind Farm Clean Energy Development Danida-sponsored Wind Farm JBIC-sponsored Wind Farm I Spanish-sponsored Wind Farm I Gas Investment Project (World Bank 1992) I S Gas Sector Natural Gas Connections Project (World S Bank 2008)
37 Annex 3: Results Framework and Monitoring EGYPT, ARAB REPUBLIC OF: Ain Sokhna Power Project
Results Framework
PDO Project Outcome Indicators
Support GOE in ensuring Annual increase of 6 GWh on continuous energy supply to meet average in the electricity sold to demand in a sustainable manner consumers (Le., additional 1,300 MW of generation capacity) with the construction of the Ain Improve the sector’s financial Sokhna Power Plant sustainability. Electricity tariff structure is adjusted to reflect prices that are better aligned with its long-run- marginal-cost and aim at reducing demand in peak periods.
Int utcom Intermediate Outcome Use of Intermediate Indicators Outcome Monitoring
Investment in new generation Construction of Ain Sokhna capacity. Power Plant is completed.
Technical assistance to improve EEHC improves current and Further reviews of actual EEHC the sector’s financial debt-service coverage ratios. financial statements during sustainability project implementation will highlight areas in need of further improvement
A pilot on Time of use tariffs Lessons learned from the pilot on (ToU) is implemented. ToU tariffs are incorporated in a larger ToU program.
38 1-1 I
as
II I Annex 4: Detailed Project Description EGYPT, ARAB REPUBLIC OF: Ain Sokhna Power Project
The Ain Sokhna Power Plant
1. The proposed Ain Sokhna steam power plant will be comprised of two identical units, each with a net rated capacity of650MW, fired by natural gas as main fuel and residual oil (mazout) as emergency fuel. Each unit has one steam generator, one turbo-set, one condensing plant with condensate pumps, condensate treatment plant and storage tank as well as one feed- water heating system. The following components are part of the new power plant:
2. Two units of 650A4Wsteam turbine generators - Each unit has a tandem compound, four flow, single reheat turbine generator, designed to operate at 3000 rpm. The unit nominal rating is based on steam conditions of 250 bar and 565°C at the turbine inlet and 565°C at the reheat inlet, exhausting at 0.07 bar. Expected unit output is approximately 650MW.
3. The turbines will operate at three stages, one high pressure stage, one intermediate pressure and in the end, at two low pressure stages. Included with the turbine-generator are the gland steam sealing, lubricating oil, lubricating oil conditioning and the electro-hydraulic fluid systems. The generator hydrogen seal oil unit, stator cooling system, voltage regulation system and generator leads cooler are also included. The generator output is 3 phase 50 Hz, 20kV, 0.85 power factor lag. The turbine system will comprise of a condenser, condenser vacuum systems, feed-water heaters, lubricating oil tanks.
4. Two units of supercritical steam generators (boilers) - The steam generator will be supercritical type, base load unit where primary fuel is natural gas, with mazout as a back up fuel. The supercritical boiler is designed to generate steam at 250 bar and 565°C at the super- heater outlet and the re-heater will reheat steam to 565°C. The steam flow rate will be 550kg/sec. The dual fuel boiler is natural or forced circulation, pressurized furnace design and is arranged to be fired with either natural or mazout (residual oil). Natural gas or solar is used for ignition. Steam soot-blowing will be utilized for back pass cleaning. A furnace flue gas recirculation system is provided with each unit to control the heat absorption pattern of the boiler under varying conditions. The boiler system includes air heaters, forced draft fans, mazout tanks, gas and oil burners and ducts.
5. Electrical eauiument including transformers and switchyard. - The main generation system will generate power from the turbine generator and transmit the power through an isolated phase bus and a main step-up transformer to the switchyard.
6. Auxiliary mechanical equipment - This includes the auxiliary boiler, condensate treatment as well as the cooling water system. A single, common auxiliary boiler will be provided to supply steam for startup of the plant. It will also provide steam for fuel tank heating system when steam is unavailable from the main boilers. The auxiliary boiler will be sized to provide approximately 45,000 kg/hr ofsteam at 12-15 bar and 250°C.
40 7. The condensate treatment plant removes suspended matter from the turbine condensate to prevent the formation of deposits in the boiler system, to prevent corrosion. This plant will consist of a condensate cleaning system and a polishing system.
8. The circulating water system for each unit provides cooling water for the removal of heat from the main condenser and rejection of the heat to a heat sink under conditions of power plant loading. The quantity of cooling water for each unit is 23m3/sec. The system will be designed to limit the temperature rise across the main condenser to 8°C by supplying sufficient cooling water for the heat rejected by the turbine cycle at 5% overpressure operation.
9. Water and wastewater treatment and desalination - The water supply system will include service water system, make-up water system, auxiliary systems and laboratory equipment. For the water intake of circulating water, significant scale of civil work is expected due to the shallow water at the Ain Sokhna site.
10. The wastewater treatment system consists of (a) lined equalization ponds, (b) an oillwater separator for removal of floating oil from floor and equipment drainage prior to the equalization pond, (c) chemical feed systems including acid, caustic and polymer, (d) a sludge dewatering system for concentrating the underflow from the clarifier system and (e) a clarifier system for precipitation ofthe suspended solids and metal hydroxides from the equalization pond discharge.
11. The plant makeup water will be provided from the desalination plant such that the de- mineralized feedwater will be distillate upstream ofthe re-mineralization plant.
12. Implementation of the Environmental and Social Management Plan - The environmental and social management plan will include institutional, mitigation and monitoring arrangements as well as the monitoring equipment. The environmental monitoring equipment will measure all required environmental conditions, such as the ambient air, water and noise level at specific monitoring stations.
13. Distributed control svstems and instrumentation - The two-unit station arrangement includes a completely enclosed control room complex and turbine building and open door boiler. There will be one emergency diesel generator, approximately 750kW capacity, located in a building adjacent to the control building to provide the plant with emergency power. This power is provided for safe shutdown and communications, emergency lighting, circuit breaker controls, battery and chargers and shutdown cooling equipment.
14. Engineering and project management services - This includes the preparation of the detailed designs, bidding documents, bid evaluation, preparation of contracts, coordination and interfacing between contractors, supervision and construction of works, commissioning, start-up and the taking over ofthe plant.
15. Civil works, vard tanks and switchgear - This includes mazout (heavy fuel oil or residual oil) tanks and pumps, hydrogen, nitrogen and bulk C02 storage, fire water pump house and tanks, natural gas metering and pressure reducing station, maintenance shop tools and equipment, commissioning and operating of spare parts, as well as guardhouse and site boundary wall. The main fuel oil unloading and storage system consists of (a) two unloading pumps, (b) two fuel oil storage tanks, and (c) bottom heaters for storage tanks.
41 16. Substations and transmission lines - For evacuation of the power generated, the following scope of work is tentatively included in the project to interconnect the power plant to the 500-220kW network by constructing new El-Sokhna, although it is still to be finalized:
a. 500kV - Opening the existing single circuit 500kV 0. H. T. L Abu ZableISuez 500 and extending it with a length of about 2x 50km id out of Sokhna Power station. Replacement of the existing 220kV double circuit OHTL Suez Gulf Power Station - Extsadia and Suez Gulf - EZZ Steel by 4x 220kV double circuits under ground cables and connect them to the switching station proposed near the site of Ektsadia 220 substation, in order to find right of way to the 500kV OHTL required to evacuate the new generated power of Ain Sokhna power station to the 500/220kV national grid.
b. 220kV - Construction of new switching station near the site of Ektsadia 220 substation. Construction of four circuits under ground cables (XLPE1 X 1200 mm2) with length of about 2 km from Sokhna to the switch station. Opening the existing double circuit OHTL KatamiaKement Masria and extending it with a length of about 2x 40 km in/out of the switch station.
17. Insurance - Includes wrap-up insurance during construction, start-up, testing and commissioning phases.
Technical Assistance to the Energy Sector in Egypt
18. The Bank’s engagement at the policy level has become substantial partly as a result of its investment support. In addition to an active policy dialogue across the Ministries of Finance, Energy and Electricity, Petroleum, Investment, Industry and Trade as well as Social Solidarity on energy matters, the Bank is assisting the Government with the following important activities:
19. Enerav Pricing (US$900,000 funded by ESA4AP and BB) - This ESMAP-funded study which has been fully contracted to a consulting firrn and the funds fully committed will recommend an energy pricing strategy that ensures price levels are not only reflective of the underlying economic costs, but also consider financial, equity and fiscal implications. The study will also recommend measures to carefully and effectively manage the potential negative impacts of subsidy removal on the economy as a whole, and on vulnerable consumers in particular. This includes training and dissemination.
20. Framework and Risk Allocation Mechanism for Private Sector Engagement (US$75,000 fiom PPIAF) - Under this task, assistance is being provided to the regulatory agency in:
a. Providing an assessment of what has worked well and not so well in recent international experience in PPP in the power sector with case studies on their impact and lesson learned; b. Reviewing the Government’s current expansion plan in the power sector as well as the current and future market design plan and identify how PPP could fit into this plan;
42 c. Preparing an appropriate risk allocation matrix for the public and private sectors across the sector segments and key risks; and d. Assisting in dissemination ofrecommendations in two Roundtables (see below) with key stakeholders.
2 1. Development of a Commercial Wind Framework (US$500,000; of which a grant in the amount of US$75,000 has already been used to hire two consultants and another US$425,000 is currently being sought from PPIAF to further advance the development plans and bidding documents) - Under this activity, assistance is being provided to the Government to:
a. Review the current wind development plans and assess its technical feasibility, including impact on the national grid. Recommend additional studies necessary (e.g., additional investments in the power generation system, transmission). b. Become familiar with the proposed approach that the GoE wants to take in terms of implementation of a commercial wind framework involving the private sector. Review the draft electricity law and any other relevant laws (e.g., investment law, PPP law under preparation) to identify whether any adjustments need to be made to support the Government’s plan c. Understand the current pricing practice in Egypt, and assess the level of competitiveness, or lack thereof, for wind projects. Identify the key factors that would make wind projects least-cost. d. Develop a financing plan for the wind development program and targets. e. Develop a commercial bidding framework, including a first set ofbidding documents that can be used to attract the private sector. f. Identify and recommend measures and actions to strengthen enhance and expand local manufacturing for wind generation components to increase local contribution to wind development plan. g. Identify and recommend necessary government incentives that can facilitate and be necessary to realize the plans.
22. During the implementation of the proposed project, technical assistance support is envisaged for continued studies and policy support, including rapid response support to EEHC in the: (i)implementation of a pilot time-of-use tariff program,28 (ii)further tariff adjustment and recommendations from the above-mentioned energy pricing strategy work, and (iii)development of a national energy conservation plan and implementation of energy-efficient lighting through the distribution companies (US$200,000). Based on the successful technical assistance implemented in the electricity renewable energy and natural gas sectors since 2004, an annual programmatic Bank budget of US$250,000 a year for the next three years has been allocated to enable continued rapid-response assistance and support.
28 This work follows the recently completed ESMAP-fundedstudy: “Egypt - Development of a Load Management Program and Design of Time of Use/Seasonal Pricing” - undertaken by Economic Consulting Associates Ltd.
43 44 Annex 5: Project Costs EGYPT, ARAB REPUBLIC OF: Ain Sokhna Power Project
Local Foreign Total Project Cost By Component and/or Activity US $million US $million US $million
Power Plant 664.90 1,472.50 2,137.60 Environmental Management Plan 1.oo 1.oo 2.00
Total Baseline Cost 665.90 1,473.50 2,139.60 Physical Contingencies 23.20 10.70 33.90 Price Contingencies 13.00 3.50 16.30 Total Project Costs’29 702.10 1,487.70 2,189.80 Total Financing Required 1,487.70 1,487.70
In addition, programmatic technical assistance for the energy sector will be made available to EEHC and the Ministry of Energy to assist them with implementation of planned reforms.
29 Identifiable taxes and duties are US$l83 million, and the total project cost, net of taxes, is US$2,006 million. Therefore, the share of project cost net of taxes is 91.6%.
45 Annex 6: Implementation Arrangements EGYPT, ARAB REPUBLIC OF: Ain Sokhna Power Project
1. The project will be implemented between May 31, 2009 and June 30, 2015. December 3 1, 2015 is the Loan’s scheduled closing date. EDEPC, an affiliate of EEHC, will be responsible for implementing the project.
2. In terms of lending arrangements and flow of funds, there will be a Loan Agreement between the Bank and the GOE (Ministry of Foreign Affairs), and a Project Agreement between the Bank and EEHC. By virtue of a Subsidiary Loan Agreement between the GOE and the EEHC, the GOE will on-lend the Bank Loan proceeds funds to EEHC.
3. To clarify the respective roles and responsibilities of EEHC and EDEPC in project implementation, a Contractual Agreement (CA) will be entered into by EEHC and EDEPC. This CA, which should be reviewed and accepted by the Bank, will detail procurement and payment processes and other responsibilities for implementing the project’s different activities. This will allow EDEPC to sign contracts with the winning bidders. Also, the CA will allow EDEPC to issue withdrawal applications to the Bank and make direct payments to the contractors on behalf ofEEHC, who will be holding the funds.
4. As with all other projects of this nature implemented by generation affiliates in EEHC, a Project Management Unit (PMU) will be established at the Ain Sokhna project site to supervise, coordinate and monitor overall implementation of the project. The composition of the PMU staffing will include a qualified Project Manager, who will head the unit, 2-3 Engineers, a Procurement Coordinator, and an Environmental Specialist. The PMU will be assisted by an engineering firm, which will assist in the design, engineering and procurement process, as well as in the construction supervision.
5. In addition, within the PMU, a Financial Management Unit (FMU) will be established at EDEPC’s main office to better integrate with the other departments in EDEPC’s financial sector such as investment audit, planning, treasury, etc. The key functions of the FMU will be to have overall responsibility for the project’s financial recording, budgeting, reporting requirements, and handling the loan disbursement arrangements including relevant supporting documentation. The FMU will comprise an FMU Manager, three Accountants and a Project Accountant, who will be located at the project site and will ensure smooth coordination between the remainder of the PMU and the FMU. In accordance with the aforementioned CA between EEHC and EDEPC, the PMU will coordinate and supervise project implementation to carry out the project’s components.
6. Weekly meetings will be held in EDEPC’s main office, chaired by EDEPC’s chairman, with Project Managers of all on-going projects in EDEPC to review progress and identify any issues and potential problems. In addition, each Project Manager will report progress and address day-to-day issues as needed to the Sector head dealing with projects in EDEPC. The project’s mid-term review is planned for September 15,2013.
46 Y # a
I .-2 G d E .-0 c., 2 .-c.,v) e
U'2 d 4 I .-m U E m E iz L Lo L 0 L) 9 Em i u 2 W w 7 Annex 7: Financial Management and Disbursement Arrangements EGYPT, ARAB REPUBLIC OF: Ain Sokhna Power Project
Executive Summarv and Conclusions:
1. A financial management (FM) assessment was carried out in the course of the preparation of the Ain Sokhna Power Plant Project. For that purpose, meetings with staff at EDEPC, the implementing entity, were held to obtain an understanding of the current applicable FM systems and to discuss and agree on the FM arrangements to be in place during project implementation. The findings of the FM assessment concluded that the current applicable FM systems can support the proposed project needs, although minor interventions will be required in order to enable the FM systems to adapt to the project needs. The overall FM risk was assessed as “Moderate” provided that the mitigating measures outlined in Annex 7 are carried out successfully.
2. Although EDEPC has experience in the operation and maintenance of existing power plants, the Ain Sokhna plant will be the first power plant to be constructed by EDEPC since its detachment from Middle Delta Electricity Company in April 2006. Therefore, arrangements have taken place for knowledge transfer to take place between the Cairo Electricity Production Company (CEPC) financial management staff, which are successfully supporting the El-Tebbin Power Project, and the EDEPC FM staff that will be in charge the Ain Sokhna project FM aspects. This included sharing information on the distribution of roles and responsibilities, the accounting system in place, as well as generated financial monitoring reports.
3. Within the PMU, a FMU will be established in order to undertake the FM responsibilities related to the project. The FMU will comprise of staff from the foreign exchange department, as well as staff from other financial departments in order to support the project (and future expansion projects).
4. With respect to accounting and reporting, EDEPC follows the Egyptian “unified accounting system” in preparing its financial statements and accordingly its systems are not designed to accommodate special purpose financial statements required for a Bank financed project. However, a simple automated accounting system that was internally developed is used to support the budgeting and reporting needs of EDEPC which may be adapted for this purpose. Agreements were reached with EDEPC to separately record and report on the project transactions using the existing automated accounting system. Periodic reporting on the project will be handled by the FMU. EDEPC will submit to the Bank semi-annual project financial statements, as well as annual financial statements audited by a private external auditor. In addition EEHC and EDEPC will submit to the Bank their respective annual financial statements audited by Egypt’s Central Auditing Organization given the local statutory requirements.
5. Finally the high investment cost required for the establishment of the power plan poses a risk of delayed implementation caused by insufficient readily available financing. For that purpose, EDEPC has prepared detailed investment budgets for the project with identified multiple sources of financing and a clear timeline. The realization of such plan is definitely crucial for the timely and successful implementation ofthe project.
48 Risk Assessment Summarv
Inherent Risks:
I Country level: I I I I I I I - A ministerial decree was issued in July I 2006 requiring all companies, including Lack of compliance with IFRS SOEs to adopt the new Egyptian and ISA when preparing and Accounting Standards which are aligned auditing the financial statements with IFRS with few exceptions. of state owned enterprises (EEHC Substantial Moderate The Bank will communicate its audit and EDEPC). - policy and guidelines to the Central Auditing Organization (CAO) prior to the audit of the first fiscal period of the I moiect. Entity level: EDEPC FM staff was introduced to the El-TebbinProject financial management Limited experience with fill unit to allow for knowledge transfer in power plants construction projects preparation for the project. During Substantial Moderate can result in implementation appraisal, additional visits were bottlenecks. conducted between the EDEPC FM team and the Tebbin FM team to transfer knowledge. I Project level I
I TI.---,.:-,.+ The separate reporting on the project 1 IIG plWJGC.1 "--?cia1lllldl information related financial information was is not readily separaoie" 1':hrough Substantial discussed and reporting formats were Moderate the Egyptian Unified Ac :counting agreed with EDEPC financial affairs
Control Risks:
Timely availability- of project-- financing can be an issue given 1 with estimated costs and implementation timeiine. High Substantial the huge investment cost and the -Agreements with several financing sources are potential price increases. being pursued to provide sufficient flexibility. The current structure of the FA The Project FM unit under establishment at the sector does not provide a focal foreign exchange department will be entrusted point to oversee the overall Substantial with managing the project FM functions and Moderate project financials and to liaise generating timely reports. with the financiers.
49 Risk before Risk
The lack of documented FM financial and accounting policies and procedures policies and procedures can result to provide guidance on all project FM issues in unclear roles and Substantial (accounting treatments, eligibility of expenditures, Moderate responsibilities that may delay foreign exchange valuation, authorization and the project implementation. payments system, etc).
Interim arrangements exist through the internally Availability oftimely and - developed accounting information system. - An integrated software solution is also under implementation.
Oversight and Accountability:
6. The “financial affairs” (FA) sector of EDEPC will have the ultimate responsibility for the project FM responsibilities. The FA sector is comprised ofthe following departments:
- Audit. - Accounting and Budget. - Costing and Warehouses Accounts. - Financing and Foreign Currency (FX).
7. As agreed during the Bank preparation mission in April 2008, representatives from the FA sector have visited the financial management unit (FMU) at Cairo Electricity Production Company (CEPC) which is in charge of the FM implementation of Tebbin Power Plant Project financed by the Bank. They got acquainted with the procedures followed in the preparation of Tebbin project and the implemented systems at the FMU and have obtained samples of the reports generated by the FMU for Tebbin Project.
8. Given the mandate and scope of each ofthe four departments comprising the FA sector, it was agreed that the project FM functions will be placed within a financial management unit (FMU) to be created within the foreign exchange department. Nevertheless, the roles of the other departments will continue as is with respect to the project transactions as part of the company’s overall operations. The FMU within the foreign exchange department will also liaise with staff at the other departments in handling project documents and processing related payments.
9. The establishment of financial management unit within the foreign exchange department is envisaged to support EDEPC’s future plans and not just a World Bank financed project. It is envisaged to handle another planned power plant in Newibaa as well as any other major construction operations in the future. The staffing of the department will depend on existing EDEPC staff selected from within the foreign exchange department, other departments as well as
50 some of the company’s sites. The staffing of this unit is envisaged to include FMU manager, 3 accountants located at EDEPC premises (in charge of recording, reporting and loan disbursements and treasury) in addition to an accountant at the project site (entrusted with reviewing documentation at the project site and liaising with the other PMU staff at the project site).
10. EDEPC is already working towards the identification and designation of the FMU staff with clear and detailed terms of reference and job descriptions (which will be within the PMU structure). Once identified and selected, the Bank will provide the FMU staff with a two-day training workshop on the Bank guidelines and requirements. In addition, the staff will liaise with the Tebbin FMU staff at CEPC on a periodic basis (more intensively at the early project stage) to ensure that knowledge transfer is flowing smoothly to the newly established FMU.
11. The following chart shows in details the structure of the FM functions and the relationship among the different departments entrusted with these functions.
51 Head of Financial, Admin and HR Sectors
Head of Sector Head Head of Admin & HR of Financial Financial Affairs Affairs Planning & Sector Sector Studies Sector
Financing Costing and Accounts & & Foreign Warehouses Department Department Department
I I
52 Flow of Information and Documents:
12. The flow of information and documents is expected to replicate the current procedures with few adjustments to be as follows:
a. The foreign exchange department maintains a separate file for each contract and opens LCs where needed. b. Suppliers and contractors submit claims and invoices to the sector head of the power plant. C. The engineering consultant reviews and approves the submitted claims. d. The field accountant reviews and the site manager review and approve the claims and forward to the audit and foreign exchange departments for review and payment processing. e. The audit department reviews the invoices against the contracts to ensure eligibility for payment. f. For local currency invoices, the audit department issues payment vouchers and checks, retains original invoices and forwards copies to the foreign exchange department. g. For foreign currency payments, it retains copies and forwards the original invoices to the foreign exchange department. h. The foreign exchange department reviews foreign currency invoices and maintains records for all transactions under contracts, LCs and loans under the project. To process payments from the loan proceeds, it will prepare withdrawal applications and attach the required documentation. 1. The foreign exchange department issues monthly and quarterly reports to present and summarize the project status and the loans status. The quarterly reports will be also submitted to the World Bank and will include comparisons to budgets, forecasted disbursements and physical progress.
Flow of Funds:
13. Disbursement Procedures: The project is envisaged to follow transaction based disbursements. Based on the nature of the project contracts and the size of payments, direct payments are expected to be used mainly. Minor payments will be made through the designated account when direct payments cannot be justified.
14. Availability of Project Funds: With the high investment costs required, there is a risk in the timely availability of project financing. EDEPC is actively seeking alternative sources of financing in accordance with its detailed budget and timeline as, described in the “Budgeting” section ofthis annex.
15. Allocation of Loan Proceeds: The World Bank Loan proceeds will be allocated to finance Works procured under this project and will only include packages of supply and install turn-key type contracts for: (i)steam generator; and (ii)Switchyard, and (iii)Water and waste water treatment and desalination plant.
53 Funds and Documents Flowchart:
Invoices submitted to power plant sector head
Engineering consultants and site manager review and approve invoices
Audit Department reviews the invoices/claims -r-package + Local Foreign currency currency invoices invoices I Audit Audit Department Department retains original retains copy and invoice and forwards issue payment original to FX voucher denartm ent
prepares WIAs for advances or direct payments
54 Budgeting:
16. Annual investment plans are prepared in March for the following year of July to June and is subject to the approval of EEHC to ensure aligned plans and rational decisions across the sector. The proposed Ain Sokhna Power Project was included in EDEPC construction budget. The timeline for the power plant implementation sets the project preparation to be completed in FY 2008/2009. For the purpose of the project the total investment cost was estimated and the foreign and local cost components were detailed for the first fiscal year of the project. The financing sources were also estimated including self financing, local loans and foreign loans. The investment plan incorporated other rehabilitation, renovation and completion activities.
Internal Controls:
17. Multiple channels of control are embedded at different stages of the company’s operations.
18. Power plant procurement needs are subject to the review of the Central purchase committee or the higher committee for purchases depending on the set thresholds for review and approval authorities.
19. Invoices and claims are subject to reviews at the project site, and then by the audit department and the foreign exchange department. The FM manual (which will form part of the project implementation manual) will describe in details the policies and procedures. It will cover, inter alia, the budget preparation and presentation, the chart of accounts to be used, the project accounting procedures (data entry, posting, reconciliation and period end closing), fixed assets and foreign exchange valuation, and the reporting and auditing arrangements. Coordination in this regard with CEPC FMU implementing Tebbin Project is in place. EDEPC is currently in the process of preparing the financial management manual.
20. A quality control sector within EDEPC is entrusted with internal technical and financial audits. At the financial audit level, it reviews the systems applied within the different financial departments resembling the functions of a modern internal audit department. It reviews the applicable procedures in payroll, warehouses, etc. and suggests revisions to the procedures and process as needed. It reports directly to EDEPC chairman.
Accounting System and Reporting:
2 1, EDEPC prepares monthly financial position and performance evaluation within fifteen days after the month end for submission to EDEPC management as well as to EEHC. It basically follows the Egyptian “unified accounting system” in preparing its financial statements. Accordingly its systems are not designed to accommodate special purpose financial statements required for a Bank financed project.
22. EDEPC has signed an IT automation contract with the “Electricity Systems Company” that is fully owned by the different companies in electricity sector. The contract is currently under implementation. The system is expected to integrate different departments within EDEPC. Meanwhile and as interim arrangements, there is an IT department within the FA sector which
55 uses a financial information system that was developed internally and runs on an “Access” database. It records the company’s financial transactions, produces financial reports, and reconciles its accounts periodically with the manual records maintained by the general accounts, the costing and foreign exchange departments.
23. Agreements were reached with EDEPC to separately record and report on the project transactions using the existing automated accounting system. Formats of required reports were discussed with EDEPC to ensure meeting the Bank’s requirements. In addition, examples of reports generated by Tebbin Project were shared with EDEPC. The reports will include a statement of sources and uses of funds, cash projections, a statement of designated account, and a physical progress report.
Attestation Arranpements:
24. The Bank will require two types of audits under the project in addition to the review of the project’s interim (semiannual) financial statements (IFS). The annual project financial statements (PFS) will be subject to an audit by an independent private external auditor who will also review the project semiannual IFS. In addition, the audits of the entity financial statements (EFS) for the Egyptian Electricity Holding Company (EEHC) and EDEPC carried out by the Central Auditing Organization (CAO) will also be presented to the Bank. EEHC and EDEPC are already subject to annual audits by the CAO in accordance with the statutory requirement for companies with more than 25% government ownership (1 00% in cases of EEHC and EDEPC).
25. The following table summarizes the reporting and attestation arrangements under the project as follows:
Supervision Plan:
26. Based on the assessed moderate risk level, the Bank-accredited FMS will conduct two supervision missions for the project annually in addition to follow up visits if deemed necessary. Except for the first year of implementation, the project is not envisaged to entail extensive scope and resources for FM supervision. The semiannual IFSs for the Project and the financial audit reports will be reviewed on a regular basis by the Bank FMS and the results or issues will be followed up during the supervision missions and the follow up visits. During the Bank’s supervision missions, the Project’s financial management and disbursement arrangements (including a review of a sample of SOEs if applicable) will be reviewed to ensure compliance with the Bank’s requirements and to develop the financial management rating to the Implementation Status Report (ISR). ’ 27. In addition, it has been agreed that the Tebbin financial team will provide support to the Ain Sokhna financial team as deemed necessary, and that the FM responsibilities entrusted with EDEPC will be listed in the contractual agreement between EEHC and EDEPC, and will follow the project agreement between EEHC and the World Bank.
56 Annex 8: Procurement Arrangements EGYPT, ARAB REPUBLIC OF: Ain Sokhna Power Project
A. General
1. Procurement for the proposed project would be carried out in accordance with the World Bank's "Guidelines: Procurement under IBRD Loans and IDA Credits" dated May 2004, revised October 1, 2006 and the provisions stipulated in the Legal Agreement. The various items under different expenditure categories are described in general below. For each contract to be financed by the Loan, the different procurement methods, the need for pre-qualification, estimated costs, prior review requirements, and time frame are agreed between the Borrower and the Bank in the Procurement Plan. The Procurement Plan will be updated at least annually or as required to reflect the actual project implementation needs and improvements in institutional capacity.
2. Procurement of Works: Works procured under this project will only include packages of supply and install turn-key type contracts for: (i)steam generator; and (ii)Switchyard, and (iii)Water and waste water treatment and desalination plant. The procurement for contracts funded by Loan proceeds will be carried out using the Bank's SBD for ICB as modified and successfully used under the El Tebbin Project (Loan 7359-EG) including the agreed modifications to accommodate the sequential opening ofthe technical and commercial envelopes as well as other agreed modifications to cover new clauses included in recent version (April 2008) of the Bank standard bidding documents. The packages not financed by the Bank will be procured in accordance with the guidelines of the corresponding International Financial Institution (IFI), or the Egyptian law for the packages financed by East Delta Electricity Production Company (EDEPC) own resources. The procurement plan identifies the different packages that will be financed by different sources. Each package will follow the procurement procedures ofthe concerned financial institution indicated in the plan.
3. Procurement of Goods: Goods procured under this project would not be financed by the Bank, being funded by parallel financing from other IFIs and will be procured in accordance with the guidelines of the corresponding financial institution (IFI) or the Egyptian law for the packages financed by EDEPC own resources.
4. Advanced Procurement: Due to overall high demand for power supply equipment, EEHC has noted a reduction in the number and variety of bidders to implement its expansion plans. As such, it will be important to factor this into both the project implementation time schedule as well as the timely preparation and approval of the financing package of this project to ensure that availability of funds do not slow down the procurement process and therefore increase cost and/or cause delays in the delivery of plant equipment. As with the El Tebbin Project, the procurement process has been advanced as much as possible during project preparation.
5. Selection of Consultants: This loan will not finance Consultants contracts. However, in addition to the power plant component described above, the proposed project will support, through its on-going parallel technical assistance and in-depth policy dialogue, the
57 implementation of design changes currently under formulation to the electricity tariff to apply ToU pricing in order to shift the peak load. A programmatic technical assistance program of US$250,000 for the next three years has been agreed with the Government for, inter alia, this specific purpose. The activities implemented under this program will be executed by the World Bank and will follow World Bank Consultant Guidelines.
B. Assessment of the agency’s capacity to implement procurement
6. The East Delta Electricity Production Company (EDEPC) will be the Implementing Agency of the Project. EPDC is a subsidiary of EEHC and has similar role in its area of responsibility as the utility which is responsible for implementation of the ongoing El Tebbin project, the Cairo Electricity Production Company (CEPC) in the Cairo area. EDEPC and CEPC are electricity production companies closely supervised by EEHC having the same procedures and guidelines established by the holding company (EEHC). Both companies have implemented several power generating projects and have similar managerial capacity.
7. As is usual in the Power Sector in Egypt, the Thermal Power Plants are implemented having a strong Consulting firm acting as Management Contractor with the role of: (i)designing the installations; (ii)defining the number of packages for procurement under supply and install (single responsibility) contracts for the different parts of the plant; (iii)carrying out all procurement actions (with EDEPC signing the contracts); (iv) integrating and coordinating the different contractors working in the project site; and (v) overall project management on behalf of EDEPC. The Power Generation Engineering and Services Company (PGESCo) has been hired by EDEPC as Management Contractor for this project, financed by its own resources. PGESCo is a much respected consulting firm owned by Bechtel and the Government of E pt and has already performed this role in several power plants in Egypt similar to Ain Sokhna!’ The Bank has had experience of working with PGESCo in the Tebbin Power Project where PGESCo is having this same role.
8. An assessment of the capacity of the Implementing Agency to implement procurement actions for the project was carried out by Armando Araujo on June 9, 2008, updated in September 2008 and finalized during appraisal. The assessment has reviewed the organizational structure for implementing the project and the interaction between the project’s staff responsible for procurement and the relevant unit for administration and finance. Similarly to what has been happening in the El Tebbin project, all procurement actions for the project will be carried out by PGESCO. Consequently, the Capacity Assessment, although covering East Delta Electricity Production Company has concentrated more on PGESCO, since it will be responsible for the procurement actions of the Loan that will finance the Project. EDEPC’s Project Implementation Unit will have one staff in charge of coordination, follow-up and reporting to the Bank on procurement actions, however, all procurement actions will be carried out by PGESCO. PGESCO has a procurement unit with twenty qualified Procurement Specialists with strong
30 PGESCO was established and registered in Egypt in 1993 and is 40% owned by Bechtel International, 40% by Ministry of Electricity & Energy and 20% by a local bank. PGESCO services since then covered Sidi Krir Units I& I1 (650 MW), Sidi Krir Units 3 & 4 (BOOT 660 MW), Ayoun Moussa Units I& I1 (650 MW), Cairo North Combined Cycle I(750 MW) and I1 (750 MW), Nubaria Combined Cycle (1500 MW) and New Talkha Combined Cycle (750 MW), Kureimat Combined Cycle (750 MW), El Tebbin (2x 350MW), Nubaria 111 (750 MW), Kureimat 111 (750 MW), Cairo West (2 X 350 MW), Sidi Krir (750 MW), El Atf (750 MW) and Abu Qir (2 X 650 MW).
58 knowledge of international procurement and well acquainted with Bank procurement, of which five will work full time for this project. The excellent performance of PGESCO in carrying out procurement actions for the Tebbin project is a recent confirmation of the quality and experience ofthis procurement team.
9. Several of the implementation risks identified for the Tebbin Project do not apply to the proposed project since Tebbin comprised a Bank re-engagement in the Egyptian power sector and the implementation track record of the sector and EEHC were not known to the Bank. Today, El-Tebbin is one of the best performing projects in the Egypt portfolio, and the implementation track-record of EEHC (with PGESCO support) has been proven. Indeed, a year after the loan was approved by the World Bank Board of Executive Directors, all Bank-financed contracts had been signed, and to date, all contracts under the projects are signed and under very satisfactory progress of implementation. All fiduciary aspects have been implemented smoothly and compliance with safeguards was rated Highly Satisfactory in the Implementation Supervision Reports for all supervision missions visiting the project (ISR).
10. The overall project risk for procurement is AVERAGE.
C. Procurement Plan
11. The Borrower, at pre-appraisal, developed a procurement plan for project implementation which provides the basis for the procurement methods. This plan was finalized during appraisal, and the final version will be available in the project’s file and in the Bank’s external website. The Procurement Plan will be updated annually or as required to reflect the actual project implementation needs and improvements in institutional capacity.
D. Frequency of Procurement Supervision
12. In addition to the prior review supervision to be carried out from Bank offices, the capacity assessment of the Implementing Agency has recommended two supervision missions on the first year of project implementation and one mission annually to follow up on implementation issues visiting the field to carry out review ofprocurement actions.
E. Details of the Procurement Arrangements Involving International Competition
1. Procurement Strategy
13. Before defining the different packages to carry out the procurement of this project, the mission discussed with PGESCO and with EDEPC the procurement strategy to be followed in view of the lessons learned from El Tebbin. The El Tebbin project is being implemented and the procurement has been very successful. However, the prices offered by the winning bidders were substantially higher than the estimated prices at appraisal of that project. Under this circumstance, three issues were discussed:
a. The option of having a single EPC contract versus the use of several packages - these are two strategies for implementation of a thermal power plant, both have advantages and disadvantages. The single contract option has as its biggest advantage to have the
59 design, procurement, construction and final commissioning of the plant able to provide the desired output (and corresponding outcomes) under the single responsibility of one contractor. This however, implies in fewer number of qualified contractors able to take this technical and financial responsibility and the high risk involved. Consequently, this solution results in higher costs for the overall power plant. The solution of slicing the power plant in several packages (each one contracted under a turn-key contract limited to a major supply for which exists several suppliers in the world), reduces the risks to the suppliers since they will have their responsibility limited to the contract under their supply, an area where they have full expertise. Of course, this solution brings additional coordination work to the owner of the plant and the responsibility for the overall design and coordination - role performed by PGESCO in this project and in previous projects in Egypt. However, this solution is much more cost-effective, reason why EEHC has been using it in Egypt with great success and intends to continue doing so including in the Ain Sokhna project. b. Market prices-for power generation equipment - during the last three years the cost of power generation equipment (especially for steam thermal power) has suffered dramatic increases. In general terms prices are now around 50% (or more) higher than 3 to 4 years ago. This price increase has been verified world-wide and is hard to identify one single cause for it. It is true that these price increases reflect the increase in cost of some components (like steel, aluminum and copper) and mainly reflects oil price increases (from US$30 to nearly US$140 a barrel). On the other hand, the demand for this type of equipment has been on a very high side, especially for China. All this combined has pushed the prices to values that are much higher than before. This explains the difference between the realized prices and the estimated prices for the El Tebbin project. As a result, the estimated cost of this proposed project have taken this new trend into consideration, but no modification on the procurement strategy is required since this was not the cause for the price differences. In addition, in order to increase competition, EEHC and the Bank have agreed to promote a public workshop which was held in Cairo on August 27, 2008 aiming at providing information about the Ain Sokhna project to potential bidders and to get information from bidders on the latest technology of Supercritical and Ultra-Supercritical units. At the end of the procurement assessment Iattach a summary of this workshop and its conclusions. c. The use of fixed prices versus adjustable prices - in previous projects, EEHC has asked bidders to offer fixed prices. It is well known that this practice results in bidders including a premium in their prices to have an insurance against price increases during the execution of their contracts. It is also of intense debate among procurement specialists the time length (12, 18 or 24 months) when a contract should be for fixed or adjustable pricing - the Bank uses 18 months as a recommendation. On the other hand the use of adjustable prices creates additional burdens to the owner of the plant - like (a) the need to find additional funding for price increases; (b) the need for contract amendments to adjust the final contract price; and (c) the need (in the case of public entities like EEHC) to have additional budget authorizations for contract price increases. And, the use of price adjustment contracts, although resulting in initial lower contract prices, are not a guarantee of lower final contract value (since the owner assumes the price increase risks). For all those considerations it is EEHC decision to continue using fix prices in their bids.
2. Goods, Works, and Non Consulting Services
14. The procurement methods to be used are: ICB (for Bank financed packages) and ICB and NCB for other packages. The Bank Loan will finance only three ICBs included in the project. The procurement for contracts funded by Loan proceeds will be carried out using the Bank’s SBD for ICB as modified and successfully used under the El Tebbin Project (Loan 7359-EG) including the agreed modifications to accommodate the sequential opening of the technical and commercial envelopes as well as other agreed modifications to cover new clauses included in recent version (April 2008) of the Bank standard bidding documents. The bidding processes will be advertised in the Development Business of United Nations and in dg-Market as required by the Bank’s Guidelines as well as in the National Gazette of Egypt (El Ahram) as required by local procedures.
15. For project implementation the same procurement arrangements used under the El Tebbin Power Project (Loan 7359-EG) are proposed. As such, the following special provisions will be used in project implementation:
a. Bidding shall be open to all potential and qualified bidders and not exclusively to manufacturers. However, a bid from a non-manufacturer would require a commitment letter from the manufacturer. b. In addition to clear technical specifications, the bidding documents shall include detailed and clear technical evaluation criteria. c. During the technical evaluation, no meeting with the bidders shall take place; clarifications with bidders shall take place in writing only and can neither result in modifications of the bids (i.e., withdrawal of deviations) nor in changes to the bid price. d. The bidding documents shall include a list of deviations which are considered as major. The list may not be comprehensive but in any event, bids with major deviations will be considered substantially non-responsive and will be eliminated. Minor deviations and omissions may be accepted and may be quantified in monetary terms only for the purpose of evaluation and as per detailed method spelled out in the bidding documents. This will neither affect the bid price, nor the contract price. e. For contracts where technical deviations may, with due justification, bring additional competition to the bidding process, the bidding documents may allow bids to include a list of deviations from terms and conditions or technical specifications, and, in such event, the bidders shall provide additional price of withdrawal of deviations (pricing of the withdrawal of the deviations would be part of the commercial bids). Minor deviations or omissions will be quantified for evaluation purposes only, by using the quotation given by the bidder, or, if not quoted, the deviation may be quantified for evaluation purposes based on pricing information available to the owner according to the specifications in the bidding documents in other similar and recent bidding. f. If bidders are allowed to offer deviations, and in accordance with Bank guidelines, when the owner awards the contract to the successful bidder, the owner may request the bidder to withdraw any of the deviations listed in the winning bid, at the price shown by the bidder for the deviation in attachments to the bid. g. The bid validity period shall be sufficiently long (180 days) to cover the entire evaluation process to avoid having to request bid validity period extensions given that prices are fixed. h. After opening the technical envelopes, the commercial envelopes shall be kept unopened and in a safe place. i. The review process of the technical evaluation shall be as follows: (i)preparation of the Technical Evaluation report and recommendations by the Borrower, to be sent to the Bank; (ii)review by the Bank and, if needed, clarifications to be sought by the Bank from the Borrower; and (iii)Borrower to then receive no-objection from the Bank. Borrower will then inform the bidders of the outcome of the technical evaluation. For those bidders rejected due to being substantially non -responsive, the Borrower shall provide clear reasons for the rejection to these bidders who request. j. Prior to the opening of the commercial envelopes for bidders deemed responsive, adequate time (a minimum of 5 business days) has to be provided to allow opportunity for bidders deemed non-responsive to complain, if they wish. The agreed bidding documents will establish clearly this period of five business days for bidders to complain. Any complaint letter or communications and responses provided by the Borrower need to be sent to the Bank for information. The Bank, in consultation with the Borrower, will examine these complaints. If additional data is required to complete this process, they will be obtained from the Borrower. If additional information or clarification is required from the bidder, the Bank will ask the Borrower to obtain it and comment or incorporate it, as appropriate, in a revised version of the Technical Bid Evaluation report. The Bank’s review will not be completed until any complaint submitted is fully examined and considered. k. Commercial bids of substantially responsive technical bids shall be opened in public and bid prices read out. Bids of non-responsive bidders should be kept until contract signing. 1. When the full evaluation is completed, the Bid Evaluation Report and contract award recommendation are prepared by the Borrower and sent to the Bank for review. m. The Bank shall, if it determines that the intended award would be inconsistent with the Loan Agreement and/or the Procurement Plan, promptly inform the Borrower and state the reasons for such determination. Otherwise, the Bank shall provide its no objection to the recommendation for contract award. The Borrower shall award the contract only after receiving the “no objection” from the Bank. n. If after publication of the results of evaluation, the Borrower receives protests or complaints from bidders, a copy of the complaint and a copy of the Borrower’s response shall be sent to the Bank for information.
0. If as result of analysis of a protest the borrower changes its contract award recommendation, the reasons for such decision and a revised evaluation report shall
62 be submitted to the Bank for no objection. The Borrower shall provide a republication of the contract award in the format of paragraph 2.60 of these Guidelines. p. The terms and conditions of a contract shall not, without the Bank’s prior approval, materially differ from those on which bids were asked or prequalification of Contractors, if any, was invited. 16. List of contract packages to be procured following ICB comprises only three contracts for: (i)steam generator; (ii)switchyard; and (iii)water, wastewater treatment and desalination plant.
1 2 3 4 5 6 7 8
Ref. No. Contract Procurement P-Q Domestic Review Expected Comments (Description) Method Preference by Bank Bid- (yedno) (Prior / Post) Opening Date CP-104 Switchyard ICB No No Prior 26-Mar-09 CP- 105 Steam Generator ICB No No Prior 10-Feb-09 Water and wastewater l1 ICB No No Prior 2 1-May-09 treatment and desalination plant
63 Annex 9: Economic and Financial Analysis EGYPT, ARAB REPUBLIC OF: Ain Sokhna Power Project
Economic Analysis
1. The Ain Sokhna power plant is part of the least cost expansion plan of EEHC, which has been assessed using the EGEAS model. Alternatives such as electricity imports or additional equivalent capacity built using renewable sources for electricity production have been rejected as their unit cost for electricity production is above the long run marginal cost of power (LRMC) which EEHC uses in its calculations. No additional options for the rehabilitation of existing plant could be identified for inclusion in the least cost expansion plan to add 1,300 MW of new capacity required to match growing electricity demand.
2. Given the relatively small size of the plant compared to the overall Egyptian electricity ~ystern,~'the project has been assessed on an individual basis, comparing its costs to its benefits. The costs comprise those required to commission a 1,300 MW steam turbine plant, estimated to be US$2,006.8 million (including contingencies but excluding customs charges), and to operate and maintain the plant. The Ain Sokhna plant is expected to sell an average of 6 GWh annually over a 25-year period. No salvage value was included, as costs of dismantling the plant at the end of the 25 years are deemed higher than the benefits of selling the aging equipment. The quantified benefits of the project consist of retail sales of additional electricity to the grid valued at willingness to pay less transmission and distribution losses. The willingness to pay was calculated based on the assumption that consumers would switch to diesel-based generators should electricity not be available from the grid. Calculations were undertaken in 2008 prices.
3. The justification for the methodology used in calculating the willingness to pay and hence the economic rate of return, is that in recent years as EEHC's reserve margin has deteriorated and supply shortages have become more frequent. Customers, notably industrial, have secured back-up generation in the form of diesel-fuelled generators to ensure continuous and reliable supply. The cost (i.e., willingness to pay) of these diesel generators in economic terms is the estimated 12 US$/kWh, on the basis of the weighted average cost of diesel-fuelled electricity located at consumers' premises, with the weights being the average demand share by industrial and other users. As the sensitivity analysis shows, the willingness to pay would have to drop to 7.3 US$/kWh for the economic rate of return to drop below 10%.
4. The calculated willingness to pay as well as the outcome of the sensitive analysis are above the current subsidized tariff levels (3 US$/kWh). However, it is not assumed that this is the willingness to pay for the entire system but rather the value of the energy being supplied from this particular power plant (as mentioned in paragraph 2 above, the economic analysis was undertaken for this particular plant and not the system as a whole). In addition, the customer base comprises a mix of residential, commercial and industrial consumers with the current tariff ranging from 3 US$/kWh to 6.3 US$/kWh. Finally based on the financial forecast for EEHC, future tariff increases will place the average tariff at 7.5 US$/kWh in the next 5 to 10 years, depending on whether the government can accelerate the increases as has been the trend in the past years.
3' The Ain Sokhna power plant represents 6% ofthe total installed capacity in Egypt.
64 5. This annex presents (i)a table of electricity demand projections used in the calculation of weights to estimate the willingness to pay; (ii)the assumptions used to calculate the willingness to pay used in assessing the benefits from additional electricity sales from Ain Sokhna; (iii) detailed assumptions to calculate the costs of operating the Ain Sokhna plant; (iv) a table with the detailed annual costs used in calculating the cash flow of the plant; (v) a table presenting assumptions for calculating the benefits of the plant; and (vi) results of a sensitivity analysis.
Electricity demand projections
Table 1: Sectoral direct price elasticity of electricity consumption in Egypt
SECTOR DIRECT PRICE ELASTICITY Industrial -0.10 Residential -0.28 Commercial -0.25 Source: EEHC
65
Assumptions used to calculate the willingness to pay
Table 3: Cost of electricity auto-production
Industrial Consumers Other Consumers unit capacity kW 1000 250 unit cost $/kW 1200 1200 capacity factor % 50 35 unit efficiency % 42 36 fuel cost $/I 0.25 0.25 heat rate converted to kg/kWh 0.2381 0.2778
capacity cost $/kWh 0.0217 0.0362 O&M cost $/kWh 0.01 0.01 1 fuel cost $/kWh 0.071 0.082 . ,total cost $/kWh 0.1023 0.1295 Source: World Bank
Demand growth shares 2006-2015 Industry 37% Agriculture 4% Public utilities 12% Commercial and others 7% Residential 35% Government 5% Others 1% Total sales 100% Source: EEHC
WTP 0.120 $/kWh Source: World Bank
Assumptions used to calculate Ain Sokhna’s costs
6. Cost of fuel is assessed using a shadow price for natural gas equal to US$3.00 per MBtu. This is the calculated LRMC of gas supply to electricity off take points including transmission and di~tribution.~~For Operations and Maintenance (O&M), material expenses are assumed to be constant at US$1.4 per MWh. This includes the additional O&M costs for evacuating the electricity produced by the plant through the grid. An overhaul maintenance with a value of 75 USgYMWh is executed every 6 years. The value of the total fixed operation and maintenance expenses (US$20 million per year) is divided into 60% for skilled labor, 30% for unskilled labor and 10% for administration. The plant is assumed to be commissioned gradually from 2012 and onwards. Overhaul every 6 years reduces the availability of the plant accordingly.
32 Source: EEHC. In line with the government’s plan for gradual elimination of subsidies the current gas price EEHC is charged for the portion of the gas it uses to generate electricity for the industrial sector is equivalent to the estimated long-run marginal cost of gas (US$3/mmbtu).
67 7. The exchange rate used is US$1 = LE 5.50 and is considered to be constant throughout the project life time.
Table 4: Assumptions to Calculate Ain Sokhna’s Costs Discount Rate 10% Electricity Price ($/kWh) 0.121 Plant Load Factor 75% Auxiliary Consumption 4.0% T&D Losses 12.0% O&M Material Cost 1.40 US$/MWh Overhaul 0.75 US$lMWh every 6 years Fixed O&M 20.0 US$ million per year
Year % Availability BtulkWh Heat Rate 2009 0% 0 201 0 0% 0 201 1 0% 0 201 2 5% 7738 201 3 55% 7792 2014 95% 7808 201 5 95% 7823 2016 95% 7838 201 7 95% 7784 201 8 95% 7800 201 9 75% 781 5 2020 92% 7831 2021 92% 7847 2022 92% 7862 2023 92% 7793 2024 92% 7809 2025 75% 7825 2026 90% 7840 2027 90% 7857 2028 90% 7872 2029 90% 7803 2030 90% 7819 2031 75% 7834 2032 90% 7849 2033 90% 7866
68 Table 5: Annual Costs
I9 17.13 3.00 17.1 2010 369.45 3.00 369.4 201 1 380.50 3.00 380.5 201 2 530.66 3.00 9.9 1.o 0.6 542.2 2013 542.16 3.00 109.8 11.0 6.6 669.5 2014 366.90 3.00 190.1 19.0 11.3 587.3 2015 3.00 190.4 19.0 11.3 220.7 2016 3.00 190.8 19.0 11.3 221.1 2017 3.00 189.5 19.0 11.3 219.8 2018 3.00 189.9 19.0 11.3 220.2 2019 3.00 150.2 15.0 13.7 178.9 2020 3.00 184.6 18.4 11.0 214.0 2021 3.00 185.0 18.4 11.0 214.3 2022 3.00 185.3 18.4 11.0 214.7 2023 3.00 183.7 18.4 11.0 213.1 2024 3.00 184.1 18.4 11.0 213.4 2025 3.00 150.4 15.0 13.7 179.1 2026 3.00 180.8 18.0 10.7 209.5 2027 3.00 181.2 18.0 10.7 209.9 2028 3.00 181.5 18.0 10.7 210.3 2029 3.00 179.9 18.0 10.7 208.7 2030 3.00 180.3 18.0 10.7 209.0 2031 3.00 150.5 15.0 13.7 179.3 2032 3.00 181.0 18.0 10.7 209.7 2033 3.00 181.4 18.0 10.7 210.1
Table 6: Annual Benefits
GWh GWh GWh Year GWh M$ Gross Generation Net Generation T&D Losses Net Sales Total Benefits 2009 2010 201 1 2012 427.1 410.0 49.2 360.8 43.1 2013 4,697.6 4,509.6 541.2 3,968.5 474.5 2014 8,114.0 7,789.4 934.7 6,854.7 819.7 2015 8,114.0 7,789.4 934.7 6,854.7 819.7 201 6 8,114.0 7,789.4 934.7 6,854.7 819.7 2017 8,114.0 7,789.4 934.7 6,854.7 819.7 201 8 8,114.0 7,789.4 934.7 6,854.7 819.7 2019 6,405.8 6,149.5 737.9 5,411.6 647.1 2020 7,857.7 7,543.4 905.2 6,638.2 793.8 2021 7,857.7 7,543.4 905.2 6,638.2 793.8 2022 7,857.7 7,543'4 905.2 6,638.2 793.8 2023 7,857.7 7,543.4 905.2 6,638.2 793.8 2024 7,857.7 7,543.4 905.2 6,638.2 793.8 2025 6,405.8 6,149.5 737.9 5,411.6 647.1 2026 7,686.9 7,379.4 885.5 6,493.9 776.5 2027 7,686.9 7,379.4 885.5 6,493.9 776.5 2028 7,686.9 7,379.4 885.5 6,493.9 776.5 2029 7,686.9 7,379.4 885.5 6,493.9 776.5 2030 7,686.9 7,379.4 885.5 6,493.9 776.5 2031 6,405.8 6,149.5 737.9 5,411.6 647.1 2032 7,686.9 7,379.4 885.5 6,493.9 776.5 2033 7,686.9 7,379.4 885.5 6,493.9 776.5
69 Table 7: Cost-Benefit Results (US$ million discounted at 10%)
Year Total Costs Total Benefits Net Benefits 2009 17.1 (17.1 3) 2010 369.4 (369.45) 2011 380.5 (380.50) 2012 542.2 43.1 (499.03) 2013 669.5 474.5 (194.98) 2014 587.3 819.7 232.38 2015 220.7 819.7 598.92 201 6 221.1 819.7 598.55 2017 219.8 819.7 599.87 2018 220.2 819.7 599.48 201 9 178.9 647.1 468.18 2020 214.0 793.8 579.82 2021 214.3 793.8 579.44 2022 214.7 793.8 579.08 2023 213.1 793.8 580.71 2024 21 3.4 793.8 580.33 2025 179.1 647.1 467.99 2026 209.5 776.5 567.00 2027 209.9 776.5 566.61 2028 210.3 776.5 566.27 2029 208.7 776.5 567.86 2030 209.0 776.5 567.49 2031 179.3 647.1 467.81 2032 209.7 776.5 566.80 2033 210.1 776.5 566.40 NPV M$ $1,748.97 ERR 23.6%
Sensitivity Analysis
8. Switching values of critical items that would cause the economic rate of return on the project to fall to the opportunity cost ofcapital, estimated to be lo%, are:
e. As gas price increase to US$S.OS per mmbtu.
f, An increase of about 49% in the total project cost.
g. A delay in plant commissioning of 6 years (2019/20 for full operation).
h. A lower average willingness to pay equivalent to 7.3 US$/kWh.
70
Financial Assessment of the Egyptian Electricity Holding Company (EEHC)
Past and Current Performance of EEHC
12. EEHC’s revenues stem from the sale of electricity generated by its subsidiaries, the sales of electricity purchased from IPPs and the New and Renewable Energy Authority. Based on audited accounts for the past three years, the company has been profitable, mainly due to regular annual increases in electricity tariffs that resumed in 2004, after a 12-year period in which the retail price of electricity remained unchanged. EEHC’s revenues is estimated to increase by 18% in 2007/08; this growth is mainly attributed to the increases in the tariff (7.8% per year on average - higher than the originally planned 5% increase) and in the GWh of electricity sold due to increase in demand.
13. The rapid growing demand for electricity required large investments over the past few decades. These investments have been largely funded by borrowings. The company continues to face challenges in meeting its payables and debt obligations. Its collection performance has slightly deteriorated in 2007/08 to 86% (a 4% decrease) as a result of increases in several commodities such as utility bills, food and fuel. The company continues to make improvements in the collection of arrears from public entities, which is the consumer category that tends to have the highest outstanding payments.33
14. As a result of high investment needs, EEHC’s long-term debt is estimated to reach LE 43.9 billion (about US$8 billion) in 2007/08, of which the current portion reached LE 6.24 billion (US$1.1 billion). In addition, a large portion of the company’s current liabilities comprise of past due loan and interest payments owed to the Government and local banks. All together, current liabilities are estimated to reach LE 40.77 billion (US$7.4 billion) in 2007/08 against current assets of LE 25.24 billion (US$4.6 billion), resulting in a current ratio of 0.60 (Le., current assets measured as a portion of current liabilities) and a debt service coverage ratio of 1.48.
Future Financial Performance of EEHC
15. Projections to assess EEHC’s future financial position and performance have been carried out for the period 2008/09 - 2019/20. Further details are recorded in the project files.
16. In the base scenario, projections for future financial performance are based on the following key assumptions:
a. The natural gas price increases to 18.8 Pt/m3 in 2009 and subsequent annual increases of 9% are applied.34
33 According to EEHC, the collection rate ofpublic entities increased from 15% in 2005/06 to 70% in the first three quarters ofthe 2007108 financial year. 34 There is an agreement between EEHC and E-Gas on annual increases of9% to the cost ofnatural gas. In addition, for the electricity generated for industrial consumers, there is a pass-through arrangement in place, in which EEHC collects the equivalent natural gas price ofUS$3 per mmbtu for the gas used to generate electricity to these consumers, and passes on the payment to E-Gas.
73 b. Annual increases to the electricity tariff of 7.5% on average for consumers as agreed by the Cabinet to improve financial performance. c. Restructuring of local debt into equity. d. Continued improvement in collection performance, reaching 95% by 20 11 /20 12.
17. The implementation of the above ensures positive cash flow and a net profit for EEHC, enables the company to meet its current operating expenses and debt obligations, and allows for a gradual reduction in the levels ofaccounts payables. The company will also be able to finance up to 20% of its local investment needs from its own resources.
18. Introduction of energy conservation measures and a pilot on time-of-use tariffs, measures which are currently under discussion would further enhance EEHC’s financial performance, reducing the overall annual increases in demand, which in turn would defer additional investment needs. In addition, potential settlements with the government of public arrears in the payment of energy charges and past due loan payments could accelerate the reduction in the level ofaccounts receivables and payables, further strengthening EEHC’s balance sheet.
19. The end-of-project financial performance targets set for the El-Tebbin Power Project have been regularly monitored by project team during supervision and are adequate for this proposed operation. These indicators are: (i)achieving a current ratio higher than or equal to 1; and (ii)maintaining a debt service coverage ratio higher than or equivalent to 1.4 by the end of the project.
Assumptions for projections offinancial performance of EEHC
20. The analysis is based on actual audited results for the years 2003/04-2006/07 and company estimates for 2007/08. The projections cover the years 2009/10-2019/20.
Key Assumptions for financial statements
Electricity demand is assumed to be increasing according to the plan received from EEHC with an average annual rate of increase of 6% (Source: EEHC).
Electricity losses include technical and non-technical distribution, transmission and generation losses. Distribution losses were 10.2% in 2006/07. These losses are expected to remain constant in 2007/08, and are estimated to be gradually reduced to 9% by the end of the project implementation (Le., 2013/14). Transmission losses stood at 4.2 in 2006/07, and are expected to be gradually reduced to 3% by 2013/14; while generation losses are estimated at 4% by the end of the project (Source: EEHC).
73 Electricity resources as of 2006/07, 87% of the gross electricity supplied is assumed to be generated from EEHC generation companies, and 13% are purchased from the BOTs, the New and Renewable Energy Authority and Industries (Source: EEHC).
Electricity Supply comprises electricity requirements to meet demand plus losses.
Fuel the fuels used by EEHC are natural gas, heavy and light fuel oil. The demand for these fuels is adjusted according to the requirements of the implementation of EEHC’ s expansion plan (Source: EEHC).
Inflation domestic inflation is assumed to be 10% per year as of 2007/08, while the foreign inflation is assumed to be 2.5% per year as of 2007/08.
Income Statement
Revenues are mainly derived from electricity sales, other revenues comprise of minor charges, such as maintenance for substations owned by others, etc.
Fuel Cost represents the cost for natural gas and other fuels is assumed to gradually increases on an annual basis according to projections given by EEHC.
Purchased electricity represents the cost for electricity purchased from BOTs, the New and Renewable Energy Authority and Industries and sold by distribution companies. This cost for the New and Renewable Energy Authority and Industries is assumed to increase at the rate of local inflation. The calculation of the BOTs’ cost is divided into two components, according to the terms in the BOT contracts: half of the BOT average price is increased at the rate of foreign inflation, while the other half is increased by the annual rate of increase in the fuel price. (Source: EEHC).
Salaries are assumed to increase with at the rate of 15% per year (Source: EEHC).
Materials and Services assumed as a percentage of gross fixed assets and assumed to increase gradually towards 3% of gross fixed assets by 2013/14 (Source: industry practice).
74 Other Operating Expenses costs include rental of buildings, utility services for administration, vehicles, etc., and it is assumed to increase annually at the rate of local inflation (Source: EEHC).
Depreciation the current charge is based on the straight line methodology and assumed to continue as such. To this charge, the project assets are added which are assumed to depreciate over 30 years on average, Le., 3% per year (Source: EEHC).
Financial charge comprises interest payments on borrowings.
For the Foreign Loans, an average interest rate of 4.5% has been assumed in the projections based on a 10-year forecast of LIBOR.
Sources and Applications of Funds
Internal sources comprise net operating income before financial charges with the depreciation charge added back.
External sources comprise ofborrowings.
Capital investments comprise the total of capital investments undertaken by the company including the Project (Source: EEHC).
Debt service comprises interest charges and repayments on borrowings.
Working capital is the annual change in currents assets (less cash) and current liabilities.
Balance Sheet
Gross fixed assets represent the previous year’s gross fixed assets plus the work in progress as it is completed.
Work in progress represents the ongoing investments under implementation.
Net Account receivables represents previous year’s receivables and the portion of current years billings not collected less the provision for doubtful revenue (from arrears and current billings). During project preparation the project team will discuss with EEHC their current plans for reducing the high levels of accounts receivables.
Inventory represents fuel and materials. It is assumed that inventory will be kept at a level representing 6 months of supply of fuel and materials (Source: EEHC).
75 Account Payables represents previous years payables for suppliers (e.g., fuel and material) and other operating expenses.
Past due loan payments represent past due loan payments that have been serviced by the Ministry of Finance, or past due loans and from the National Investment Bank (NIB). The past due loans owed to NIB are converted into equity in 2008/09. The portion owed to the Ministry of Finance is reduced to through settlements reached with the government, public utilities and holding companies owned by the government. (Source: EEHC)
Interest on past due loans represent past due interest charges owed by EEHC to the government and to the NIB. The charges owed to NIB are converted into equity in 2008/09.
Retained earnings/losses represent accumulated earnings/losses incurred by the company.
Long-term debt current long-term debt represents current and future loans taken by EEHC to finance its capital investment program. All of the company’s future capital investment financing needs and will be financed by loans (Source: EEHC).
76 I I I
2 Annex 10: Safeguard Policy Issues EGYPT, ARAB REPUBLIC OF: Ain Sokhna Power Project
1. The proposed project falls under the World Bank environmental category A classification. According to the World Bank’s Operation Policy 4.0 1 on Environmental Assessment, a full Environmental and Social Impact Assessment (ESIA) was carried out by an Egyptian independent consulting firm, Engineering Consulting Group (ECG), according to the Terms of Reference approved by the World Bank.
2. The proposed project falls under the World Bank environmental category A classification. This is due to the project scope and magnitude (refer to the Appraisal Summary - Technical section for project description). According to the World Bank’s Operation Policy 4.01 on Environmental Assessment, a full Environmental and Social Impact Assessment (ESIA) was carried out by an Egyptian independent consulting firm, Engineering Consulting Group (ECG), according to the Terms of Reference approved by the World Bank.
3. During the ESIA preparation, the borrower carried out a thorough public consultation process, as explained in Section D.4 of this Project Appraisal Document on Social Assessment. Part of the ESIA is an environmental and social management plan (ESMP) which lays out the necessary institutional arrangements, and develops the mitigation measures to reduce environmental impacts, and the related monitoring plan to ensure that these impacts are properly managed.
4. An analysis of alternatives was carried out during the ESIA preparation. The no action alternative to the proposed power plant would result in the demand for electricity exceeding supply, with an increasing deficit as demand increases in the future. As a result, the “no action” option was not considered to be a viable or acceptable alternative to the proposed project. Alternative electricity supply options such as importing electricity, renewable energy, rehabilitation of existing power plants, transmission and distribution investments, and BOOT/IPPs were also considered, but it was determined that a new gas-fired plant at Ain Sokhna site was the preferred alternative. Alternative technology and fuel were also considered, and it was determined that the optimal option was gas oil-fired steam units, on the basis of primarily operational flexibility and grid stability. Finally, the site of the plant was compared to other sites, and it was determined that the proposed site has many economic and non-economic advantages, including the fact that the site area was allocated to the Egyptian Electricity Authority (EEA) (today, EEHC) by the Government of Egypt (Presidential Decree no. 299 of the year 1999, issued on 21 September 1999) and EEHC has given rights of use of the site to EDEPC.
5. The plant design incorporated various aspects to minimize environmental impacts. These include a stack height of 150 meters, to maximize buoyancy and dispersion of emission, low NOx, burners in the steam generators to minimize emissions of NOx, which is the key pollutant associated with combustion of natural gas, and open system cooling, to maximize generating efficiency, while minimizing cost, visual impact, noise emissions and the potential for visible vapor plumes or ground fogging.
80 6. The potential impacts of the construction and operation phases of the Ain Sokhna power plant are summarized below. The complete analysis of impacts and mitigation is found in the ESIA prepared for the project.
7. Air Quality. Demolition and Construction Dust. Demolition and construction activities will result in locally high levels of dust. This may affect residential receptors or sensitive environments which lie in the immediate boundaries of the power plant. Existing concentrations of airborne dust are already high in this urban industrial area. Careful management and the implementation of mitigation measures to reduce dust generation will significantly reduce potential impacts from dust emissions on site.
8. Stack Emissions and Background Air Quality. The power plant will bum natural gas as its primary fuel, while mazout (heavy fuel) will only be used in emergency situations and for less than 2% of the time. As a result, the principle pollutant during normal operation will be NOx, During emergency operation, the burning of fuel oil will result in emissions of particulate matter and SO2 along with trace amounts of other pollutants. Emissions from the plant will meet Egyptian and World Bank Guidelines. To analyze the potential impacts of the plant’s emissions during normal operation (firing gas) on ambient air quality in the project area, dispersion modeling has been undertaken.
9. The assessment indicates that the highest concentrations for each ofthe averaging periods under consideration (hourly, daily, and annual) are found to the north-north-west, north-west, and south-south-west of the site, respectively. This is because the winds are exposed to the atmospheric prevailing conditions, although they are overwhelmingly from the north and northwest for most of the time. Maximum annual concentration of NOx emissions in the ambient atmosphere due to operation of both of the Ain Sokhna power plant and the Suez Gulf BOOT power plant will not exceed 44.8 pg/m3 (highest annual maximum is 44.8 pg/m3 at the location [-141.5mY -658.8mI from the plant and the maximum daily reaches 130 pg/m3 at a distance of 271.2 m north-west the origin point intermediating the stacks. Also, Maximum “One hour Average” concentration of NOx emissions in the ambient atmosphere reaches 322.1 yglm3 at the location [-141.5mY 461.2mI. The ESMP recommended that an air quality monitoring system composed of 2 or 3 monitoring stations will be utilized. The monitoring station equipped with meteorological monitoring system will be located near to, or within, the power plant site, the other one or two stations will be located one down wind within the designated area of maximum predicted pollutant concentration and the other (if any) upwind.
10. Aquatic Environment. Cooling water and process water for power plant operation will be drawn from the Suez Gulf via an intake structure. The quantity of the cooling water that will be returned back to the Suez Gulf is about 46 m3/second. Process water that will be abstracted from the Suez Gulf is about 0.07% of this quantity. Potable water will be supplied to the power plant via Suez potable water system. Cooling water will be returned to the Suez Gulf via a discharge structure whilst waste process water will be disposed of after treatment via discharge system, which includes two pathways: plantation irrigation network and Circulating Water Discharge System (CWDS). Sanitary waste water will be disposed of -after treatment- via plantation irrigation network. No ground water or other surface water will be used during power plant construction and operation. The Contractors will be responsible for relevant watedtoilet
81 facilities during construction and the need to provide appropriate services will be specified in their contracts.
11. During construction of the power plant dredging and construction of the intake and discharge structures could lead to potential impacts on physical aquagraphy, water quality and aquatic habitats, flora and fauna. Given that the area of impact is very localized, losses are in many cases temporary and field survey data available do not indicate significant or sensitive habitats, the impacts of power plant construction on the aquatic environment are not considered to be significant. In addition, good site management and engineering practices during construction will ensure that any residual impacts are reduced to a minimum. Power plant operation will result in a heated plume of waste cooling water being discharged into the Suez Gulf. Process water will be disposed of to the discharge system (identified above). All discharges of process water will be treated prior to discharge to ensure that the Egyptian and World Bank waste water quality guidelines are met. Treatment includes neutralization, oil separation, flocculation and filtration.
12. The temperature of the returned cooling water at the point of discharge conforms to the Egyptian Standard, and the discharge as modeled satisfies the World Bank standard of a maximum increase of 3oC above ambient at the edge of the mixing zone (1 00 m from the point of discharge). In addition, the area affected by the highest temperature increases and therefore where aquatic ecology is likely to be most affected, is localized and the aquatic habitats in this area have been found to already be relatively impoverished. Outside this area, more marginal increases in the Suez Gulf water temperature are likely to create new or improved habitats for flora and fauna.
13. Noise. The construction of the power plant is expected to generate a maximum noise level of 59 dB(A) during the day at the fence of the power plant and 57 dB(A) at night. These worst-case construction noise levels are both within Egyptian and World Bank guidelines, and for most of the construction periods, the noise levels will be lower than these values. There are no residential receptors within 1000 m ofthe plant. Construction traffic on local roads will also generate additional noise, however noise levels on local roads predicted for peak construction activity (during 2010-2012) is expected to be only 0.3dB(A) above ambient levels. This magnitude of increase is generally not perceptible to the human ear, consequently no construction traffic impacts are predicted. The potential noise emissions from the plant during operation have been modeled to provide noise contours in the area around the site. The predicted operational noise levels at the site boundary and at all receptors are below the Egyptian and World Bank guidelines during daytime and nigh-time.
14. Flora and Fauna. No areas protected for their conservation value are located on, or in the vicinity of, the project area. The proposed site itself and the surrounding land is poorly vegetated with much of the area having been dominated by sands and sabkha. Given that the potential impacts of construction and operation on power plant area likely to be localized and good site management practices will be implemented, no significant effects are predicted.
15. Land Use, Landscape and Visual Impacts. The land use at the project site is industrial land. There is no loss ofthis land to the power plant development, as this land is dedicated for a power generation activity since 1999, therefore there is not significant land use impacts due to
82 the power project. The surrounding land use is generally industrial. As the land is highly industrialized with almost no vegetation, all existing views will be insignificantly influenced by the power plant and given the surrounding industrial context, particularly the existing Suez Gulf power plant and industrial facilities of Al-Sokhna port, the visual intrusion of the power plant will be minimal. Visual impacts of the power plant from the residential (tourist) areas to the north and south are also not expected to be significant given the long distance of their locations from the site and orientation of the facilities. The potential landscape and visual impacts of the project are therefore expected to be minor and not significant.
16. Soils, Geology and Hydrology. Due to the characteristics of the soils and geology of the site, in particular the lack of any sensitive features, and the mitigation measures proposed as part of the construction and operation of the power plant, no significant impacts are predicted to occur. In addition, preliminary land surface investigations confirmed the site as being uncontaminated.
17. Traffic. The assessment of traffic and transport covers the changes in traffic conditions in terms of delay and congestion during construction and operation. The greatest potential for traffic impacts to occur arises during a short period at peak construction. There is some potential for increased congestion on the main roads to the power plant; however the impacts will only occur during the peak construction phase and during peak hours. The overall impact is therefore predicted to be insignificant. Mitigation measures will be put in place to reduce the potential for impacts to arise. During operation, a small number of workers and HGVs are associated with operating the power plant and no impacts are predicted to occur.
18. Archaeology, Historic and Cultural Heritage. No available information was found which identified any archaeological, historic or cultural remains on the site or in the surrounding area. Consequently, no impact is predicted to occur on any known archaeological, historic or cultural resources. EDEPC has incorporated mitigation measures into the construction program to ensure that any potential finds of significance are recorded and are accorded the required protection in consultation with Supreme Council for Antiquities.
19. Natural Disaster Risks. An assessment of the risks to the power plant from seismic activity has concluded that given the engineering measures incorporated into the design of the power plant, the potential environmental impacts of a seismic event during power plant operation are not anticipated to be significant. Furthermore the power plant will be designed to conform to the Uniform Building Code Zone 2 seismic criteria, according to US regulations for earthquake. These design criteria are therefore considered sufficient to withstand the level ofseismic activity experienced in the area. The risks of flooding during power plant construction and operation were also examined. However, site drainage will be constructed to minimize any risks of contaminated water reaching the surroundings and to properly drain the site, no significant flood risk impacts are anticipated.
20. Major Accident Hazards. Given the wider land surrounding the power plant and the measures incorporated into the design of the plant to minimize the risk from fire and explosion, the plant is not anticipated to pose a potential risk of any significance to any third party facilities.
83 21. Solid and Hazardous Waste Management. The management of wastes during construction and operation of the power plant will include mitigation measures to collect and store waste on-site, record all consignments of solid or contaminated waste for disposal and periodically audit waste contractors and disposal sites to ensure that disposal is undertaken in a safe and environmentally acceptable manner according to the rules set by Law 4/1994 and the Governorate of Suez. Private sector contractor will be assigned via general bidding process and the contract will include detailed environmental procedures, according to Law 4,4994 and Governorate of Suez regulations, for disposing debris materials. The contract covers all fees required. 102. During construction and operation, all wastes including debris waste, general waste, packaging waste, commercial wastes, raw-water pretreatment sludge, tank sludge and interceptor sludge will be disposed of by licensed waste contractors according to the rules set by Law 4/1994 and the Governorate of Suez. Solid and hazardous waste management is not predicted to cause any significant impacts.
22. Occupational Health and Safety. With the provision of a high standard of health and safety management on site, construction and operation of the power plant in accordance with good industry practice, the occupational health and safety risks associated with construction and operation ofthe power plant will be minimized and are not significant.
23. Associated Infrastructure. Connections to existing gas and electrical facilities will be the responsibility of“City Gas”, EETC and the EDEPC respectively. In regard to the gas connection with the gas reducing station of the site and oil pipeline to the oil tanks on the site no environmental or social impacts are anticipated. EEHC has already submitted a request to City Gas for their needs for the new plant which will necessitate a bigger diameter pipeline, or an additional pipeline, which will follow the same existing pipeline.
24. The electricity generated by the proposed power plant will be exported via the 500 and 220 kV electricity transmission system. The power plant will be connected to the 500 kV switchyard via step-up transformers. The electricity generated by the proposed Al-Ain Al- Sokhna power plant will be exported by the EETC electricity network, via two transmission systems, double circuit 220 kV and 500 kV lines. The first will be connected to the unified network upward direction towards Suez city with approximately 40 km length, while the second will be extended to the west direction, approximately 90 km until it meets the 500 kV transmission line connecting El- Kureimat and El-Tebbin 500 kV substations. Construction and operation of this infrastructure will be the responsibility of the EETC. The final routing is not yet defined. Mitigation measures for this component are provided in the ESMP. EETC and EDEPC will submit Screening Form B to EEAA concerning this interconnection.
25. The min potential impacts from the transmission lines include avian and aircraft hazards; induced effects from electromagnetic fields; vegetation damage, habitat loss, and invasion by exotic species along the ROW and access roads and around substation sites; and chemical contamination from chemical maintenance techniques. Proposed environmental mitigation measures include selecting the right of way (ROW) to avoid important bird habitats, flight routes, and human activities; installing deflectors on lines in areas with potential for bird collisions; utilizing mechanical clearing techniques, grazing and/or selective chemical applications; selecting herbicides with minimal undesired effects; and maintaining naturally low- growing vegetation along ROW. It is not expected that the impacts will be significant.
84 Environmental and Social Management Plan (ESMP)
26. An Environmental and Social Management Plan (ESMP) is provided in details in the project’s Environmental and Social Impact Assessment (ESIA) report. The ESMP presents the institutional arrangements necessary for environmental management, environmental mitigation measures during construction and operation, and monitoring plans to ensure the impacts are managed. The cost of ESMP implementation is estimated to be $1.848 million, paid for by EDEPC with possible contribution from the Arab Funds.
27. The following pages include tables summarizing the main impacts, mitigation, and monitoring requirement for the construction and operation of the project components. The tables also include detailed institutional arrangement for ESMP implementation, and breakdown of the ESMP implementation cost. A summary of the Table numbers and contents is as follows:
Table No. Contents 10.1 Institutional Arrangements for the ESMP Implementation 10.2 Construction Impact Mitigation, Monitoring and Management Measures 10.3 Operation 1 Impact Mitigation, Monitoring and Management 10.4 Transmission System Impact Mitigation, Monitoring and Management 10.5 Monitoring Program for Ambient Air Quality, Noise and Vibration I 10.6 I Monitoring of the Aquatic Environment During Operation I 10.7 Summary of Implementation Cost of the ESMP
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I Indicative Sampling Monitoring cost Monitoring Parameters Frequency Item Locations Estimate (US$)
Dust emissions caused by NOz, SO2, CO, TSP and Quarterly during On site of the project Measurement construction activities, PMio. most of the and its surroundings. cost: US$70K construction vehicle movements, construction and transport of friable period. construction materials. Continuous 2 locations minimum: at Approx. US$ monitoring during 6 maximum predicted 1000-1500K months ahead of pollution concentration commissioning. and downwind. Third location, if any, will be 1 km upwind.
Decibels (dB) A Quarterly NOISE I at nearest residences I ~~~~~~:3k) Operation Phase
AIR QUALITY 2 locations minimum: at Included in the Emissions Automatic monitoring of stack Continuous and/or maximum predicted plant operation from stack are not expected to emissions for NOx, SOZ,particulate 24 hour average pollution concentration exceed standards. matter and carbon monoxide (CO) via Continuous and/or and downwind. test ports installed in the main stack. passive samples Third location, if any, every 2/4 weeks will be 1 km upwind. In addition, conduct surrogate performance monitoring.
The analyzer Install (at least) two continuous stations will be Ambient air quality affected by NOX, SOz, CO, PMio & TSP electronically emissions from the power plant. monitoring stations to monitor short- connected to the term concentrations in the area plant controlling predicted to have the highest impacts room and EDEPC on humans (as there are sensitive Chairman's office. environments). The analyzer station near or within the site boundaries will include a continuous monitor of meteorological conditions (temperature, wind speed, wind direction and mixing heights).
NOISE Bi-annually to 6-10 sites at nearest Noise audit US$ annually receptors and fence 10-20K around the piant (included in operation cost)
Third party (e.9. NRC) Measuring instruments and equipment.
107 Table 10.6 Monitoring of the Aquatic Environment During Operation
Frequency of Issue Parameter Method measurements
Water Quality Temperature & pH of all Continuous automatic monitor in discharge Continuous discharged water structure
COD, TSS, Oil & Grease, residual Sample taken from water in discharge Daily chlorine of effluent structure and submitted for lab. Analysis
Heavy metals & other pollutants of As above effluent Monthly
Ambient Water Temperature, pH, COD, BOD, Grab sampling and analysis within the area 3-monthly Quality TOC, DO, TSS, oil & grease, predicted to be affected by the discharge residual chlorine, heavy metals & plume other pollutants
Transect sampling (following same method Flora & Benthic flora & fauna Annual as in baseline monitoring) within a 2 km Fauna (’) radius of the discharge point
Removal and analysis of any debris caught in Entrainment (*) Fish entrainment on screens intake screens Weekly
Notes: (1) To be undertaken for the first 3 years of plant operation (2) To be undertaken for the first year of plant operation. Abbreviations: COD: Chemical Oxygen Demand BOD: Biological Oxygen Demand TOC: Total Organic Carbon DO: Dissolved Oxygen TSS: Total SusDended Solids
Table IO. 7 Summary of Implementation Cost of the ESMP
- ~~ ~ ~~ ~~ Cost in US$ ‘000 No. Phase of Implementation Source of Funding - Measures Monitoring 1 Construction Phase 120 EDEPC Pre-commissioning Monitoring (ambient 1,325 EDEPC air quality monitoring equipment) (with possible support from the Arab Funds)
All others 138 EDEPC - Training 155 EDEPC 2 Operation Phase 70 20 EDEPC - Training 20 EDEPC Sub. Total 190 1,658 Grand Total 1.848
108 Resettlement Policy Framework
Context
28. It is a widely accepted fact that if left unmitigated, involuntary resettlement under development projects may give rise to economic, social and environmental risks. The purpose of the RPF is to establish the principles for social impact mitigation and to clarify the organizational arrangements that may be needed during preparation and implementation. This includes compensating all project-affected persons (PAPs) for the loss of lands, properties and livelihoods resulting from resettlement and land acquisition as well as assisting PAPs in relocation and rehabilitation. The RPF shall be particularly sensitive to the impacts which displacement may have on vulnerable and marginalized groups, including the poor, landless, women or people with mental or physical disabilities.
29. Since some of the project’s physical components may result in involuntary resettlementhind acquisition, OP 4.12 on Involuntary Resettlement is triggered, and a Resettlement Policy Framework (RPF) has been prepared. An RPF is the instrument used, because the nature and extent of land acquisitionhesettlement of the various sub-components are not known at appraisal. In the context of this project, this applies e.g., to the construction of associated infrastructure, in particular the planned 130 kilometers of transmission lines which may entail some degree of land acquisition and/or resettlement.
30. The key purpose of the RPF is to establish resettlement objectives, principles, organizational arrangements and funding mechanisms for any resettlement operation that may be necessary. When during implementation the exact extent of land acquisition becomes known, a Resettlement Action Plan (RAP) or abbreviated RAP - depending on the scale and severity of impacts - will be prepared. The resettlement process should be completed prior to the start of physical works.
Principles and objectives governing resettlement
31. The RPF discusses legal and institutional aspects of expropriation and in some areas Egyptian law and Bank rules and regulations differ, although actual practice might not differ as much as indicated in the law.
32. Minimization of resettlement: The expropriation of land and resettlement is minimized according to Egyptian law, and within the framework of the Constitution, the Civil Code in Article 805 states that “No one may be deprived of his property except in cases prescribed by law and this would take place with an equitable compensation”. Although squatters and tenants are not covered by the law, these groups are rarely resettled without some form of compensation. If involuntary resettlement is unavoidable, resettlement activities should be implemented as sustainable development programs where sufficient resources are provided to give the PAPs an opportunity to share in project benefits. PAPs shall be meaningfully consulted and given opportunities to participate in planning and implementing resettlement plans. PAPs should through compensation be able to improve their livelihoods and standard of living, or at least restore them to pre-displacement levels.
109 33, Legal process is obligatory: All ex ropriations and activities related to resettlement must be carried out according to Egyptian law.39 Any occupant subjected to resettlement has the right to complain within 15 days of receiving the notification to a specialized committee established by the appropriate authority. The committee should reach its decision concerning the complaint within a maximum of one month.
34. Compensation and eligibility principles: Compensation for lessees and squatters is not explicitly addressed in Egyptian law. However, although the government, legally speaking could dispose of e.g., squatter land without compensation, in reality this right is almost never exercised.
Proceduresfor preparing and approving RAPS
a. Expropriation procedures start with a declaration of public interest pursuant to a Presidential Decree accompanied with a memorandum on the required project and a complete plan for the project.
b. Based on the above, Egyptian General Authority for Land Survey (ESA)36submits request to the President or the Prime Minister including proposed compensation level to be offered to the Concerned property owners.
C. If approved, the President would issue the required decree declaring the property in question appropriated in the public interest.
d. ESA conducts necessary technical and survey operations to obtain information on the property.
e. A committee composed of a representative of ESA, a representative of the local government unit within which jurisdiction the project is located and the treasurer of the local area in question is established. The committee shall declare its activities to the public 15 days prior to the commencement of its work.
f. ESA shall inspect the property of the project in question and estimate compensation to be considered by the Compensation Estimation Committee.
g. Lists of all real properties and facilities being identified shall be prepared, their areas, location, description, names of their owners, and holders of property rights therein, their addresses, and the compensation determined by the Compensation Estimation Committee.
h. ESA shall thereafter officially notify the property owners and other concerned parties. Lists with detailed information will be posted for a period of 1 month in the offices of
35 Articles 29 and 34 on property rights of the 1971 Constitution, Civil Code, Articles 802-805 (on private property). To reflect this constitutional mandate, Law 10 of 1990 concerning the Expropriation of Ownership for Public Interest was issued. In addition, expropriation of property is further regulated by Law 59 of 1979 (Establishment of New Urban communities and Law 3 of 1982 concerning Urban Planning. 36 Egyptian Survey Authority
110 the concerned local government unit and shall also be published in the Official Gazette and in two widely read daily newspapers.
i. Owners and concerned parties shall be officially notified with an evacuation request within a period not to exceed 5 months from the date of their notification.
Estimated population displacement and/or land acquisition
35. Cannot be determined prior to implementation.
Categories of project affected people
36. Project affected people may include owners, tenants and people without formal tenure. The marginalized and vulnerable sections of the population will as indicated above, require specific attention.
Gaps between Egyptian laws and World Bank policies
37. There may be gaps in several areas which may require conciliation including: the definition of resettlement, methods to calculate compensation, legal status of squatters, and support during the transitional period, as well as level of attention given to vulnerable groups. A table comparing Egyptian regulations with World Bank policies (OP 4.12) has been included in the RPF.
Methodsfor evaluating assets
38. Compensation of Lands and Structures: Determination of the compensation to be given to expropriated property owners and holders of rights therein is made at two separate levels. The first is made by the Expropriating Entity in order to meet the requirement that the estimated compensation amount is deposited with ESA prior to proceeding with the remaining formalities. The second level is a review of the estimated compensation by the Compensation Estimation Committee within ESA.
39. Compensation is determined pursuant to prevailing prices at the time the expropriation decree is issued and the estimated compensation amount shall be deposited with ESA within one month from the date of such decree. It is possible, if approved by the property owners or right holders to obtain in-kind compensation either in full or in part.
40. Valuation and compensation of structures: The value of structures to be demolished will be assessed by professional evaluators, either from the ESA, or from private offices certified by ESA.
41. Valuation of losses of income for businesses: Estimate of net monthly profit of the business, based on records if any, on operator’s statements, cross-checked by an assessment of visible stocks and activity.
111 Resettlement and compensation planning
42. Following the identification of components that may necessitate involuntary resettlement, the next step would be to prepare a socio-economic study in which baseline data within the target area is collected. This information is used in determining the appropriate compensation and assistance for each affected individual/household. In this process stakeholders will be fully engaged, resettlement preferences of the PAPs identified and any concerns or worries that the PAPs may have will be fully documented. The subsequent Resettlement Action Plan (RAP) will assess the number of PAPs involved and identify anticipated impacts. The process will be participatory and all the elements of the resettlement process will be spelt out in detail. Organizational responsibilities, implementation schedule, a detailed budget as well as monitoring and evaluation procedures will be established.
Grievance redress mechanisms
43. As outlined in the RPF, grievance redress mechanisms include both a proactive approach (widespread disclosure ofproject, clarification of eligibility criteria, etc.) and a reactive approach (settling disputes amicably at the local level, involving project management, the courts). All concerned parties have the right to object to the compensation determined. Grievances resulting from misunderstandings of policy or neighbor conflicts are often solved through mediation. The first instance of dispute handling will be set up with the aim of settling disputes amicably. The concerned owners have the right, within 30 days from the date of posting the lists and information of the expropriated properties, to object (to the ESA) to the information contained in such lists. In case of disputes between several individuals, each party must present all relevant evidence within 90 days from submitting the memorandum of objectiordgrievance. The ruling of ESA can be appealed to the Court and must be done within 60 days. Court cases are known to require long periods oftime before settlements can be reached.
44. Mechanisms for consultation with and participation of affected persons in planning, implementation and monitoring displaced persons are provided timely and relevant information, but are not, according to Egyptian law, consulted on resettlement options and do not participate in planning, implementation and monitoring ofthe resettlement process.
Vulnerable groups
45. Egyptian legislation does not specifically state any privileges for vulnerable groups. However, the World Bank’s OP 4.12 emphasizes the need to give special attention to the rights of vulnerable groups to make sure that they are not excluded from any adopted measures within the overall resettlement actions.
Disclosure requirements
46. The Bank puts major emphasis on both the participation of PAPS and public disclosure of relevant resettlement documents. The PAPs should be fully consulted and should participate in both planning and implementation of resettlement programs. With regard to RPF/RAP disclosure OP 4.12 requires that the project discloses information as a condition of appraisal of projects involving resettlement. The borrower provides the Bank with the relevant draft resettlement instrument which conforms to this policy, and makes it available at a place accessible to
112 displaced persons and local NGOs, in a form, manner, and language that are understandable to them. The draft RPF should be circulated to all relevant institutions (e.g., concerned ministry, governorate, relevant land agencies, and others as appropriate). Comments should be incorporated into the final RPF together with WB comments.
47. Consultation on the RPF is to be organized by the appropriate government agency through the project. Information and consultation are proposed to be implemented in the course of the preparation of subsequent RAPS. The sharing of information should coincide with the cut- off date (information should not be delivered in advance of the cut-off date to avoid encroachment of new arrivals), information will be provided to potential PAPs on the project including resettlement and compensation principles as they are outlined in the RPF. With regard to RAP consultation: once these are available in draft form, they should be discussed with local authorities (e.g., District executive and elected Councils) and affected communities, whose comments will be incorporated into final documents.
Budget and sources of funding
48. OP 4.12 states that the full costs of resettlement necessary to achieve the objectives ofthe project should be included in the total costs of the project. However, in this project where the exact location of associated infrastructure will not be known at appraisal, a site-specific Resettlement Plan should present the details on costs and financing sources. These should include all costs related to the resettlement process, including compensation and administrative costs as well specific sources of funding, and the EEHC and their concerned affiliate companies will be fully responsible for any compensation for resettlement and/or land acquisition.
Monitoring of implementation
49. In each case when any type of land acquisition and compensation is involved, all actions should be documented, including responsible agencies, expected completion date, and if delayed, the reasons should be specified as well as the new expected completion date. Internal monitoring will be done every two months and will cover compensation standards, resettlement progress, delivery of compensation and transitional assistance to PAPs, especially to vulnerable groups and will assess how grievance issues are handled. In addition an independent agency will be required to carry out external resettlement monitoring and evaluation. This will include an assessment of consultation and public disclosure. The competence of EEHC staff, adequacy of compensation, ability to reach the most vulnerable PAPs and effectiveness of grievance redress mechanisms will also be evaluated. As part of the reporting to the World Bank, quarterly monitoring reports will include monitoring and reporting of any resettlement and/or land acquisition activities.
Public consultation and Disclosure
50. In order to ensure that the views and interests of all project stakeholders are taken into account, public consultation has been carried out according to the Egyptian guidelines, which require coordination with other government agencies involved in the ESIA as well as obtaining views of local people and affected groups. This consultation has been undertaken as part of the
113 ESIA process. The adopted methodology for the public consultation, which conforms to Egyptian guidelines and World Bank requirements, comprises four elements, namely:
discussions with local stakeholders and interested parties during preparation of the environmental documents for local permitting requirements;
0 discussions with local stakeholders during the scoping meeting organized in the Suez Governorate, and preparation ofthis ESIA-Report;
the organization of a Public Meeting in the Suez Governorate, and
0 on-going consultation through an “open-door” policy during construction andoperation ofthe power plant.
51. A variety of environmental and socio-economic issues have been covered in these consultations. A full methodology for consultation and disclosure is presented in the project’s Public Consultation and Disclosure Activities (PCDA), given in Annex D ofthe ESIA.
52. A scoping session for this ESIA, undertaken by ECG in collaboration with the EEHC and EDEPC, took place on June 2, 2008 during which a wide selection of personnel from different orientations contributed actively to its activities (1 73 participants). The key objectives of this consultation were to identify primary and secondary stakeholders, ensure that they had received sufficient information about the project during earlier ECG/EEHC/EDEPC consultation activities and to identify their immediate concerns.
53. A second consultation meeting with 105 participants was convened on August 6, 2008. This consultation was announced in daily newspapers well in advance, along with invitations sent to all relevant stakeholders. Those consulted in these sessions expect the project to have significant positive long-term impacts, and in the short term considerable additional local employment will be created. A more detailed description of these meetings as well as other consultation activities is presented in the project’s Public Consultation and Disclosure Activities. (Annexes A-D of the ESIA).
54. As far as public disclosure is concerned, major initiatives to inform the public and interested parties about the Al-Sokhna Power project include the following:
press advertisement describing the project and inviting interested parties to attend the public meeting and review the Draft Final ESIA Report;
0 distribution of an invitation and Arabic copy of the Non Technical Summary describing the context ofthe power plant, the technology employed, the impact on the environment, the mitigation measures and the ESMP; and
disclosure of the Draft Final ESIA Report and the Executive Summary, including ESMP locally and via the Infoshop.
55. The ESIA report was disclosed at the World Bank’s Infoshop on September 11, 2008. In-country disclosure took place at the same time in easily accessible places to the public,
114 including EEAA, EEHC’s Public Relations Department, and EDEPC’s Public Relations Department.
115 Annex 11: Project Preparation and Supervision EGYPT, ARAB REPUBLIC OF: Ain Sokhna Power Project
Planned Actual PCN review April 3,2008 April 3, 2008 Initial PID to PIC April 7, 2008 Initial ISDS to PIC April 9, 2008 Appraisal October 8, 2008 October 12,2008 Negotiations December 2,2008 December 2,2008 BoardRVP approval January 29,2009 January 29,2009 Planned date of effectiveness June 30,2009 Planned date of mid-term review September 15,2013 Planned closing date December 3 1,20 15
Key institutions responsible for preparation of the project:
Egyptian Electricity Holding Company East Delta Electricity Production Company
Bank staff and consultants who worked on the project included:
Name Title Unit Akram El-Shorbagi Senior Financial Management Specialist MNAFM Anna Bjerde Lead Energy Specialist, TTL MNSSD Armando Araujo Procurement Adviser MNAPR Khalid Boukantar Program Assistant MNSSD Knut Opsal Senior Social Scientist MNSSD Laila Mohamed Kotb Program Assistant MNC03 Lizmara Kirchner Infrastructure Specialist MNSSD Maged Hamed Senior Environmental Specialist MNSSD Masaki Takahashi Senior Power Engineer MNSSD Mohab Hallouda Senior Energy Specialist MNSSD Mohamed Yehia Abd El Karim Financial Management Specialist MNAFM Waleed Saleh Alsuraih Energy Specialist MNSSD
Bank funds expended to date on project preparation: 1. Bank resources: $270,000 2. Trust funds: $0 3. Total: $270,000
Estimated Approval and Supervision costs: 17. Remaining costs to approval: $112,000 18. Estimated annual supervision cost: $100,000
116 Annex 12: Documents in the Project File EGYPT, ARAB REPUBLIC OF: Ain Sokhna Power Project
1. Environmental and Social Impact Assessment 2. Resettlement Policy Framework 3. Feasibility Study ofthe Ain Sokhna Power Project 4. Procurement Capacity Assessment, June 2008 5. Detailed Financial Analysis of EEHC and detailed assumptions 6. Terms of Reference for Environmental and Social Assessment, February 2008 7. Report on Development of a Load Management Program and Design of Time of Use/Seasonal Pricing - by Economic Consulting Associates Ltd. 8. Terms ofreference for the PPP consultant 9. Terms ofreference and report on wind market development under a commercial framework.
117 Annex 13: Statement of Loans and Credits EGYPT, ARAB REPUBLIC OF: Ain Sokhna Power Project
Difference between expected and actual Original Amount in US$ Millions disbursements Project ID FY Purpose IBRD IDA SF GEF Cancel. Undisb. Orig. Frm. Rev’d PO95392 2008 EG-NATURAL GAS CONNECTIONS 75.00 0.00 0.00 0.00 0.00 75.00 0.00 0.00 PO943 1 1 2008 EG INTEGRATED SANITATION & 120.00 0.00 0.00 0.00 0.00 120.00 0.00 0.00 SEWERAGE INFR PO93470 2007 EG-MORTGAGE FINANCE 37.10 0.00 0.00 0.00 0.00 37.53 11.69 0.00 PO87970 2007 West Delta Water Conserv. & Irrig. Rehab 145.00 0.00 0.00 0.00 0.00 145.00 20.00 0.00 PO91945 2006 EG-EL TEBBN POWER 259.60 0.00 0.00 0.00 0.00 216.67 23.80 0.00 PO90073 2006 Second Pollution Abatement Project 20.00 0.00 0.00 0.00 0.00 18.00 2.67 0.00 PO73977 2005 EG-INTEGRATED IRRIGATION IMPR. 120.00 0.00 0.00 0.00 0.00 114.99 22.49 0.33 & MGT PO82952 2005 EG-Early Childhood Education 20.00 0.00 0.00 0.00 0.00 17.94 9.96 0.00 Enhancement PO82914 2004 EG-AIRPORTS DEVELOPMENT 335.00 0.00 0.00 0.00 0.00 92.04 43.71 -3.23 PROJECT PO49702 2004 EG-SKILLS DEVELOPMENT 5.50 0.00 0.00 0.00 0.00 3.12 3.12 -0.23 PO56236 2002 EG-HIGHER EDUCATION 50.00 0.00 0.00 0.00 0.00 3.20 3.20 -0.46 ENHANCEMENT PROG PO45499 2000 EG-NATIONAL DRAINAGE I1 50.00 0.00 0.00 0.00 0.00 2.43 2.43 0.52 PO50484 1999 EG Secondary Education Enhancement 0.00 50.00 0.00 0.00 0.00 25.08 19.87 18.21 Proj PO49166 1998 EG East Delta Ag. Sew. 0.00 15.00 0.00 0.00 0.62 4.86 3.51 3.24 PO45 175 1998 EG-HEALTH SECTOR 0.00 90.00 0.00 0.00 0.00 2.87 -5.87 -7.36 Total: 1,237.20 155.00 0.00 0.00 0.62 878.73 160.58 11.02
EGYPT, ARAB REPUBLIC OF STATEMENT OF IFC’s Held and Disbursed Portfolio In Millions of US Dollars
Committed Disbursed IFC IFC FY Approval Company Loan Equity Quasi Partic. Loan Equity Quasi Partic. 1996 ANSDK 1.33 0.00 0.00 0.00 0.56 0.00 0.00 0.00 2004 Alexandria Fiber 8.00 0.00 0.00 0.00 7.00 0.00 0.00 0.00 2001 Amreya 4.69 0.00 0.00 0.00 4.69 0.00 0.00 0.00 2006 CIB LLC 0.00 0.72 0.00 0.00 0.00 0.48 0.00 0.00 1999 CIL 0.00 0.74 0.00 0.00 0.00 0.74 0.00 0.00 2004 CIL 0.00 0.15 0.00 0.00 0.00 0.15 0.00 0.00 1992 Carbon Black-EGT 0.00 1.48 0.00 0.00 0.00 1.48 0.00 0.00 1997 Carbon Black-EGT 0.00 1.48 0.00 0.00 0.00 1.48 0.00 0.00 1998 Carbon Black-EGT 4.00 0.00 0.00 0.00 4.00 0.00 0.00 0.00 2000 Carbon Black-EGT 5.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
118 Committed Disbursed IFC IFC FY Approval Company Loan Equity Quasi Partic. Loan Equity Quasi Partic 2002 Ceramica AI-Amir 3.33 0.00 0.00 0.00 3.33 0.00 0.00 0.00 2006 Cmrcl Intl Bank 0.00 23.28 0.00 0.00 0.00 23.03 0.00 0.00 2006 EFG Hermes 20.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2004 EHF 0.00 1.70 0.00 0.00 0.00 1.70 0.00 0.00 2005 Egypt Factors 0.00 3.00 0.00 0.00 0.00 0.00 0.00 0.00 2006 Gippsland 0.00 4.61 0.00 0.00 0.00 2.03 0.00 0.00 2001 IT Wont 0.00 2.00 0.00 0.00 0.00 2.00 0.00 0.00 2004 Lecico Egypt 8.94 0.00 0.00 0.00 8.94 0.00 0.00 0.00 1986 Meleiha Oil 0.00 8.62 0.00 0.00 0.00 0.00 0.00 0.00 1988 Meleiha Oil 0.00 9.20 0.00 0.00 0.00 0.00 0.00 0.00 1992 Meleiha Oil 0.00 13.00 0.00 0.00 0.00 0.94 0.00 0.00 2005 Merlon Egypt 1.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2002 Metro 10.50 0.00 0.00 0.00 10.50 0.00 0.00 0.00 1992 Misr Compressor 9.70 0.00 0.00 0.00 9.70 0.00 0.00 0.00 Orix Leasing EGT 4.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1996 Orix Leasing EGT 0.00 0.53 0.00 0.00 0.00 0.53 0.00 0.00 2001 Orix Leasing EGT 1.09 0.00 0.00 0.00 1.09 0.00 0.00 0.00 200 1 Port Said 41.07 0.00 0.00 132.53 41.07 0.00 0.00 132.53 2002 SEEM 4.18 0.00 0.00 0.00 4.18 0.00 0.00 0.00 2006 SONUT 10.00 0.00 4.00 0.00 0.00 0.00 0.00 0.00 2004 SPDC 18.40 0.00 0.00 0.00 18.40 0.00 0.00 0.00 200 1 SUEZ GULF 40.40 0.00 0.00 129.07 40.40 0.00 0.00 129.07 1997 UNl 2.05 0.00 0.00 0.00 2.05 0.00 0.00 0.00 200 1 UNI 2.06 0.00 0.00 0.00 2.06 0.00 0.00 0.00 2005 Wadi Group 15.00 0.00 0.00 0.00 7.50 0.00 0.00 0.00 Total portfolio: 214.74 70.51 4.00 261.60 165.47 34.56 0.00 261.60
Approvals Pending Commitment FY Approval Company Loan Equity Quasi Partic. 2004 ACB Acrylic 0.00 0.00 0.00 0.00 2004 Merlon Egypt 0.00 0.00 0.00 0.02 2000 ACB Expansn I11 0.00 0.00 0.00 0.00 2006 Rally Energy 0.01 0.00 0.00 0.00 Total pending commitment: 0.01 0.00 0.00 0.02
119 Annex 14: Country at a Glance EGYPT, ARAB REPUBLIC OF: Ain Sokhna Power Project
Egypt, Arab Rep. at a glance 17106
75.5 31 3 3,437 Lite expectancy 1,580 2,794 1,881 119.4 em 6,486 T 1.8 1.8 1 .l GNI Gross 2.8 3.6 1.5 per capita enrollment
43 67 42 71 To 69 1 29 34 41 5 25 Access to impwad water source 98 89 88 71 73 88 105 106 11 1 107 108 102 103
aooB 1993 2007 Econdc ratlor" 78.4 107.6 148.1 17.6 18.7 21.9 Trade 18.8 29.9 3t .a 11.5 17 1 14.0 17.3 22.0 24.3 2.1 0.2 1.6 Domesdc Capital '- 1 .0 0.6 savhgs formation 384 27.3 10.0 5.4 .. 24.0 .. 63.1 IndeWness a006 2007 2ow-11 I law- annurrlqh) GDP 4.1 4.5 6,8 7.1 6.8 GDP per oaplpite 2.0 2.6 4.9 5.2 6.7 Exparts of weds and services 6.3 9.5 21.3 14,2 19.6
lW7 2096 20*7 Grwth of capital and GDP (Qa) (76 of GDPl Agricult m 20.5 170 14 1 130 Induetiy 27 1 31 2 38.4 355 a, Mmufacturinq lB.5 176 16.6 15 6 Servims 62.4 51.8 475 51.5 0 Household final consumption expondituro 69.9 772 70.6 748 -a0 gov? misumption oxpditure Gonod final 14.3 11.3 123 tt2 CF -CDP lfnports of gods and services 22.8 249 31 6 39.2 .
.- 0.- .-" II" MI* LA*-
120 PRICES and 00VERNMENT FINANCE W87 1997 2006 2007 mmrtic prices (%claoI7Qd Consumer prices 8.2 4.2 10.4 hplicit GDP deflator 31 .1 99 74 10 5 Govarnmt an*w (0x1 c4 GDP, mdudm current gmb) Current rwmue 20 3 22 8 27.3 25.3 02 m os 06 06 Currenl budget blame 20.3 22.8 27.4 0.3 OF dofistor eCPI Overall surplwddeficit 26.2 24 3 28.5 -8.3 I "I
TWE 2006 '1987 1W 2007 Export and Impon kvda (US$ m1M (Us$ rnalionsl Tdral em(fob) 2,264 5.345 18,455 21,336 40,WO cotton 458 2,578 10,407 1 1,038 Other a,&ulture 343 107 146 182 30,wo Manufactures 685 1,302 5,172 5,947 Total imprts (cif) 7,323 15,565 30,441 37,469 20,mo Food 2,338 2,885 1.921 2,159 10,wo Fuel and energy 884 1,909 5,443 5,928 Capital goods 1.764 4,114 7.888 12,030 0 01 02 CU 04 06 06 07 Exp~Ftprice index 1,2004 f0.3 87 126 150 157 Import pnw index (ZOO& faol 86 116 135 138 Erportb Imports Terms of trade (&X&tOOl 101 108 It1 113
BAWJCE of PAYMENTS 1987 1m 2006 2007 (Us$ mP/b.w.l Exports of gooads and sewices 5.667 14,534 33,891 40,008 ImpDrts of pods and senices 9,468 19,528 38,217 50,121 Resource balance -3,801 -4,994 -4,326 -10,114 Net income -480 967 53 1 940 Net currmt transfers 3.356 4,145 5'547 11 $915 Current account balance -924 119 1,?52 2,741 Financing items (not) 106 1'793 1.502 3,940 Changes in net resews 619 -1,912 -3,253 -6,681 Aiknnc: Reserves iwluding qold {US$ m'l&m] 26,660 33,320 Conversion rate (DEG /mal/uS$I 1.3 34 5.7 57
EXTERNAL DEBT and RESOURCE FLOWS 2006 2007 1987 '1w Composition of 2006 debt (US$ mill.) {Us$ mrllionsl Total debt outstanding and disbutsed 44,147 30,102 29,339 IBRO 1.703 869 544 A544 IDA 892 1,206 1,481 B.lA81 Total de& sewice 1,661 1,985 2,201 IBRD 244 297 93 IDA IO 24 53 Composition of net resau~eflows Official grants 560 1,028 639 Official creditors 753 -10 - 1 .a40 Private cruditom 574 -37 -250 Foreign direct investment [net inflows) 948 89 1 10,043 P&io equity (net inflows) 0 5 15 502 E, PD,OOs. World Bmkprogmm Ccrmmitmente 0 75 817 A - iBRD E .Rllate ral
Diskmoments 183 260 164 B IDA D ~ Omer muMaarnl F - Ptiwate Principl repaymen@ 125 24 1 108 G - IMF G - 6 hon-porn Net flows 3% 19 56 Interest prtylnonts 129 80 39 Net transfers -91 -6 1 18
~~~ Note: This tableworkduced tom the kvelo~~fconwnicg LDB database. 91 17/08
121
IBRD 36676
ARAB REPUBLIC OF EGYPT AIN SOKHNA POWER PROJECT
AIN SOKHNA POWER PLANT
SELECTED CITIES AND TOWNS MAIN ROADS GOVERNORATES IN NILE DELTA: GOVERNORATE CAPITALS RAILROADS 1 KAFR EL SHEIKH 7 DAGAHLIYA 2 DAMIETTA 8 MENOUFIYA NATIONAL CAPITAL GOVERNORATE BOUNDARIES 3 PORT SAID 9 SHARGIYAH 4 ALEXANDRIA 10 QALIUBIYA RIVERS INTERNATIONAL BOUNDARIES 5 BEHEIRA 11 ISMAILIA 6 GHARBIYA 12 CAIRO
25°E30°E 35°E
WEST BANK To M e d i t e r r a n e a n S e a AND GAZA To Darnah Tel Aviv Salum Marsa Matruh 2 DamiettaDamietta 1KafrKafr elel Alexandria SheikhSheikh Port Said El'Arish 3 JORDAN LibyanL i b y a n PlateauP l a t e a u DamanhurDamanhur ElEl MansuraMansura ISRAEL 7 4 6 TantaTanta 9 ZagizigZagizig ShibinShibin elel KomKom IsmailiaIsmailia 8 NORTHERNNORTHERN BenhaBenha 1111 5 1010 SINAISINAI 30°N 30°N CAIROCAIRO QattaraQattara GizaGiza SuezSuez DepressionDepression 1212 QaraQara AIN SOKHNA POWERTabaTa bPLANTa ElEl FayoumFayoum SiwaSiwa SUEZSUEZ ELEL FAYOUMFAYOUM SOUTHERNSOUTHERN MARSAMARSA MMATRUHATRUH BeniBeni SuefSuef Gulf of Suez SINAISINAI BENIBENI SUEFSUEF AbuAbu ZZenimaenima GIZAG I Z A RasRas GharibGharib
ALAL MINYAMINYA ElEl TurTur Gulf of Aqaba AlAl MinyaMinya E ARAB REPUBLIC a OF EGYPT s NileN t il LIBYA e e ALAL BAHRBAHR Al Ghurdaqah ASSIUTASSIUT AssiutAssiut r
RiverR n iv e ALAL AHMARAHMAR r Bir Seiyala W e s t e r n SohagSohag D
L SOHAGSOHAG e SAUDI
i QenaQena s Quseir. b ARABIA DesertD e s e r t e r y QENAQENA Red LuxorLuxor t
a ALA L WWADIA D I MutMu.t El-KhargaEl-Kharga
25°N n ALA L JJADIDA D I D Marsa 'Alam 25°N
ASWANASWAN D KomKom OOmbombo
e
s Aswan Dam AswanAswan
e To Sea Jalu r t LakeLake NasserNasser
HalaibHalaib
SUDAN 0 50 100 150 200 Kilometers To To To Port Sudan Dongola Berber This map was produced by the Map Design Unit of The World Bank. 0 50 100 150 Miles 20°N The boundaries, colors, denominations and any other information 20°N shown on this map do not imply, on the part of The World Bank Group, any judgment on the legal status of any territory, or any endorsement or acceptance of such boundaries. 25°E30°E35°E
DECEMBER 2008