Document of The World Bank
FOR OFFICIAL USE ONLY
Public Disclosure Authorized Report No: 52052-EG
PROJECT APPRAISAL DOCUMENT
ON A
Public Disclosure Authorized PROPOSED LOAN
IN THE AMOUNT OF US$280 MILLION
TO THE
ARAB REPUBLIC OF EGYPT
FOR THE
CAIRO AIRPORT DEVELOPMENT PROJECT - TB2
January 27, 2010 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 January 21, 2010) Currency Unit = Egyptian Pounds (EGP) EGP5.425 = US$1.00
FISCAL YEAR July 1-June 30
ABBREVIATIONS AND ACRONYMS
AC Law Airport Concession Law GNSS Global Navigation Satellite System ACI Airports Council International GOE Government of Egypt ADP Airports Development Project IATA International Air Transport Association ADS - B Automatic Dependent IBRD International Bank for Surveillance Broadcast Reconstruction and Development ATC Air Traffic Control ICAO International Civil Aviation Organization ATM Air Traffic Management IDA International Development Association AVIT Aviation Information Technology IFR Interim Financial Report Company CAC Cairo Airport Company IOSA IATA Operational Safety Audit CADP Cairo Airport Development ISA International Standard Audit Project – TB2 CAI Cairo International Airport MOCA Ministry of Civil Aviation CFMU Central Flow Management Unit mppa million passengers per annum CNS Communication Navigation NANSC National Air Navigation Services Surveillance Company DA Designated Account PAD Project Appraisal Document EAC Egyptian Airports Company PM Project Manager ECAA Egyptian Civil Aviation Authority PMU Project Management Unit EEAA Egyptian Environmental Affairs PPP Public-Private Partnership Agency EGP Egyptian Pounds SARP Standard And Recommended Practices EHCAAN Egyptian Holding Company for SLA Subsidiary Loan Agreement Airports and Air Navigation EMP Environment Management Plan SSH Sharm El Sheikh International Airport ESIA Environment and Social Impact TB1 Terminal Building 1 at CAI Assessment FDI Foreign Direct Investment TB2 Terminal Building 2 at CAI FIR Flight Information Region TB3 Terminal Building 3 at CAI FM Financial Management USA Universal Safety Audit FMS Financial Management System GDP Gross Domestic Product
Vice President: Shamshad Akhtar Country Director: David Craig Sector Manager: Jonathan Walters Task Team Leader: Michel Bellier
FOR OFFICIAL USE ONLY CONTENTS
A. STRATEGIC CONTEXT AND RATIONALE ...... 1 1. Country and Sector Issues ...... 1 2. Rationale for Bank involvement ...... 4 3. Higher level objectives to which the project contributes ...... 5 B. PROJECT DESCRIPTION ...... 5 1. Lending instrument ...... 5 2. Project development objective and key indicators ...... 5 3. Project components ...... 6 4. Lessons learned and reflected in the project design ...... 9 5. Alternatives considered and reasons for rejection ...... 9 C. IMPLEMENTATION ...... 10 1. Partnership arrangements ...... 10 2. Institutional and implementation arrangements ...... 10 3. Monitoring and evaluation of outcomes/results ...... 11 4. Sustainability ...... 11 5. Critical risks and possible controversial aspects ...... 12 6. Loan conditions and covenants ...... 13 D. APPRAISAL SUMMARY ...... 14 1. Economic and financial analyses ...... 14 2. Technical ...... 16 3. Fiduciary ...... 17 4. Social ...... 18 5. Environment ...... 19 6. Safeguard policies ...... 20 7. Policy Exceptions and Readiness ...... 21 Annex 1: Country and Sector Background ...... 22 Annex 2: Major related projects financed by the Bank and/or other agencies ...... 32 Annex 3: Results Framework and Monitoring ...... 34 Annex 4: Detailed Project Description ...... 36 Annex 5: Project Costs ...... 44 Annex 6: Implementation Arrangements ...... 45 Annex 7: Financial Management and Disbursement Arrangements ...... 49 Annex 8: Procurement ...... 55 Annex 9: Economic and Financial Analyses ...... 59 Annex 10: Safeguard Policy Issues ...... 87 Annex 11: Project Preparation and Supervision ...... 97 Annex 12: Documents in the Project File ...... 98
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.
Annex 13: Statements of Loans and Credits ...... 99 Annex 14: Country at a Glance ...... 101 Annex 15: Map ...... 105
EGYPT, ARAB REPUBLIC OF
CAIRO AIRPORT DEVELOPMENT PROJECT-TB2
PROJECT APPRAISAL DOCUMENT
MIDDLE EAST AND NORTH AFRICA
MNSSD
Date: January 27, 2010 Team Leader: Michel Bellier Country Director: David Craig Sectors: Aviation (100%) Sector Manager/Director: Jonathan D. Walters Themes: Infrastructure services for private sector development (67%); Export development and competitiveness (33%) Project ID: P101201 Environmental category: Partial Assessment Lending Instrument: Specific Investment Loan Joint IFC: Joint Level:
Project Financing Data [X] Loan [ ] Credit [ ] Grant [ ] Guarantee [ ] Other:
For Loans/Credits/Others: Total Bank financing (US$m.): 280.00 Proposed terms: Variable Spread Loan, denominated in US Dollars, with a 28-year maturity, including a 7-year grace period and level repayment Financing Plan (US$m) Source Local Foreign Total Borrower 156.00 0.00 156.00 International Bank for Reconstruction and 0.00 280.00 280.00 Development Total: 156.00 280.00 436.00
Borrower:
Responsible Agency: Egyptian Holding Company for Airports and Air Navigation Airport Road Egypt, Arab Republic of Tel: (20-2) 267-0555 Fax: (20-2) 635-0933
Estimated disbursements (Bank FY/US$m) FY 2011 2012 2013 2014 2015 Annual 30.00 60.00 90.00 70.00 30.00 Cumulative 30.00 90.00 180.00 250.00 280.00 Project implementation period: Start May 1, 2010 End: May 31, 2015 Expected effectiveness date: July 30, 2010 Expected closing date: November 30, 2015
Does the project depart from the CAS in content or other significant respects? Ref. [ ]Yes [X] No PAD I.C. Does the project require any exceptions from Bank policies? Ref. PAD IV.G. [ ]Yes [X] No Have these been approved by Bank management? [X]Yes [ ] No Is approval for any policy exception sought from the Board? [ ]Yes [X] No Does the project include any critical risks rated “substantial” or “high”? [ ]Yes [X] No Ref. PAD III.E. Does the project meet the Regional criteria for readiness for implementation? Ref. [X]Yes [ ] No PAD IV.G. Project development objective Ref. PAD II.C., Technical Annex 3 The objectives of the proposed Cairo Airport Development Project-TB2 (CADP) are to assist the Government of Egypt (GOE) to (i) enhance the quality of airport services through an increase in the capacity of Cairo International Airport (CAI), and (ii) strengthen air transport in Egypt.
The principal target beneficiaries include: (i) tourism passengers, who will benefit from better airport infrastructure and services, (ii) businesses, which will benefit from extended air transport services and a more attractive CAI's area, and (iii) workers, who will benefit from job creation during construction, which would contribute to Egypt's stimulus package in response to the economic crisis, and after construction through additional airport activities as well businesses and services attracted to the CAI area. Furthermore the project will enhance Cairo Airport’s capability to serve as a hub for long-haul traffic on some of the most rapidly expanding routes (e.g. between Africa and Asia), thus contributing to enhance the Egyptian air transport industry's competitive edge and facilitating regional integration.
Project description [one-sentence summary of each component] Ref. PAD II.D., Technical Annex 4 The project comprises two components regarding: (i)the rehabilitation and expansion of Terminal Building 2 (TB2) terminal at Cairo International Airport (CAI), and (ii) technical assistance and studies.
Which safeguard policies are triggered, if any? Ref. PAD IV.F., Technical Annex 10 According to the World Bank’s Operational Policy OP 4.01 on Environmental Assessment, the proposed project is classified as category B project, requiring an environmental assessment in the form of an Environmental and Social Impact Assessment (ESIA) report. The ESIA was carried out by an independent environment consulting firm hired by the implementing Agency. It focused on the impacts and mitigation measures during the construction phase of the project as well as the operation phase of the facility. The ESIA includes an EMP, detailing institutional settings, mitigation measures, and monitoring plan for the potential impacts expected from the project during the construction and operation phases. No other safeguard policies are triggered by the project.
Significant, non-standard conditions, if any, for: Ref. PAD III.F. Board presentation: Confirmation of Government's approval of the negotiated documents.
Loan/credit effectiveness: Conditions of Effectiveness include (i) The Subsidiary Loan Agreement executed on behalf of the Borrower and the Egyptian Holding Company for Airports and Air Navigation (EHCAAN); and (ii) Legal opinion.
Covenants applicable to project implementation: Dated Covenants
• Confirmation by April 30, 2010 that the PMU's main functions (Head, Financial, Procurement, Monitoring and Evaluation) are fully staffed. • Contractual Agreements satisfactory to the Bank between EHCAAN and Cairo Airport Company (CAC) signed no later than June 30, 2010. • Mid-Term review to take place by September 30, 2012.
ARAB REPUBLIC OF EGYPT CAIRO AIRPORT DEVELOPMENT PROJECT – TB2
Project Appraisal Document
A. STRATEGIC CONTEXT AND RATIONALE
1. Country and Sector Issues
1. The global economic crisis that began in 2008 had an adverse impact on Egypt during FY09, as it reversed the favorable international environment which supported Egypt’s growth in the last three years. This environment, namely favorable terms of trade, rapid growth of external demand and abundant international liquidity, together with domestic economic reforms and prudent macro management, helped Egypt’s economy to grow at a yearly average of 7% between FY05 and FY08, a record over the last twenty years. Due to the crisis, real GDP growth was reduced to 4.7% in FY09 and unemployment increased to 9.4% from 8.4% a year earlier. However, this performance was better than expected, as the slowdown was significantly less than in the developed economies or in other emerging markets, with the exception of China. Declining export earnings led to a current account deficit (of 2.3% of GDP) for the first time since FY01 and declining capital inflows, especially FDI (down by 39%), led to an overall balance of payments deficit of 1.8% of GDP, compared with a 3.3% surplus a year earlier. The stock market index fell by 20% from its FY08 close. Inflation has decelerated from a peak of 24% last August but continued to be high at around 13% in October 2009.
2. The Government of Egypt (GOE) implemented a crisis response plan featuring fiscal, monetary and direct support measures. Fiscal stimulus came in the form of additional spending of EGP15 billion (US$2.7 billion and 1.5% of GDP), including higher subsidies and social benefits (up by 2.1 points to 12.4% of GDP). The fiscal stimulus package consisted of: (i) EGP10.5 billion in infrastructure investment spending; (ii) EGP2.8 billion in export subsidies; and (iii) EGP1.5-1.7 billion in lower tariffs on imported intermediate and capital goods. The fiscal stimulus package was deficit neutral in FY09, with the overall fiscal deficit remaining unchanged at 6.9% of GDP as higher revenues and grants compensated for the higher spending. More additional spending amounting to EGP6-7 billion was included in the FY10 budget and a possible third fiscal stimulus package of EGP10 billion could be considered in the same year. On the monetary side, the Central Bank of Egypt cut policy rates six times between February and September 2009, taking overnight deposit and lending policy down by 325 and 375 basis points respectively.
3. There are signs that the worst is over. Results for the first quarter of FY10 so far confirm the early beginning of a recovery with GDP growth at 4.9 percent. There was an upturn in investment, which also grew by 7.8% compared to only 1.4% last year. FDI inflows stood at US$1.7 billion, slightly higher than last year. Foreign exchange earnings continue to suffer, but this is due to the ongoing world slowdown. The stock exchange has been on the upswing since March until November 2009. The Dubai crisis had its impact so far only through the stock market (which fell by 7%) but likely effects through real channels are still uncertain depending on how the situation unfolds. After depreciating by 7.7% between August 2008 and March 2009, the Egyptian pound has been appreciating in response to renewed capital inflows. Reserves are comfortable and stand at US$34 billion. Moody’s, the prominent international rating agency, has changed its outlook for Egypt from negative to stable. This upgrade reflects factors such as easing inflation, contained fiscal pressures as well as a relatively resilient economy and banking system.
1
4. The crisis is an incentive for the Government of Egypt (GOE) to press ahead with economic reform. The economic outlook for the future is cautiously optimistic, since GDP growth is forecast at 5% for FY10. Nevertheless, this is not grounds for complacency. The GOE needs to accelerate selected reforms to increase productivity and get on a much higher growth track, as the post-crisis world is likely to present a globally tougher business climate and it will be difficult to continue attracting foreign investors. A GDP growth of 5%, while respectable, will feel similar to a recession, given the strong pace of growth over the last three years, and there probably will be losses of employment in some sectors. A recent World Bank analysis of the employment elasticity of growth suggests that unemployment will rise to about 10% in FY10.1
5. The broad mandate of the present Government is to improve living standards, promote investment, reduce unemployment, contain inflation, and improve the performance of administrative entities. To support its stated objectives and strengthen the business climate, the Government intends to develop well integrated and cost-effective transport systems through greater private sector involvement in the management and delivery of transport facilities and services.
6. The air transport sector is highly strategic for Egypt’s economic development. First, this sector is key to Egypt’s economic growth and the country’s integration in the region and with the rest of the world by supporting economic exchanges and movement of people. Through air transport, Egypt can take advantage of its strategic geographic position of crossroads between Europe, Asia and Africa. Cairo International Airport (CAI) is the second largest airport in Africa, after Johannesburg in South Africa. Second, the air transport sector generates significant employment, including a sizeable number of skilled jobs. Thus, it is commonly estimated that one direct job in air transport creates six indirect jobs in the economy, which is illustrated by the installation of an increasing number of companies near the CAI platform.2 Third, the air transport sector support tourism and carries most of the foreign tourists visiting Egypt. Tourism accounts for 3.5% of Egypt’s GDP, with 12.4 million of tourists and a total revenue of US$10.5 billion in FY09. Today, an estimated 2.5 million jobs directly and indirectly depend on tourism. Around 80% of tourist traffic comes through Egypt’s airports and tourism counts for half of the passenger international traffic at CAI. Foreign tourism in Egypt is mainly driven by travelers from Europe (75%) and the Middle East (13%).3
7. The reform of the civil aviation sector has separated the sector from other transport activities. Sweeping reforms began in the sector in 2002 with the creation of the Ministry of Civil Aviation (MOCA), which took over the responsibility for air transport and airports from the Ministry of Transport. The MOCA’s main objectives are to develop air transport services both for international and domestic traffic, and to improve their efficiency. Accordingly, the Egyptian Civil Aviation Authority (ECAA), which reports to the MOCA, regulates air transport. The MOCA also controls airports, air traffic control, and air navigation services through a public company, the Egyptian Holding Company for Airports and Air Navigation (EHCAAN). EHCAAN owns four affiliate companies: (i) the Cairo Airport Company (CAC) in charge of CAI, (ii) the Egyptian Airports Company (EAC) in charge of all the other commercial Egyptian airports, (iii) the National Air Navigation Services Company (NANSC), and (iv) the Aviation Information Technology Company (AVIT). In addition, the MOCA oversees the state-owned national carrier, Egypt Air, through a holding company which also controls subsidiaries providing ancillary services, such as ground handling, maintenance and technical works. Finally, the MOCA chairs a Higher Council for the Pricing of Services to provide advice on tariffs of airport services.
8. Air transport is progressively being liberalized. Twenty years ago, the GOE realized the growing importance of air transport as a driver of growth in its own right. Air transport was undergoing
1 See the World Bank report Egypt and the Global Economic Crisis: a Preliminary Assessment of Macroeconomic Impact and Response, June 2009. 2 A study in 1999 estimated indirect employment generated within CAI’s area of influence at 185,000 jobs, rising to nearly 350,000 by 2020. 3 Ministry of Tourism, Annual Report 2008. 2 spectacular changes worldwide in the wake of the deregulation that had taken place in the US as well as the liberalization in several other markets. The experience of these countries revealed that the liberalization of the aviation industry significantly increases airport traffic and ancillary businesses, and enhances the profitability and competitive performance of the sector. The GOE’s objective therefore became to ensure that the liberalization of the industry would contribute positively to the development of the Egyptian aviation sector. Consequently, Egypt has embarked in gradual liberalization of international air services on a bilateral basis with several countries in the Middle East, Africa, and Europe. Ministerial decrees were issued in 2001 and 2002 to allow foreign charters direct access to domestic airports. Since 2004, the move towards liberalization has firmed up, thanks to a gradual implementation of the recommendations of a study financed by the Bank under a previous project called Airports Development Project (ADP). Requirements for establishing an airline have been simplified and altogether 13 licenses have been awarded to private investors for both international and domestic flights; in addition, seven licenses have been awarded for air taxis. All companies operate unscheduled services, although one license for domestic scheduled services has been issued. Restrictions on the landing of charter flights at CAI were lifted in 2008 when the new Terminal Building 3 (TB3) opened. In the airport sector, the market for services at CAI has somewhat opened with the creation of a second catering company, however controlled by Egypt Air, in association with Lufthansa, and the concession of parking, internal bus shuttles, and commercial areas inside terminals to private investors.
9. Since the early 2000s, Egypt has significantly improved airport services through a range of capacity investments and the strengthening of airport operations. EHCAAN has launched a long-term investment plan of US$3.03 billion for the period 2002-2012 to upgrade airport facilities and improve airport services throughout the country to state-of-the-art international standards. In particular, EHCAAN spent more than US$575 million under ADP in 2004 (US$375 million of Bank financing) to double the capacity of CAI and Sharm-El-Sheikh International Airport (SSH), the fastest growing Egyptian airport in the last years and the second in the country in terms of tourist traffic. Moreover, in 2005, EHCAAN contracted out the management of major airports to international private operators until 2014 for CAI and until 2011 for SSH and the other main country’s airports, with an option for an extension of three years. These contracts include the management of the landside, airside (except for air traffic control), and complementary services. Currently, EHCAAN continues expanding the capacity of the country main airports along the development strategy recommended in a study financed by ADP to meet the rapidly increasing traffic, among other due to the attractiveness of Egypt for tourists, especially in Cairo. EHCAAN is also developing infrastructure serving the Cairo platform to facilitate the development of economic activities in CAI and therefore leverage airport investments into a significant number of new jobs. Other strategic options include the development of a series of secondary airports which serve areas with a significant potential for tourism, including through private participation.
10. However, Egypt needs to continue expanding airport infrastructure and improve airport services to meet the growing demand, especially at CAI the main gate to Egypt. The current capacity of CAI would be saturated by 2017, according to most recent traffic trends and forecasts. Passenger traffic at CAI grew by about 7% per year in 2005 and 2006, and then skyrocketed by 16.7% in 2007 and by 14.2% in 2008. Because of the economic crisis, traffic started to stagnate at the end of 2008, and dropped by 5% in the first quarter of 2009. However, traffic returned to equilibrium from April to August 2009 in comparison with the same period in 2008. In line with the industry estimates4, the GOE now foresees that traffic at CAI would remain quasi-stable in the near future, whereas traffic growth would resume by mid- 2010 as a consequence of the expected worldwide economic recovery, at a slower pace however than in the last four years (2005-2008).5 These forecasts take into account the expected progressive development of CAI as a regional hub operated by Egypt Air, with an increasing number of flights between Europe, the Middle East, the Maghreb and sub-Saharan Africa. EHCAAN is considering an increase in departure fees in the coming years to support future investments and expansion of services (airports, air traffic control).
4 Boeing Current Market Outlook for 2009-2028, and Airports Council International (ACI) Global Traffic Forecast for 2009- 2027 5 +5.4% per year in 2011-2015 and +3.3% per year in 2016-2025 3
The Higher Council for the Pricing of Services, the authority responsible for validating these increases, will have to carefully balance the interests of airports with those of airlines.
11. Further liberalization of air transport is predicated on the signature of air traffic multilateral agreements. As seen above, until now, Egypt has embarked in gradual liberalization of air services on a bilateral basis with several countries in the Middle East, Africa, and Europe. However, there are three multilateral agreements serving these regions, which remain pending, or which have not yet been established: the Arab League Open-Skies Agreement, the Yamoussoukro Decision, and an open skies agreement with the European Union. These agreements are opportunities to catalyze international air services, both for direct traffic to and from Egypt and for transit traffic at CAI.
12. Egypt has also to continue strengthening air traffic control (ATC) and air traffic management (ATM)6. Egypt has greatly enhanced and modernized air traffic control infrastructure and provides adequate surveillance and management services for flights to/from Egypt, as well as for flights using the Egyptian airspace. However, with expected growth, further investments and expansion of services will become necessary to achieve safety objectives of air transport and reduce costly ATC delays, thus contributing to a reduction in fuel consumption and carbon emissions.
2. Rationale for Bank involvement
13. The GOE has clearly expressed interest in borrowing from the Bank for this project. On May 7, 2009, the Minister of the International Cooperation requested an US$280 million Bank loan to finance the rehabilitation and expansion of the Terminal Building 2 (TB2) at CAI.
14. This follows upon the successful completion of the previous Airports Development Project (ADP). The development objectives of ADP were to: (i) eliminate capacity bottlenecks to traffic growth, particularly for tourism and associated foreign exchange earnings, (ii) raise CAI and SSH service quality to international best practice standards, and (iii) promote efficient private participation in airport management and airport service delivery in a more competitive market.7 The loan was approved by the Board in March 2004 and closed in June 2009 as planned. The last Implementation Status and Results report rated the project as highly satisfactory, thanks to the successful completion and satisfactory operations of new facilities at CAI and SSH before the loan closing date, and thanks to the effective implementation in several instances of recommendations made under the capacity strengthening component. Actually, the US$375 million loan of ADP supported the construction of the new TB3 at CAI and of a new terminal building at SSH. In addition, ADP financed a comprehensive technical assistance that had a deep impact on the Egyptian air transport and airport sectors in terms of strategic orientations and institutional development.
15. Through this capacity strengthening component, the Bank has become a key partner in the air transport sector of Egypt and contributed to: (i) the preparation of a national airport master plan for Egypt which is guiding current capacity development and modernization programs, (ii) the development of a plan for gradual liberalization of air transport, (iii) the development of a national strategy for development of air cargo which paved the way for an investment program in Cairo, and (iv) a management capacity building strategy which outlined priorities for streamlining, EHCAAN, CAC and EAC organization. Finally, ADP was instrumental in mainstreaming environmental practices in the airport sector, through the establishment of environmental units in CAC and EAC and the installation of pollution monitoring systems, in strengthening the procurement capacity of airport companies, and in transferring efficient project management practices. Further details on the achievements of ADP are reflected in Annex 2.
6 In addition to ATC, the concept of ATM encompasses such other activities as Air Traffic Flow Management. 7 See page 10 of the Project Appraisal Document (March 5, 2004; Report No. 27109). 4
16. As a general matter, the Bank is at the forefront of the air transport sector challenges and has access to the specialized policy and technical expertise required to advise developing countries on airport infrastructure and air transport services. This expertise is evidenced on one hand by our involvement in a range of projects addressing policy, strategic, development, investment, and operational issues, and on the other hand by the active participation of the Bank in high level discussions within the International Civil Aviation Organization (ICAO) and the industry’s bodies, such as the International Air Transport Association (IATA) and Airports Council International (ACI).
17. The Bank is in a position to provide the GOE with highly valued support to continue improving the air transport sector’s responsiveness to country development needs, by drawing on the knowledge of the Egyptian air transport sector acquired during ADP and on sector expertise. The Bank’s involvement would support the continued strengthening of international air services and air transport safety improvements. The Bank financing of the airport investments will also fill in a funding gap, in a context where private financing of airport development in Egypt is unlikely in the near future. Although the development and management of an airport would attract private sector in normal times, banks are currently very reluctant to finance the air transport sector because of the turmoil on financial markets. The drop in FDI in Egypt due to the economic and financial crisis difficulties also illustrates the difficulties to mobilize private financing, and the complexity of a PPP operation would have compounded the challenges. Public financing is therefore a reasonable option to mitigate funding risks under current market conditions. In addition, the GOE is very satisfied with the ongoing management contract of CAI which is executed by an international airport operator, and does not wish to consider, at this stage, a concession.
3. Higher level objectives to which the project contributes
18. The current Country Assistance Strategy (CAS) for Egypt identifies achieving high and sustainable GDP growth as one of the two key development objectives of the GOE, and enhancing the provision of public services as one of the three key strategic objectives of the Bank to help the GOE achieve its own objectives.8 In particular, the Bank support will be devoted to ensure that there is an increase in the supply and an improvement in the efficiency of infrastructure services, such as transport.
19. The project will support the CAS objectives by: (i) investing in airport infrastructure to increase the passenger capacity and improve the level of service at CAI; (ii) supporting economic growth through increased tourism and air trade; and (iii) creating jobs during construction, which would contribute to Egypt’s stimulus package in response to the economic crisis, and after construction through airport activities as well as activities of industries and services attracted to the CAI area.
B. PROJECT DESCRIPTION
1. Lending instrument
20. The Borrower has selected an IBRD Flexible Loan with a variable spread and level repayments. The Loan has a 28-year maturity with a seven-year grace period and will be denominated in US Dollars.
2. Project development objective and key indicators
21. The objectives of the proposed Cairo Airport Development Project – TB2 (CADP) are to assist the GOE to (i) enhance the quality of airport services through an increase in the capacity of CAI, and (ii) strengthen air transport in Egypt.
8 See the CAS report for the period FY06-FY09 (May 20, 2005; Report No. 32190-EG). 5
22. The principal target beneficiaries include: (i) tourism passengers, who will benefit from better airport infrastructure and services, (ii) businesses, which will benefit from extended air transport services and a more attractive CAI’s area, and (iii) workers, who will benefit from job creation during construction, which would contribute to Egypt’s stimulus package in response to the economic crisis, and after construction through additional airport activities as well businesses and services attracted to the CAI area. Furthermore the project will enhance Cairo Airport’s capability to serve as a hub for long-haul traffic on some of the most rapidly expanding routes (e.g. between Africa and Asia), thus contributing to enhance the Egyptian air transport industry’s competitive edge and facilitating regional integration.
23. Key annual performance indicators that will be used to monitor the project outcomes include:
• Enhanced quality of airport services: o Total passenger traffic at CAI o Connecting passenger traffic at CAI9 o Commercial revenue per passenger at CAI10 o Passenger processing time in the new TB2
• Strengthened air transport in Egypt: o Enforced bilateral agreements o Rate of compliance of Egypt’s Civil Aviation in safety and security audits
24. Performance indicators are further detailed in Annex 3.
3. Project components
25. The project comprises two components for a total cost of US$436 million including contingencies, of which (i) US$280 million are financed by an IBRD loan, and (ii) US$156 million are financed by CAC both from direct funding and from domestic loans.
Component 1: Rehabilitation and Expansion of the Terminal Building 2 (TB2) at Cairo International Airport (US$433 million including contingencies - IBRD financing of US$277 million, counterpart financing of US$156 million)
26. The investment component is the rehabilitation and expansion of TB2 at CAI. The new TB2 will be operated in combination with the recently completed TB3. CAI is the largest airport in Egypt and the second largest in Africa after Johannesburg in South Africa. Today, CAI is used by 58 passenger airlines, including charter operators, 10 cargo operators, and has a total capacity of 21 million passengers per annum (mppa) divided into three terminal buildings.
27. TB1 started its operations in 1963 and has a current capacity of 6.5 mppa after several extensions and partial renovations. The existing TB2 opened in 1986 and has a capacity of 3.5 mppa, although the quality of services provided by the aging facility is no more on a par with worldwide standards for international airports. TB3 was completed in 2009 under ADP financed by the Bank and has a capacity of 11 mppa, with a design allowing the future combined operations of this terminal with the new TB2.
28. After rehabilitation and expansion, the new TB2 will reach a capacity up to 7.5 mppa, thereby bringing the overall capacity of CAI to 25 mppa as follows:
9 All types of connection are considered (international/international, international/domestic, and domestic/domestic). 10 Revenue generated by passengers shopping at the airport, as the project will bring larger and higher-standard commercial areas. 6
Table 1: Passenger capacity at CAI by terminal
Capacity in mppa TB1 Old TB2 New TB2 TB3 Total CAI Before CADP 6.5 3.5 - 11 21 After CADP 6.5 - 7.5 11 25
29. The new TB2 and TB3 will be operated jointly as one integrated terminal, which will be mostly dedicated to Egypt Air (domestic and international flights), its Star Alliance partners, and Gulf airlines, thus fostering the integration of Egypt within the Middle-East and with Europe, and reinforcing the role of CAI as a regional hub.
30. The new TB2 will also improve the quality of service at CAI. According to IATA standards, the level of service of the new TB2 (category B) will surpass the one of TB3 (category C) by offering more space for each passenger. The new terminal will be primarily designed to handle passengers to and from the Gulf countries, who already represent more than half of the traffic at CAI and generally expect a high level of service, but CAC is considering mixing traffics to increase the operational capacity of the facility. Consequently, the new TB2 aims at removing the current bottlenecks in the check-in and immigration areas, and will encompass large areas for retail shops. It will also enhance CAI’s capacity to compete on the international connecting market.
31. The work program includes, among other things, the following activities: • Rehabilitation and expansion of the passenger waiting areas, gates, customs, and baggage claim on the site of the existing terminal. • IT system. • Construction of a new check-in hall, which will be linked with TB3 by an existing pedestrian bridge and linked with TB1 by an automated people mover (the people mover is already under construction but out of the project scope). • Construction of a new pier with 14 connecting bridges. • Construction of a new apron with 16 parking contact stands, which can accommodate two Airbus A380 and a flexible combination of wide-body and narrow-body aircrafts, and 4 parking remote stands.
32. A joint-venture engineering firm will supervise and manage works under a contract financed by CAC.
Component 2: Technical Assistance and Studies (US$2.8 million financed by IBRD)
33. The project is based on the expectation of strong traffic growth in the coming decade. It finances the necessary airport infrastructure improvements to meet and facilitate this growing air transport market. However, given the increased complexity of the air transport sector, the project will include a component to strengthen the institutional capacity of the sector’s institutions. This component will support policy initiatives and the enhancement of air transport services in Egypt. It will be financed by the Bank loan and will be divided into five sub-components, as follows:
Sub-Component 2.1: Review of the Air Transport Policy of Egypt and Strategic Options (US$0.56 million)
34. This sub-component aims at assisting the MOCA refine a roadmap for developing international air services, both for direct traffic to and from Egypt, as well as for transit traffic through the hub at CAI. Actually, Egypt has embarked in gradual liberalization of air services on a bilateral basis with several countries in the Middle East, Africa, and Europe. However, there are three multilateral agreements serving these regions, which remain pending, or which have not yet been established. Given these three 7 market potentials, the project would support the MOCA analyze the following: (i) policy options on a bilateral and multilateral level for Egypt, (ii) inventory of current bilateral air service agreements with traffic analysis per segment, (iii) legal implications for further liberalization of air services, both bilaterally as well as multilaterally, (iv) expected market development potential in the three regions depending on policy choices, (v) risk and opportunities for Egypt’s national carrier in various policy choices, and (vi) policy recommendation for the next ten years.
Sub-Component 2.2: Development Strategy of Air Traffic Control and Air Traffic Management (US$0.56 million
35. This sub-component will consist in a specialized and independent review of the pending technology and policy choices for Air Traffic Control (ATC) and Air Traffic Management (ATM), as well as to recommend priorities for implementation. Egypt has greatly enhanced and modernized ATC infrastructure and provides adequate surveillance and management services. However, with expected growth, further investments and expansion of services will become necessary. Currently, several developed regions, such as the USA and Europe, are preparing to develop and implement the next generation of ATC infrastructure.11 Egypt will have to make some technology choices for the future, such as the implementation of ADS-B or GNSS based instrument approaches.12 In addition, it will have to consider further integration of its ATM system towards Europe (currently in preparation under the Euromed Blue Med project), North Africa, sub-Saharan Africa, and the Middle East.
Sub-Component 2.3: Review of Civil Aviation Authority’s Compliance with ICAO Standards and Recommended Practices Concerning Regulatory Oversight of Safety and Security (US$0.56 million)
36. This sub-component will review the compliance of the current safety and security levels of air transport in Egypt, including airports, with ICAO standards and recommended practices (SARP). Although Egypt successfully passed an ICAO Safety (2005) and Security Audit (2009), and Egypt Air is IATA IOSA certified13, further growth of the air transport sector and the upcoming ICAO safety audit (which will have a broader scope than the previous audit) justify this review.
Sub-Component 2.4: Analysis of the Fee and Tax Structure of the Air Transport Sector (US$0.56 million)
37. EHCAAN depends on fees and taxes to finance operations and investments projects. While the current fee and tax structure of the aviation sector can be considered generally adequate, the fees and taxes must be reviewed in view of future investments and expansion of services (airports, ATC, etc.). EHCAAN is considering increasing departure fees twice in the coming years. In order to help the Higher Council for the Pricing of Services asserts the fee policy and structure in the coming years, a review and comparison of the current structure with ICAO guidelines should be performed. The main objectives of this sub-component are to (i) assess how several new charges, such as the European Union Emission Trading System would change the fee and tax structure, and/or the relative cost of air transport services to and from Egypt; (ii) make projections on how the current and future fee structure can finance operations of the air transport sector; (iii) analyze the competitiveness of the air transport sector, given all public and private fees, charges and taxes for air service providers.
11 The Next Generation Air Transportation System, or NextGen, is the transition program of the United States National Airspace System (NAS) to transition from a ground-based system of ATC to a satellite-based system of air traffic management. SESAR, or Single European Sky ATM Research, is the similar project which aims at completely overhauling the European airspace. 12 Automatic dependent surveillance-broadcast (ADS-B) is a cooperative surveillance technique for air traffic control and related applications. An ADS-B-equipped aircraft determines its own position using a global navigation satellite system and periodically broadcasts this position and other relevant information to potential ground stations and other aircraft with ADS-B-in equipment. Implementation has begun in the USA, and has been in preparation for Europe. GNSS: Global Navigation Satellite System 13 The IATA Operational Safety Audit (IOSA) program is an internationally recognized and accepted evaluation system designed to assess the operational management and control systems of an airline. IOSA uses internationally recognized quality audit principles and is designed to conduct audits in a standardized and consistent manner. All IATA member carriers must periodically pass an audit to maintain their membership with IATA. 8
Sub-Component 2.5: Spatial Planning of Cairo Airport’s Area (US$0.56 million)
38. This sub-component will assess the potential of Cairo Airport’s area for developing business activities, with a focus on industries and services linked to airport activities, the preparation of a development strategy and a master plan for an “Airport City” on land owned by CAC, estimate infrastructure costs to develop this land, and recommend ways to successfully attract private investment. Actually CAI has significantly expanded over the past years with the addition of new terminals and runways. It is the owner of significant land (nine million square meters). However, future expansion or restructuring of existing infrastructure, as well as the successful development of available land out of CAI direct needs, rely on the optimization of land use.
4. Lessons learned and reflected in the project design
39. The following lessons have been drawn from the preparation and implementation of ADP and from the broader experience of the Bank in Egypt: • The Bank attention and responsiveness during preparation and its strong support all along the project implementation have been instrumental in restoring the GOE’s confidence in its ability to address critical development issues. • The sector reform can only be progressive and the Bank’s support through a large scale investment lending operation can make a difference, if provided through an early dialogue and during implementation, and focused on strategic aspects, high policy advice, and game changing issues. • Airport platforms can attract significant economic activities and contribute to job creation when a critical mass is achieved. • Full support and attention of management within the implementing entity and a strong Project Management Unit (PMU) are critical. • The quality, completeness, and relevance of the design, as well as a strong engineer during construction, can significantly contribute to controlling final costs. • It is recommended to have a single contractor for construction works and equipment. Airport terminals are integrated facilities with a large number of equipment and an integrating IT system. Under ADP, EHCAAN and CAC had a bad experience with two separate contracts for the building including equipment and the IT system. This setup raised very difficult to manage issues regarding the coordination of works, the hand over process, and the identification of the responsible party in case of delays or equipment dysfunctions.
5. Alternatives considered and reasons for rejection
40. Private financing of the new TB2 was a possible option on paper, given the general nature of airport activities and income mostly in hard currencies. In the case of this project, the team has raised such option with EHCAAN at the outset of identification. Yet, the Egyptian authorities have ruled out expanding the role of private sector at CAI for the time being, for the following reasons: • Financial markets have not yet fully recovered and current conditions are not favorable at all for the private financing of Public Private Partnerships (PPP) in developing countries. • Conceding only the new TB2 is not feasible because CAC cannot manage TB2 independently of the other CAI’s terminals. Actually, TB2 and TB3 will form an integrated facility for passengers and there are many operational links with other terminals. The real question is therefore about conceding all CAI terminals including TB3 and TB1 currently operated by CAC. • Private sector is already involved in CAI operations through a management contract signed with an international airport operator and ending in 2014, with an option for a 3 years extension; the MOCA is satisfied with the formula. • Conceding CAI would entail very difficult social issues with the transfer of current CAC staff (about 5,300 jobs), and would probably raise other strategic concerns with the GOE.
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41. The joint-venture of engineering firms selected by CAC to develop the engineering design has evaluated a range of alternatives to expand the capacity of CAI. It has suggested different locations and capacities for the new facilities, such as the construction of a new third pier at TB3. CAC has finally chosen to rehabilitate and expand TB2 instead of expanding TB3 (completed in 2009) or TB1 (fully renovated in 2003), because it becomes urgent to replace the existing TB2 old facilities dating from 1986. Besides, the capacity of 7.5 mppa proposed for the new TB2 corresponds to the maximum capacity that can be reached within TB2 current boundary at the least cost per passenger: this is therefore the most financially effective option. The joint-venture also considered the functionality (aircraft stand flexibility, baggage handling, people mover connection, etc.), the passenger comfort (remote stands vs. contact stands, space in waiting areas, etc.), and the construction phasing (temporary effects on passenger convenience and airport capacity) to evaluate the most effective design for the new TB2.
C. IMPLEMENTATION
1. Partnership arrangements
42. There is no partnership arrangement for this project.
2. Institutional and implementation arrangements
43. The project will start on May 1, 2010 with procurement activities, and all activities should be completed by May 31, 2015 with the Loan closing date scheduled on November 30, 2015.
44. There will be a Loan Agreement between the Bank and the GOE (Ministry of International Cooperation) and a Project Agreement between the Bank and EHCAAN. The GOE will on-lend the Bank Loan proceeds to EHCAAN under a Subsidiary Loan Agreement (SLA) between the GOE and EHCAAN.
45. Implementation arrangements retained for ADP, which have proven to be very effective, will be replicated as follows: • EHCAAN will book the Loan, while the new TB2 will be an asset of CAC, meaning that back-to- back arrangements will address on-lending and accounting issues. • CAC will procure the construction contract and will manage construction. • Disbursements under the works contract will be made directly by the Bank to the contractor on the basis of payment applications sent by CAC through EHCAAN’s PMU. • The PMU established within EHCAAN for ADP in agreement with the Bank requirements will remain in place with the same responsibilities and the same organization, including a financial management manager, a procurement coordinator, and a statistician in charge among others of reporting. The PMU has actively participated into the preparation of the project and will be maintained throughout the implementation phase. EHCAAN will finance the PMU costs from its own budget.
46. The Project Steering Committee, chaired by EHCAAN, was established by ministerial decree on September 7, 2009 with a mandate to oversee the implementation of the project and the work of the PMU. Representatives include key stakeholders in the project, such as from the Ministry of Civil Aviation, the Ministry of Finance, the Ministry of International Cooperation, and CAC.
47. The environmental unit established with CAC under ADP will monitor the implementation of the Environment Management Plan (EMP).
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3. Monitoring and evaluation of outcomes/results
48. Performance indicators to track the performance and outcome of the project have been identified and agreed with EHCAAN and CAC as part of project appraisal. Baseline and benchmark indicators have also been determined. Performance indicators are detailed in Annex 3, and are nearly all derived from operational information that should be tracked on an ongoing basis by CAC, and will not pose an undue burden on management or the PMU. Rather, the establishment of benchmarks consistent with indicators that should already be used by management should strengthen management’s attention to performance in those areas.
49. Progress against these performance indicators will be conveyed as part of the regular reporting undertaken by the PMU. The PMU will submit quarterly and annual progress reports detailing project implementation and progress against indicators. Semi-annual interim financial reports and annual project financial statements will address financial management issues. Given expected effectiveness by mid- 2010, a mid-term review will be scheduled in September 2012. An Implementation Completion and Results report will be prepared by the Bank within six months of project closing, and will include a final evaluation by EHCAAN in consultation with CAC.
4. Sustainability
50. The borrower’s commitment to the investment component is strong and evidenced by the inscription of the project in CAC’s investment plan, the successful implementation of ADP with a full support of the Minister of Civil Aviation, the completion of the detailed design of the new TB2 by a joint- venture including a renowned international airport engineering firm expected in March 2010. The new terminal will also provide additional capacity at CAI needed to meet the expected traffic in the near term, as a consequence among others of the hub function for Egypt Air. In addition, the institutional component will address critical issues for the development and liberalization of air services to and from Egypt which is a key priority of Egypt’s air transport policy, the safety of air transport and airports in Egypt, and the creation of jobs in the Cairo airport area. The project sustainability will also be buoyed by the following: • the management contract signed with a private airport operator, which is among the leading group of companies in the international business, as it will terminate in 2014 at the earliest. • the compliance of the new terminal with ICAO safety requirements. • the progress of air transport liberalization resulting from the GOE’s policy.
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5. Critical risks and possible controversial aspects
Risk Rating Risks Risk Mitigation Measures with Mitigation To Project Development Objectives Growth of Air Transport Sector Traffic forecasts, prepared by CAC attempt to Moderate The project is justified by the expected take the impact of the current crisis on air continued growth of passenger traffic at traffic in coming years into account and are Cairo airport. There is therefore a consistent with estimates of international air commercial risk, but the growth is transport bodies. An independent expert hired driven by Egypt’s economic by the Bank has reviewed those traffic forecasts development and the country’s and qualified them as a most likely scenario. attractiveness for tourism. The increasing role of CAI as a hub for Egypt Air is facilitated by the participation of company in Star Alliance. Implementation of the sector policy The scope of the institutional component is Moderate recommendations based on current policy priorities of the Ministry of Civil Aviation and the EHCAAN regarding the development and safety of air transport. To Component Results Lack of Implementation Capacity And EHCAAN and CAC have successfully Low Sustainability implemented the ADP and will extend the organization put in place with a PMU at EHCAAN. During preparation the Bank will assess possible improvements in that organization.
Financial forecasts evidence some tension on CAC financing capacity if the company undertakes all investments planned in addition to TB2 whereas revenues do not increase as planned. Therefore, the Project Agreement stipulates that (EHCAAN) shall, and shall cause CAC to, introduce such effective sound financial measures as may be necessary or desirable to ensure its financial well being and sustainability throughout the project implementation period. Technical Design and cost overruns CAC has hired a joint-venture (JV) of very Moderate The rehabilitation and expansion of TB2 experienced international and Egyptian is a large investment entailing complex engineering firms to prepare the design. The civil works, expensive equipment, and supervision of works by the same JV will complex IT systems, thereby works are ensure continuity and reduce implementation prone to cost overruns. risks. Furthermore, the Bank has hired an engineering firm with a large expertise in airports to review the design. Delay in procurement and slow project Works entail only one construction contract Low implementation and both EHCAAN and CAC are very familiar with the Bank procurement guidelines further 12
Risk Rating Risks Risk Mitigation Measures with Mitigation to the ADP. Bidding documents will be drafted during project preparation with a view to have them essentially ready by Board date. The Bank will undertake a prior review of those documents given the contract amount. Social And Environmental Safeguards The implementing agency has undertaken an Low The rehabilitation and expansion of TB2 environment impact assessment which will be will allow an increase in air traffic and reviewed by the Bank. Social impacts are the project construction will have limited to the temporary relocation of TB2 environment impacts. The project is a staff‘s working place to another terminal during Category B for environment construction, which will take place on land owned by CAC and does not entail any resettlement. Overall Risk Rating Moderate
6. Loan conditions and covenants
Conditions for Board Presentation • Confirmation of Government’s approval of negotiated documents.
Conditions of Effectiveness • The Subsidiary Loan Agreement executed on behalf of the Borrower and EHCAAN. • Legal opinion.
Standard Covenants • Standard annual auditing requirement.
Dated Covenants • Confirmation by April 30, 2010 that the PMU’s main functions (Head, Financial, Procurement, Monitoring and Evaluation) are fully staffed. • Contractual Agreements satisfactory to the Bank between EHCAAN and CAC signed no later than June 30, 2010. • Mid-Term review to take place by September 30, 2012.
Reporting Covenants • Submission to the Bank of quarterly project progress reports within four weeks of the end of each quarter. • Submission to the Bank of the annual project progress report within six weeks of the end of each fiscal year. • Submission to the Bank of the reviewed semi-annual project interim financial reports (IFRs) within six weeks of the end of each semester. • Submission to the Bank of audited annual project financial statements within six months of the end of each fiscal year.
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D. APPRAISAL SUMMARY
1. Economic and financial analyses
51. Economic and financial analyses of Project investments were undertaken as part of the Project’s appraisal; the investments were found to be both economically and financially viable. Details of the analyses are provided in Annex 9; summaries are provided below. As a general matter, it is important to note that different and more pessimistic assumptions than those of EHCAAN and CAC, have been made in several instances in this Project Appraisal Document for the purpose of taking a more conservative view specific to the Bank.
Summary of Economic Analysis
52. The economic evaluation indicates an economic internal rate of return (ERR) of 20.3 percent and a net present value of US$415 million. The three costs taken into account in these estimates are the economic costs of construction, maintenance, and operation. The four benefits considered are those of time savings to passengers in what would otherwise be forced to use over-congested terminals, those of additional tourism to Egypt which would otherwise be deterred from coming by the excess congestion at the airport, the employment created by these additional air passengers, and the net benefit to Egypt of the additional purchases the additional passengers would make in airport shops.
53. The results derive from analyses that involve many assumptions, the most important of which are: • Short term (until 2016) passenger traffic at CAI will grow at an average rate of 5.4 percent per year, before stabilizing at a long term growth rate of 3.3 percent per year. The growth rates for different types of passengers will deviate significantly from these overall averages, as indicated in Annex 9. • The capacity of the existing TB1 and TB3 will provide sufficient excess capacity to allow for the transfer of TB2 passengers during the reconstruction period, and the additional operating costs of this transfer and the subsequent transfer of some passengers back to TB2 will be negligible. • Delays to passengers in TB2 will rise faster than the increase in their numbers, should the project not be implemented and the unit time costs of congestion to passengers are in proportion to their income, as detailed in Annex 9. • The direct and indirect employment generated by passengers at the airport will be at the rate of 2.4 additional jobs per 1,000 additional passengers per annum. This value is based on the average for airports in Europe, the United States and Asia for which measurements have been made.14 • There will be expenditure in airport shops made by the additional tourists that can use the terminal, and this expenditure is in additional to any other they might make during their stay in Egypt. • The discount rate used to calculate the present value of annual net benefits (that is benefits net of costs) is 12%, the same rate as would give a zero net present value for a project with the cut-off economic rate of return of 12%.15
14 Graham, Anne, Managing Airports: An International Perspective, Second Edition, 2003, Butterworth Heinemann, Oxford UK. This source indicates that average direct employment rate at the airport is 1.2 per 1,000 passengers per annum, and to this an “economic multiplier” of 1.95 gives the total of 2.4. Both employment rates, direct and total, are derived from empirical analyses of employment at eight airports. The direct employment rate is commensurate with the 1.6 ratio that was measured at CAI during 2005-2009. 15 The discount rate for economic evaluation is based on a different concept to that for financial evaluation. The latter is based on the long term risk free interest rate of capital, while the former is based on the long term time preference rate for consumers (for the benefits discount rate) while the same long term risk free interest rate of capital is used as a proxy for the time preference rate of capital.
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54. Many sensitivity tests were made using alternative and less optimistic assumptions than those indicated above. One set of sensitivity tests was aimed at finding the values of the parameters that would give a marginal acceptability of the project, that is both an ERR and present value of net benefits close to zero (“switching values”). The only sensitivity tests that resulted in unacceptable results were those in which lower passenger growth rates were assumed. None of the tested combinations of assumptions that would produce unacceptable results were considered plausible, even those involving combinations of low passenger growth rates with other less optimistic assumptions. The full range of sensitivity tests and the combinations of assumptions that would give unacceptable results are detailed and described in Annex 9.
55. If the growth rates were to be 25% lower than the very pessimistic rates already assumed (the long term basic growth rate of 3.3 percent per year is already less than the growth rate assumed in ADP project only five years ago, and is only about one half of the rate experienced over the last five years), then the ERR would fall to only 12% and the present value of net benefits would be close to zero.
Summary of Financial Analysis
56. Past and Current Financial Performance of CAC - Financial statements from the audited accounts for FY2004 thru FY2009 (ending June 30, 2009) were reviewed. Between FY2004 and FY2008 operating revenues more than doubled essentially due to: (i) a more than expected favorable passenger traffic growth (traffic growth skyrocketed by 16.7% in 2007 and by 14.2% in 2008); and (ii) a realistic and adapted, although competitive compared to other airports in the region, tariff policy implemented mostly on departure fees (revenues were multiplied by a factor of 5.5); (iii) while operating expenses increased by only 30% during the same period. So, pre-tax income was multiplied by a factor of more than 4.5 rising from EGP72 million in FY2004 to EGP479 million in FY2008. The situation fundamentally changed in FY2009, when CAC was hit by the global economic and financial crisis. Revenues stagnate at the FY2008 level but operating expenses suddenly jumped by some 40% with TB3 becoming operational and financing expenses increasing by some 30%. Profitability, although still healthy (15% of operating revenues), went down by more than 65%. Gross cash flow was divided by two, suggesting that medium and long term equilibrium between sources and uses of funds needs to be watched carefully until global economic recovery is clearly established and traffic at CAI starts growing again. Audited financial statements for FY2004, 2005, 2006, 2007, 2008, as well as 2009 are presented in Annex 9.
57. Future Financial Performance of CAC - Assuming that (i) the world economic downturn is over within the next 12-18 months, (ii) global economic recovery happens, and (iii) all assumptions of the base case scenario, which is based on a realistic and most probable traffic growth described in Annex 9, are met and in particular tariffs increase for departure fees and landing service charges are timely implemented as planned: the capacity of CAC to generate cash will regain better level (75% to 80% of the record level of FY2008) in 2010 and 2011 and gradually nearly double between FY2011 and FY2015 reaching some EGP850 million (in constant prices) and making it possible for CAC to face all its financial commitments and in particular those directly linked to such proposed investment on TB2 site and a large portion of the future remaining invest program proposed by CAC.
58. CAC’s base case scenario was constrained and some investments were differed (for a total of an estimated EGP650 million over the period between 2010 and 2015 in order to maintain a healthy financial status and structure, which two financial ratios would help monitor from FY2010 onward: • a current ratio16 of no less than 1, beginning in 2010, and • a debt service coverage ratio17 of no less than 1.2, beginning in 2010,
16 The current ratio is a financial ratio that measures whether or not a company has enough resources to pay its debts over the next 12 months. Here it is defined as: Current assets / Current liabilities. 17 The debt service coverage ratio is a financial ratio that measures the ability of a company to produce enough cash to cover its debt payments. Here it is defined as: (Gross cash flow + Financing expenses) / (LMT Debt service + Financing expenses). 15
Detailed assumptions used in the financial projections and projected simplified financial statements for the period from 2005 through 2015 are found in Annex 9 as well as an indication for 2020.
59. Past and Future financial performance of EHCAAN - Past performance of EHCAAN, based on audited accounts presented in Annex 9 proved that EHCAAN operation has been profitable and generated enough cash during the period to sustain its role as a holding company. Obviously, its financial performance depends on the performance and financial status of its four affiliates. It relies mostly on CAC and EAC which contributed some 80% as an average over the period covered (55% and 24% respectively) and which are expected to remain profitable (see CAC financial analysis) and the main contributors to EHCAAN healthy financial status and performance. Annex 9 shows EHCAAN’s past and projected income statements and cash flow statements over the period 2004-2015 and the main trend through 2020.
60. Internal Financial Rate of Return (IFRR) - The IFRR, which in constant prices relates the operating revenues to the capital and operating costs of the rehabilitation and expansion of TB2 (which is equivalent to the construction of a new terminal on the actual location of TB2) for an investment cost of some US$436 million equivalent, was computed as an indication of the minimum economic return. The calculated IFRR is 15.7%. The net present value of the investment calculated at a discount rate of 8% (effective rate of interest: best estimated proxy for the project financing cost) is estimated around EGP1,600 million (US$283.1 million equivalent). The IFRR is considered good.
61. The sensitivity analysis shows that the IFRR is pretty robust but can be anticipated rather sensitive to the revenues, stressing the importance of introducing such effective sound financial measures as may be necessary or desirable to ensure the financial well being and sustainability of EHCAAN and CAC throughout the project implementation period. Therefore, the financial analysis has retained the assumption made by EHCAAN that, if needed, it would increase passenger departure fees twice until 2025: (i) in FY2014 it would bring them to an amount of, or equal to US$20 for international passengers and to an amount of, or equal to US$4 for domestic passengers, (ii) in FY2018 it would bring them to an amount of, or equal to US$25 for international passengers and to an amount of, or equal to US$5 for domestic passengers. The IFRR was also tested to the limit to estimate the value of the key assumptions which would bring the IFRR down to the lower limit of eight percent. It would take: • an increase of some 88.2% of the investment cost; • a 91.5% increase of the operation and maintenance cost; but • only a decrease of 31.5% in revenues; as already noted above. This justifies the mention of financial sustainability in the Project Agreement.
2. Technical
62. CAC has hired a joint-venture of two engineering firms to design the new TB2, an Egyptian engineering firm and an international airport engineering firm, with worldwide experience in airport design and construction. This joint-venture is well-known from CAC since it was the engineer for the TB3 construction under the successful ADP. The design of the new TB2 is conventional and includes state-of-the-art equipment and electromechanical systems. A Bank financed independent consultant has reviewed the preliminary design of the new TB2, while the detailed final design is in progress. The objective of the review was to carry out a reality check of the design, identify critical issues regarding the completeness and appropriateness of the design and suggest solutions to solve these issues, and assess the relevance of cost estimates. In particular, • The review has checked that the new terminal comply with IATA and ICAO planning methodologies, standards and recommended practices. • The design meets European Union requirements for the accessibility of the facility to people with disabilities, which are more stringent than the recommendations of the United Nations reflected in ICAO guidance. • Further to the consultant’s recommendations, CAC has detailed peak traffic forecasts which
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enabled an optimization of check-in areas and baggage handling system. • Site surveys have not found any oil pollution under the apron and have confirmed the bearing of the ground. • The implementation of the IT system will require a close attention to interfaces with TB3 system. • A series of design features will reduce energy consumption and lower site impacts, thereby “greening” the project. • CAC and the design team have strengthened the risk management approach based on the consultant’s findings.
3. Fiduciary
Procurement
63. Procurement for the project will be carried out in accordance with the World Bank’s Guidelines: Procurement under IBRD Loans and IDA Credits dated May 2004, revised October 2006, and provisions stipulated in the Loan Agreement. For each contract to be financed by the Loan, the different procurement methods or consultant selection methods, the need for pre-qualification, estimated costs, prior review requirements, and time frame have been agreed between the Borrower and the Bank and described in the Procurement Plan (see Annex 8). The Procurement Plan will be updated at least annually or as required to reflect the actual project implementation needs and improvements in institutional capacity. Procurement will be done using the Bank’s Standard Bidding Documents (SBD) for Works for the construction works related to the rehabilitation and expansion of TB2. Under the Procurement Plan, the single works contracts will be procured through International Competitive Bidding. Prequalification of bidders will be used; the Bank’s Standard Prequalification Documents will be used. For the selection of consultants, the Procurement Plan defines the method to be used for each contract.
64. An assessment of the capacity of EHCAAN and CAC to undertake procurement activities for the project was carried out by the Bank preparation mission in September 6-9 2009. 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 happened under the ADP, all procurement actions for the proposed project will be carried out by the PMU. The recent implementation of TB3 at CAI by CAC under the ADP financed by the Bank shows that the PMU and CAC have had very good performance and their implementation capacity has been proven. All fiduciary aspects have been implemented smoothly and compliance with safeguards was rated satisfactory. The overall project risk for procurement is “Moderate Risk Implementing Agency.”
Financial Management
65. An assessment of the financial management arrangements for EHCAAN and CAC was undertaken during the preparation of ADP, and an additional assessment was undertaken in September 2009 for the preparation of CADP which will be implemented by the same PMU of ADP. The project includes only one works contract for the rehabilitation and expansion of the TB2 at CAI, which will be financed by the Bank. The assessment was conducted in accordance with the World Bank Financial Management manual and all relevant policies and procedures. The purpose of the CADP financial management assessment was to determine whether the financial management arrangements for the project continue to be acceptable to the Bank. The assessment looked at the existing PMU financial management system to ensure it possess a sound system that is capable of capturing, summarizing, recording, and reporting the project transactions on an accurate and timely manner.
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66. The day-to-day management will be conducted through the PMU established within EHCAAN. The PMU is headed by an engineer and supported with staff employed as consultants (procurement manager, procurement officer, finance manager, statistician, and an office manager).
67. Certain shortcomings were noted during the assessment: (i) although the project maintains a FM manual that was prepared by an international auditing firm, discussion with the Financial Officer and PMU director of ADP, who will be in charge of implementing CADP, revealed that the manual information is out of date and no longer reflects the procedures and controls applied. In this regard, it was agreed that the PMU would prepare a new manual reflecting the procedures, which was submitted to the Bank before negotiation; and (ii) currently the PMU has only one financial officer who is responsible for recording reporting and also authorization of payment (with the PMU director or EHCAAN chairman). This current setup does not provide proper segregation of duties and it was agreed during the preparation mission that an additional accountant would be appointed to overcome this issue.
4. Social
68. The project does not entail any land acquisition or resettlement as all new TB2 construction- related activities will take place inside the existing boundaries of the Cairo airport. Therefore, the operational policy OP 4.12 on Involuntary Resettlement is not triggered. A Social Assessment was prepared and is presented as an appendix to the Environmental and Social Impact Assessment (ESIA).
69. Local stakeholders include employees at the airport, owners of nearby businesses and services, and residents in areas surrounding the airport. As proposed by participants during the first public consultation, a more in-depth Social Assessment (SA)/survey will be carried out to involve the above local stakeholders more systematically and to get their perspectives on the proposed project. This survey, which will primarily focus on the 185 persons that will be temporarily relocated during construction, will be completed by May 2010.
70. As indicated in the current SA, initial interviews with local stakeholders seem to indicate that the current knowledge of the project is limited, and a media campaign will be initiated to raise awareness about the project. This should build on the experience of previous campaigns carried out in Egypt. Seminars will also be arranged for airport employees prior to project implementation, in order to ensure timely dissemination of information about the project as well as associated employment opportunities.
71. Out of the 185 people working in shops and businesses in TB2 as determined by the social assessment, 126 are temporary workers with annual contracts. Most of the workers are expected to be relocated to TB1 and TB3, and in a few cases to other branches outside the airport. The Environmental Unit of the CAC will be responsible for monitoring and documenting the relocation process and any necessary follow-up for each individual worker. These steps will be reported to the PMU. The forthcoming social survey will provide the necessary background information to facilitate this process. The survey will include a discussion of local stakeholders in general, but will primarily be concerned with the question of how job relocation during construction will be handled and how the work of the 185 directly affected people will change as a result of the relocation. If necessary, different types of retraining opportunities/capacity building programs should be proposed and a practical plan presented on how to handle challenges associated with job relocation to ensure that employees are well equipped to handle new/additional tasks during the construction phase. Such capacity building programs/training will require detailed knowledge about the jobs to be filled during construction.
72. In terms of employment, CAC intends to hire 150 to 200 new staff to operate the new TB2 at opening. This relatively low impact of TB2 in terms of direct job creation comes from the way the new TB2 and the existing TB3 will be operated as a single terminal with a unique control room. The total number of CAC staff is currently 5,317, including the 977 staff hired for TB3 and the 400 additional
18 technical staff to be hired. In the coming years, CAC will also continue to invest heavily in the training of its staff.
73. EHCAAN/CAC have confirmed that the development of CAI traffic induces the creation of a significant number of indirect jobs, first of all by authorities in charge of security, but also by airlines and companies providing side services, and finally by companies that locate services on the CAI platform. As an indication, a ratio of 6 indirect jobs for 1 direct job is mentioned in the literature assessing the impact of air transport in general. Today, around 45,000 people works on the CAI platform, one third directly for the airport, one third for airlines, and one third for other employers, such as retail shops, tourist agencies, cargo companies and the government. This figure has increased by 23 percent since 2005, as a result of additional traffic and the opening of the new TB3. The Table below summarizes the change in employment by category of employers between 2005 and 2009. Moreover, EHCAAN estimates that the current development projects around the CAI platform, which include a cargo village, shopping malls, hotels, convention centers, entertainment and sports facilities and a medical center, would generate up to 9,000 jobs in the coming years.
Table 2: Number of employees at CAI by year and by category of employer
Airline Airport Retail Tourism Cargo Government Other Total Year 2005 13727 13808 4198 649 1465 768 2001 36616 Year 2009 17622 16019 5500 310 2699 848 2140 45138 % change 28% 16% 31% -52% 84% 10% 7% 23%
5. Environment
Potential Environmental Impacts and Their Mitigation
74. Different potential environmental impacts are expected during the construction and the operation phase. No significant impacts of the project are expected on the surface water resources, natural habitats, or physical and cultural resources. The project site is a developed area owned by the airport company which encloses the existing terminal building and part of the parking lot adjacent to it. During the construction phase, all impacts are likely to be localized, short term, and reversible. it is probable that noise and dust will originate from the construction site. It is also expected that those activities will create large amounts of construction waste and debris. Transporting construction materials to the site and construction waste away from the airport will increase the demand on the road system connected to the airport during the construction phase, and will alter the traffic composition with a larger portion of heavy trucks and equipment. The Environment Management Plan (EMP) employed measures to minimize the dust and noise originating from the construction site during construction. Heavy trucks transporting materials and waste from the site will be restricted to off-peak hours to minimize traffic impacts of the construction activities on the site.
75. In the operation phase of the new terminal building, the effects of the project on air quality and noise levels in the airport and neighboring communities have been studied by employing noise and air quality models, and utilizing data from the existing monitoring stations that are distributed in the airport and the surroundings. The rehabilitation and expansion of the terminal building will reduce noise levels inside the departure and arrival halls due to modernization. The development of the terminal building TB2 is not expected to increase the noise levels inside and outside the airport significantly when compared to baseline noise levels originating from other noise sources. CAC will continue monitoring closely the noise levels in the airport and surroundings during the operation phase of the terminal.
76. The monitoring results of the gaseous concentrations of nitrogen and carbon emissions around the airport indicated that the contribution from Cairo Airport on local and regional air quality is very small. For peak hour cases and specific locations around the airport, the concentrations of these emissions approached adverse levels. CAC has already taken measures to improve public transport services, 19 dispatching shuttle bus services, and enforcement of short-term parking to reduce idling time of vehicles. Those measures are expected to reduce the air pollution from other sources associated to the airport operations.
77. The increase in airport vehicular traffic as a result of the new TB2 will have impacts on the three access roads to the airport, with Orouba and the Autostrad-El Nassr roads being the most affected. Traffic volumes on these two roads will increase and will translate to more congestions and expected delays. The ESIA recommended traffic measures that will help distribute the traffic from/to the airport to the most efficient use of the roads leading to the airport. It also recommended measures to encourage use of car pools and public transport to reduce congestions.
78. The cost of the EMP implementation is estimated at US$421,000, and CAC will finance all expenditures. Details of the EMP, mitigation measures, monitoring, and institutional responsibilities for the implementation of the EMP, as well as capacity-building activities to the airport authorities are included in Annex 10 of this document.
6. Safeguard policies
Project Environmental Classification
79. According to the World Bank’s Operational Policy OP 4.01 on Environmental Assessment, the proposed project is classified as category B project, requiring an environmental assessment in the form of an Environmental and Social Impact Assessment (ESIA) report. The ESIA was carried out by an independent third-party (an Egyptian consulting firm hired by CAC), focused on the impacts and mitigation measures during the construction phase of the project as well as the operation phase of the terminal building of the airport. The ESIA report was completed according to the terms of reference prepared by CAC and cleared by the Bank. The ESIA includes an EMP, detailing institutional settings, mitigation measures, and monitoring plan for the potential impacts expected from the project during the construction and operation phases. No other safeguard policies are triggered by the project.
Public Consultations and Disclosure
80. Stakeholder consultations were carried out during the ESIA preparation. The first public consultation meeting was held on September 8, 2009 at Horus Hall in the existing Terminal Building 2 of Cairo Airport. The meeting was publically announced in the most widely distributed newspaper (Al- Ahram). Invitations were also passed to NGOs and syndicates. The meeting was attended by 55 participants (with almost equal gender representation) from the airport employees, research and academia, airlines, and business community.
81. A second public consultation meeting was held on September 29, 2009 at the same place after the consultant finished the draft ESIA and posted the findings on his website. The meeting was attended by 60 participants from both genders. A radio interview with the manager of the environmental unit at CAC was broadcast live and repeated that same day on Cairo radio.
82. The issues raised by the participants in both meeting addressed the possible impacts of the development on the noise and air quality in the airport and surrounding communities. The consultant addressed their concerns and relayed information to their satisfaction as documented in the ESIA.
83. The ESIA report was disclosed on the CAC website and made available at the premises on November 6, 2009 (main report in English and executive summary in Arabic), and the main report in Arabic on November 19, 2009. The report was approved by the Egyptian Environmental Affairs Agency (EEAA) on January 12, 2010.
20
Safeguard Policies Triggered by the Project Yes No Environmental Assessment (OP/BP 4.01) [X] [ ] Natural Habitats (OP/BP 4.04) [ ] [X] Pest Management (OP 4.09) [ ] [X] Physical Cultural Resources (OP/BP 4.11) [ ] [X] Involuntary Resettlement (OP/BP 4.12) [ ] [X] Indigenous Peoples (OP/BP 4.10) [ ] [X] Forests (OP/BP 4.36) [ ] [X] Safety of Dams (OP/BP 4.37) [ ] [X] Projects in Disputed Areas (OP/BP 7.60)18 [ ] [X] Projects on International Waterways (OP/BP 7.50) [ ] [X]
7. Policy Exceptions and Readiness
84. The project will not necessitate exceptions to Bank policies and complies with all regional criteria on readiness for implementation.
18 By supporting the proposed project, the Bank does not intend to prejudice the final determination of the parties' claims on the disputed areas. 21
Annex 1: Country and Sector Background
A. Country Background
1. Recent Economic Developments
Because of a favorable external environment and supportive domestic reforms, Egypt’s economic growth has averaged around 7 percent between FY06-FY08, a record over the previous twenty years. The share of private investment in GDP increased from an average of 8 percent of GDP in FY01-FY04, to 15 percent in FY08. In addition, foreign direct investment (FDI) increased from an average of 0.6 percent of GDP during FY01-FY04, to 8.1 percent in FY08. This increased total investment from an average of 17.6 percent of GDP over FY01-FY04, to 22.3 percent in FY08.
However, inflation remains a serious challenge facing Egyptian policymakers. The economy was hit by supply shocks such as the international food crisis and the world fuel price increases. Expanding domestic demand and a significant rise in monetary growth following large capital inflows also sustained these inflationary pressures. Consequently, inflation of domestic food prices, which constitutes almost half the Consumer Price Index (CPI) basket and Egypt’s overall CPI reached double-digit levels starting January 2008. The peak was in August 2008, when the overall CPI and food inflation rates increased to 25.6 and 35.5 percent, respectively, the highest level in 19 years.
Yet in late 2008, the global financial crisis followed by a global economic slowdown changed the supportive external conditions for growth prevailing in 2005-2008. Egypt’s relatively unleveraged banking sector was little affected by the financial shock which has kept the economy sheltered from the direct impact of the financial crisis. The banking system sector, which remains largely liquid with a loan to deposit ratio of 53 percent in FY08, has a limited exposure to troubled financial institutions and no direct exposure to risk derived from the financial innovation and unmonitored risk-taking of financial institutions in developed economies. On the contrary, the real sector of the economy suffered a direct impact of the slowing aggregate external demand.
During FY09, real GDP growth declined to 4.7 percent versus 7.2 percent in FY08. Consequently, the unemployment rate increased to 9.4 from 8.4 percent. The current account also deteriorated following a widening of the trade deficit and a slight fall in remittances: FDI, another important foreign exchange earning sector, was negatively impacted (dropping down by 38 percent). Official international reserves have declined by almost US$5 billion in FY09, standing at US$31.3 billion in June 2009. Furthermore, foreign currency deposits of the central bank in commercial banks declined by more than US$10 billion over the same period. Both effects add up to a total decline in international liquidity of US$15 billion. The exchange rate has however barely moved, depreciating less than 5 percent since July 2008.
In an attempt to mitigate the adverse effects of the global crisis, the government announced a EGP15 billion (US$2.7 billion and 1.5 percent of GDP) fiscal stimulus package to support economic growth in FY09. The package consisted of: (i) EGP10.5 billion in infrastructure investment spending; (ii) EGP2.8 billion in export subsidies; and (iii) EGP1.5-1.7 billion in lower tariffs on imported intermediate and capital goods. In addition, the government planned for another EGP15 billion in investments in public- private partnership (PPP) directed also towards infrastructure projects. Other measures included a one- year freeze of subsidized energy prices for energy intensive industrial users.
Fiscal reforms since 2005 were able to reduce the overall general government19 budget deficit from 9.2 percent of GDP in FY06 to 7.5 percent in FY07 and FY08. The large fiscal deficit stabilized in FY08 despite increased public spending (from 33.4 percent of GDP in FY07 to 34.6 percent in FY08) to accommodate increases in food and fuel subsidies (up to 9.7 percent of GDP from 7.4 percent last year).
19 The general government provides the broadest available definition for Egypt’s public sector in Egypt, which includes the budget sector (the central government, local administration units and service authorities), the NIB and the SIFs. 22
On the revenue side (28 percent of GDP) tax revenues declined slightly in FY08 (to 15.3 from 15.8 percent of GDP in FY06). In FY09 increased government spending and forgone revenues20, as announced within the fiscal stimulus package, have produced an overall fiscal deficit of the budget sector of 6.9% of GDP, the same level as in FY08.
2. Macroeconomic Outlook
The Government is still facing the challenge of managing a large fiscal deficit and a sizeable public debt stock, especially as the global environment turned unfavorable for Egypt. Real GDP growth is expected to fall in tandem with the rest of the world particularly in the United States and Europe, Egypt’s two main trading partners. GDP growth was around 4.7 percent in FY09 and is expected to be slightly above 5 percent in FY10. Assuming that the global economy will begin recovering in 2010, Egyptian growth is expected to stabilize around 5.5 percent in FY11, closer to its potential growth rate. Yet, as global growth will remain well below its peak, Egypt’s external sector will improve only slightly in FY10 and will recover gradually their potential growth.
In spite of the recent downward trend in inflation since September 2008, Egypt’s inflation remained for most of FY09 in the double digit level (average of 16.7 percent) and higher than last year’s average of 11.7 percent. In the medium term, inflation is expected to gradually decline to about 8 percent by the end of the projection period. This is based on the assumption that global commodity prices will continue to decline and that domestic demand pressures will ease following the deceleration in growth. The government has also put on hold its plan to reduce energy subsidies that, if resumed in 2010, will not only increase fuel prices but will also lead to pressures on all other prices.
Given the expected growth slowdown and the fiscal stabilization plan, the government will be unable to meet its target of cutting the fiscal deficit by 1 percent of GDP per annum in the near term. In fact, falling international commodity prices (especially for food and energy) should help reducing expenditures on subsidies. Although this did not happen in FY09, as subsidy bill remained almost unchanged at around 9 percent of GDP, FY10 budget allocated 5 percent of GDP for this item. Public debt simulations assume that the primary deficit for the general government, currently at 2.9 percent of GDP, will start declining in FY10 and gradually reach a primary surplus of 2 percent of GDP by 2016, according to the government’s fiscal plan.21 Moreover, the Government needs to allow the fiscal stimulus to unwind to address the long- term fiscal consolidations concerns and put public finances on a more sustainable path.
The slowdown in Egypt’s export markets will constrain both export and import growth. Nevertheless, merchandise exports will decline as a ratio to GDP while merchandise imports will marginally increase resulting in a slight widening of the trade deficit. The services balances will also narrow as tourism and Suez Canal receipts are hit. As a result, the current account is expected to turn into a deficit (-2.4 percent of GDP in FY09), though declining afterward to reach a small surplus of 0.3 percent of GDP in FY13. The balance of payments will also post in FY09 a deficit of -1.3 percent of GDP that will gradually decline to turn into a surplus of 2.3 percent by FY13. Net international reserves will consequently decrease in both volume and in terms of months of imports of goods and non-factor services, yet remaining fully able to cover any potential short-term foreign currency drainage. The level of the foreign debt is projected to decline in terms of volume and as a share to GDP.
Overall, reform policies adopted over the last five years have contributed to a better economic structure backed by a diversified output and should enable Egypt to accommodate the external demand shock. The recent drop in the ratio of gross external government debt to GDP has been impressive, declining from
20 The government has announced a reduction in tariffs and a one-year sales tax rebate to help importers of industrial inputs and capital goods. The cost of this measure is estimated at around EGP1.7 billion. 21 The government’s plan targets the overall fiscal balance, and the announced target is a deficit of 3 percent of GDP to be attained in 2014, down from 8.2 percent programmed for this fiscal year. An overall fiscal deficit of 3 percent of GDP is consistent with a primary surplus of 2 percent of GDP given the projected path of interest payments. 23 almost 42.5 percent in FY03 to 20.1 percent in FY08, and is expected to drop further to 15 percent by the end of FY12. The ratio of domestic debt to GDP also exhibits a similar pattern.
B. Sector Background
1. Traffic at Cairo International Airport (CAI)
Passenger traffic at CAI has more than doubled in the last decade, from 7.1 million in 1998 to 14.4 million in 2008. The graph below shows the trend and compares the actual traffic with forecasts made in 2003 during preparation of ADP. The actual traffic has largely surpassed the 2003 forecast with an average yearly growth of 12 percent during the period 2003-2008, vs. a 4.5 percent forecast, even stronger in the last three years. The table below the graph shows traffic growth per type of traffic (international and domestic).
The boom in passenger traffic at CAI, observed for both international and domestic traffic, is mainly explained by the following reasons: (i) Egypt’s economy grew at the unprecedented pace of 7 percent per year in FY06-FY08, (ii) the number of tourists soared from 6 million in 2003 to 12.4 million today, the most significant increase in the number of tourist nights being from Arab and European nationals, (iii) in the first half of 2007, Egypt Air founded a new domestic carrier, Egypt Air Express, operating 12 Embraer-170 aircrafts which induced a 30% rise in domestic traffic, (iv) Egypt Air expanded its routes network, upgraded its fleet with B737-800 aircrafts, and joint the Star Alliance led by Lufthansa in July 2008, (v) the traffic carried by the Gulf carriers has been very dynamic and encouraged them to add unscheduled flights, especially in summer and during holiday periods like Omra and Hajj, and (vi) the GOE established a Ministry of Civil Aviation in 2002 with appropriate means and responsibilities to develop Egypt’s aviation industry.
Graph 3: Passenger Traffic at CAI (in millions)
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14
13
12
11
10
9
8
7
6 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Actual traffic Forecasted traffic in 2003
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Table 4: Passenger traffic (in millions) and annual growth rates at CAI
International Domestic Total pax growth pax growth pax growth 1998 5.4 1.6 7.0 1999 6.1 13.5% 2.1 28.1% 8.2 16.9% 2000 6.4 4.6% 2.2 7.3% 8.6 5.2% 2001 6.0 -6.1% 2.0 -7.3% 8.1 -6.4% 2002 6.1 1.3% 2.0 -2.0% 8.1 0.5% 2003 6.3 3.3% 1.9 -5.0% 8.2 1.2% 2004 7.4 17.5% 2.1 10.5% 9.5 15.9% 2005 8.1 10.1% 2.1 -1.4% 10.2 7.6% 2006 8.8 8.6% 1.9 -6.8% 10.8 5.5% 2007 10.2 15.0% 2.4 24.6% 12.6 16.7% 2008 11.6 13.6% 2.8 16.4% 14.4 14.1% 2003-2008 12.9% 8.0% 11.9% 1998-2008 7.9% 5.7% 7.4%
2. Civil Aviation Sector Policy
The Government intends to enhance the economy by upgrading Egypt’s aviation industry to world class standards. To reach this goal, the GOE concentrates its efforts in two directions, the tourism industry and Cairo International Airport (CAI), as described below.
The expansion of the tourism industry has been one of the main drivers of passenger traffic in Egypt’s airports. With it, significant hotel capacities have been added over the last twenty years in cities with historic attractions and beach resorts. The strong performance of tourism can in part be attributed to government efforts. Apart from longstanding tax holidays for investors in designated tourism areas, the government has become increasingly savvy in its support for the industry, marketing heavily in key European and Gulf countries and, crucially, offering financial incentives to foreign charter operators. Egypt has an additional advantage in its immense archaeological richness. Moving beyond the unique Nile Valley Pharaonic sites, alternative tourism has taken off in recent years including desert expeditions, golf holidays, health tourism and religious journeys. However, beach and diving holidays in the Red Sea resorts are, by far, the largest growth area.
In order to leverage the use of Egypt’s airport infrastructure and soften the negative effects of external shocks that occasionally affect the global tourism industry, the GOE’s strategy is to promote the development of CAI as an international hub for passengers and cargo. Egypt is geographically well positioned, at the crossroads between Africa, Europe and the Middle East to attract additional passenger and cargo traffic to the region trough the development of CAI as a hub. Egypt Air is the natural leading force for this development, even though other international carriers, e.g. the other members of the Star Alliance, are encouraged to select CAI for connection of their services.
In the last decade, the GOE launched a series of reforms in the civil aviation sector to exploit the potential benefits for Egypt fully. In particular, the GOE sought the Bank’s technical and financial support in 2004 under the previous Airports Development Project (ADP) to build on the reforms passed in the previous years to pave the way to a gradual increase in the private sector’s role in developing the aviation industry in Egypt. The laws and decrees concerned by these reforms are described in the section 3.
25
In 2004, the GOE identified several areas of future progress in the civil aviation sector and since then took the following actions: • Long-term airport planning: ADP financed a national airport master plan taking into account the expected growth in passenger traffic and optimizing the investments required for airport facilities and infrastructure. EHCAAN currently follows the strategy established in this master plan to develop Egypt’s airport infrastructure. • Pricing flexibility: the GOE established the Higher Council for the Pricing of Services, with a view to include members prominent and proficient enough to rise above vested interests and seeking to serve the general interest in airport pricing. • Accounting: the GOE hired one of the major accounting firms to computerize accounting throughout EHCAAN and its affiliates and align it with international accounting standards. This was aimed at adding financial transparency to the airport system. • Airport management: EHCAAN sought experienced airport operators to manage six airports in Egypt, including Cairo International Airport and Sharm El Sheikh, with a view to promote world class service and operations within these airports. Management contracts were successfully awarded in 2004 to two experiences international airport operators and have so far satisfied the GOE. • Aviation ancillary services: the GOE considers that the quality of these services is among the most critical drivers of the transit and hub business. It therefore ensures that the airport operators can set the standards and monitor the quality of services rendered by the two existing companies, which, although tied with Egypt Air through equity ownership, are competing including on price. • Air cargo: the GOE’s objective is to increase significantly the cargo business by attracting international cargo operators to lease and manage their own cargo facility at CAI. A national strategy for development of air cargo was financed under ADP, which paved the way for an ongoing investment program in Cairo, the Cargo Village. • Human capital: the EHCAAN is focusing on working on the development and training of the work force at Egypt’s airports, since it believes that a well trained and motivated labor force in the civil aviation sector will ensure the successful implementation of our development programs. That was a requirement under both management contracts executed with private operators.
3. Legal and Regulatory Framework
The civil aviation sector has been reorganized since 2001. Commercialization of public enterprises and private sector participation in airport infrastructure are key objectives of the reform. A review of the main relevant laws and decrees follows.
Sector and Corporate Governance
Law No. 28 of 1981, as amended, provides the general framework governing civil aviation. Presidential Decree No. 56 of 2002 established the Ministry of Civil Aviation (MOCA), entrusting it with all responsibilities pertaining to air transport and airports. The reform reflects the higher priority given to the sector by the GOE and the need to raise performance levels and accelerate infrastructure development.
Law No. 203 of 1991 sets the stage for corporatizing public sector entities, two of which are overseen by the MOCA: (i) the Egypt Air Holding Company, created by Presidential Decree in 2002, owns six affiliate firms (Egypt Air and its former five subsidiaries dealing with air cargo, charters, ground-handling and maintenance); and (ii) Egyptian Holding Company for Airports and Air Navigation (EHCAAN), which was created by Presidential Decree in 2001 with four affiliates: (a) the Cairo Airport Company (CAC), created in 2002 to manage and operate Cairo International Airport; (b) the Egyptian Airports Company (EAC), which manages and operates all airports except Cairo, Marsa Alam and Al Alamein (two recent “Build-Operate-Transfer” schemes); (c) the National Air Navigation Services Company (NANSC), created in 2001 to manage and operate air traffic control and related functions; and (d) the Aviation Information Technology Company (AVIT), created in 2002, oversees and operates information
26 technology, including its supporting facilities and equipment. In addition, the Egyptian Civil Aviation Authority (ECAA) which reports to the MOCA regulates air transport.
Organization of the Egyptian Aviation Sector
Ministry of Civil Aviation (MOCA)
Egyptian Holding Meteorological Egyptian Egyptian Company for Airports Authority Civil Air and Air Navigation Aviation Academy Egypt Air (EHCAAN) Authority Holding (ECAA) Company (EAHC) Cairo Egyptian National Air Aviation Airport Airports Navigation Information Company Company Services Co. Technology (CAC) (EAC) (NANSC) Co. (AVIT)
EA for EA for Egypt Air Egypt EA Maintenance Air EA for EA for Carrier Air EA for Complementary EA Hospital and Tech Cargo Tourism Aviation (EA) Express Ground Industries Company Works Works Services
Private Sector Participation in Airport Infrastructure
Law No. 3 of 1997, also known as the “Airport Concession Law” (AC Law), comprises only six articles exempting airports from old laws governing infrastructure concessions (Laws No. 129 of 1947 and No. 61 of 1958), which were restrictive to the point of deterring private concessions. Since 1997, several airport concessions have been tendered, but only two were signed and implemented for development of Marsa Alam and El Alamein Airports. Law No. 3 of 1997 is silent on some aspects important to the rights of parties to a concession contract.
The AC Law does not address land ownership issues, and public domain rules apply to airport concessions. A concession holder cannot normally own airport assets, including land development and buildings erected on it, which deprives lenders of collateral rights and results in less favorable financing terms. There are ways around this problem (e.g. an usufruct agreement) to give the developer quasi- ownership of land acquired, as well as full ownership of airport buildings by the concession holder who can then mortgage them. Interpretation of concession agreements is based on the Civil Code, and other basic laws which creates some uncertainty, especially as the established doctrine of the Administrative Court seems at odds with provisions of the AC Law. Issues not addressed by the AC Law could cause lengthy and complex debates and negotiations among investors, lenders and the Airport Authority, thereby increasing transaction costs. For investors to benefit from a transparent contracting environment, detailed regulations for application of the AC Law were therefore needed.
Conditions for tendering airport concessions are not specified in the AC Law except for its call for competition and transparency. The general practice has been to comply with Law No. 89 of 1998 (the “Tender Law”) even though commercial companies like CAC and EAC are exempted from it. Law No. 89 is not adapted to concessions for which different rules should be considered.
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Meant to correct above-described gaps in the PSP legal framework for airports, a decree on the organizational, legal, technical, financial and economic regulations of national and local BOOT, BOT and BOO projects were issued in July 2003. Furthermore, the Sector Policy Statement reaffirms that EHCAAN and its subsidiaries are not bound by Law 89/1998 (the “Tender Law”) but can instead have their own procurement bylaws.
Organization of the Airport Sector
The Egyptian Holding Company for Airports and Air Navigation (EHCAAN) was created in 2001 by a presidential decree as a state holding company in charge of public airports and air navigation. EHCAAN is an independent company with financial and administrative self-support to run its activities entirely on a commercial basis. Its vision is to be a leading company in Africa and the Middle East providing high standards of services and ensuring passengers’ comfort, safety, and security in the field of civil aviation with a commitment to preserve the environment.
Its objectives are as follows: (i) develop, modernize, and upgrade airports and air navigation services to raise the level of civil aviation services in Egypt; (ii) apply free market policies in airports and air navigation activities to increase air traffic and associated revenues by encouraging competition in a transparent, equitable and stable environment; (iii) encourage the private sector to operate and manage Egyptian airports, and to participate in developing airport infrastructure; (iv) implement the concept of hub for passengers and cargo at Cairo International Airport; and (v) improve human resources in order to operate airports and air navigation services on economical and commercial basis.
EHCAAN has around 11300 employees and fully owns four subsidiaries: (i) the Cairo Airport Company (CAC), (ii) the Egyptian Airports Company (EAC), (iii) the National Air Navigation Services Company (NANSC), and (iv) the Aviation Information Technology Company (AVIT). CAC and EAC are in charge of airports.
CAC manages and operates Cairo International Airport with 5317 employees while EAC manages and operates all the other Egyptian commercial airports with about 4000 employees, except for two regional airports (Marsa Alam, and Al Alamein) which are owned and operated by private investors under Build- Operate-Transfer (BOT) concessions awarded by the MOCA in 2001.These two BOT serve as pilot projects to attract private and foreign direct investments in airport projects in Egypt in order to support tourism development.
In 2005, the MOCA also decided to award two management contracts to renowned international airport operators without requiring them to make any investment. The first contract concerns Cairo International Airport and will be in force until 2014. The second contract concerns five major international airports (Sharm El Sheikh, Al Gurdaqah, Luxor, Aswan, and Abu Simbel) and will be in force until 2011. Both contracts include an option for a three years extension. They include the management of the landside, airside (except for air traffic control), and complementary services. From these contracts, EHCAAN expects to gain the following benefits: (i) transfer of know-how, (ii) higher quality of service, (iii) maximized aeronautical and non-aeronautical revenues, and (iv) employees better trained and prepared for the most modern international airport systems.
Investment plan in the airport sector
In the early 2000s, EHCAAN launched a 10-year investment plan of US$3.03 billion (EGP16.7 billion) for the period 2002-2012 to upgrade airport facilities and improve airport services throughout the country to state-of-the-art international standards. The following table shows EHCAAN and affiliates’ projects in this investment plan for the period 2002-2012.
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Table 5: Major Projects of EHCAAN in 2002-2012
Cost Period Airport/Area Project (in EGP million) TB3 3,300 Cairo New runway 587 Development of existing terminals 450 Development of TB2 157 Sharm El Sheikh New TB1 505 Hurghada Development of existing terminal P1 48
2002- Luxor New terminal 450 2007 Marsa Matrouh Development of existing terminal 30 New 4 radar stations 53 New satellite systems 1 main + 19 substations 60 NANSC Replacement of 2 radar stations 37 New 3 regional control towers 59 Security Development of security systems 45 Sub-Total 2002-2007 5,781 New cargo village 384 Reconstruction of TB2 2,300 Automated People Mover 560 Cairo New terminal façade 42 New electrical stations 250 New access road 130 Multi-story garage 226 New third terminal and new third runway 2,500 Sharm El Sheikh Development of existing runway 100 Development of the existing terminal and tarmac 207 Hurghada New terminal and new runway 2,300
2007- Nozha Development of the existing runway 100 2012 New terminal and new cargo facility 628 Borg El Arab New infrastructure 22 Abu Simbel Development of existing runway 120 Asyout New terminal 170 Taba Expansion of the existing terminal and runway 89 New Hurghada control tower 40 New Cairo control tower 220 NANSC Development of ILS and VOR/DME systems 114 Development of VHF systems 58 Development of ATC systems 150 IT systems Development of IT systems 181 Sub-Total 2007-2012 10,891 Total 2002-2012 16,672
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Pricing and Funding
Law No. 93 of June 2003 replacing Law No. 119 of 1983 introduced a new tariff structure and pricing freedom consistent with the objective of corporatizing the airport sector, while in the past budgets and tariff had to be approved by the Parliament, and reorganized airport cross-subsidization.
Articles 16 and 21 of the new law give the MOCA authority to set airport charges. Article 17 empowers the Minister to grant partial or full exemption of fees under conditions yet to be specified. Article 36 gives the Minister freedom to increase tariff rates within a 50 percent limit. Airport pricing decisions are subject to prior consultation with the Higher Council for the Pricing of Services, which was created by Presidential decree in September 2004.
In 2008, 60% of CAC operating revenues came from departure fees (47%) and landing fees (13%). The last increase in departure fees for Egypt’s airports took place on January 1, 2007. For the future, EHCAAN assumes that, if needed, passenger departure fees will increase twice until 2025, in FY2014 and FY2018. It has however to be noted that these increases are yet to be proposed by EHCAAN to and reviewed by the Higher Council for the Pricing of Services.
Table 6: Departure Fees in Egyptian Airports
Type of departure fee Actual fee in FY2009 Expected fee in FY2014 Expected fee in FY2018 International Scheduled 15 US$/pax 20 US$/pax 25 US$/pax International Charter 15 US$/pax 20 US$/pax 25 US$/pax Domestic Scheduled or Charter 3 US$/pax 4 US$/pax 5 US$/pax
For international passengers, Egypt’s departure fees are rather low compared to other countries in Africa and in the Middle East, as shown in the graph below.
Airport Departure Fees for International Passengers (US$ per pax) source: ICAO and CAC 2008 Senegal (incl. security) Ghana (incl. security) Uganda (incl.security and loading bridges) Seychelles Kenya Tanzania (incl. safety) Jordan Lebanon Nigeria (incl. loading bridges) Ethiopia (incl. loading bridges) UAE Zambia Congo Angola Mauritius Sudan (incl. security) Tunisia (incl. security and loading bridges) Egypt 15 Israel Turkey Morocco South Africa Syria Saudi Arabia Lybia
0 306090120
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In comparison with other African countries, landing fees on Egyptian airports varies according to the aircraft weight. These fees are in the above average for A320 (73.5 tons), while they are rather low for B767 (186.9 tons), as illustrated by the two graphs below.
Landing charges for A320 (US$ per landing) Landing charges for B767 (US$ per landing) source: ICAO 2008 source: ICAO 2008
Nigeria Tunisia Tunisia Nigeria Sudan Congo Congo Senegal Egypt 478 Sudan Senegal Ghana Angola Angola Uganda Uganda South Africa South Africa Ghana Ethiopia Ethiopia Zambia Tanzania Tanzania Zambia Kenya Seychelles Seychelles Kenya Egypt 751 Mauritius Mauritius Lybia Lybia
0 200 400 600 800 1000 0 1000 2000 3000 4000
Air transport market regime
Egypt has already embarked in gradual liberalization of air services on a bilateral basis with several countries in the Middle East, Africa, and Europe. Nevertheless, there are three multilateral agreements serving these regions, which remain pending, or which have not yet been established.
In the Middle East region, the Arab League has adopted the Arab League Open-Skies Agreement, which provides for open skies, and potentially even seventh freedom rights, among its member States. However, so far the agreement has only been ratified by six States.22 The main reason seems to be some competition issues, where certain carriers of the region seem heavily subsidized, posing a threat to fair competition. Nevertheless, it can be expected that more States will join eventually the agreement once they recognize the market potential for a liberalized Arab region.
In Africa, Egypt is a signatory State of the Yamoussoukro Decision (YD), which liberalizes air service among all its member States. Despite the fact that several African States claim the YD is not in force, it is legally binding for 44 States, including Egypt. Several States (e.g. Ethiopia, Libya) have successful established a YD based bilateral framework, which provides open skies to several African countries. The sub-Saharan market represents a great potential for Egypt, especially to provide sixth freedom traffic from Africa over Egypt to Europe and the Middle East.
Finally, Egypt has begun technical cooperation with the European Union (EU) to elaborate the road map for the development of a Euro-Mediterranean Common Aviation Area (Euromed), with focus on the common aviation market, safety, security, environment, and air traffic management. This could eventually lead to an open skies agreement with the EU (similar to the one of Morocco), which would have catalytic effect on air services to Egypt.
22 These are Jordan (30 June 2005), the United Arab Emirates (28 November 2006), Syria (24 May 2005), Palestine (23 October 2005), Lebanon (14 June 2006), and Yemen (24 October 2005). 31
Annex 2: Major related projects financed by the Bank and/or other agencies
Agency/Project Fiscal Amount Objectives Rating Year (million) To assist the Government in improving the reliability, efficiency and safety of the railways’ services through signaling and track renewal investments by ENR and the IBRD/National Railways modernization of its management and Moderately Restructuring Project 2009 US$270 operating practices in order to Satisfactory (ongoing) enhance the railways’ sector responsiveness to economic and social needs and to strengthen the financial viability of the Project Implementing Entity. To eliminate capacity bottlenecks to air traffic growth, particularly related Highly Satisfactory IBRD/Airports Development to tourism, raise the quality of the (PDO) Project Initial Loan and 2004 US$335 Cairo and Sharm el-Sheikh Airports Additional Financing (closed 2008 US$40 to best-practice standards, and Satisfactory on June 30, 2009) promote efficient private-sector (Implementation participation in airport management Progress) and service delivery. To develop new port capacity for IFC/Sokhma Port 2005 US$20 container transshipment and Highly Successful Development Company import/export
To assist the government in 1998 US$2 improving the efficiency of Egyptian N/A IDA/Port Sector Reform ports and ancillary services in line with the CAS objectives of promoting private sector development and growth in exports.
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Achievements of ADP
Implementation Completion and Results Report (ICR) prepared by EHCAAN in September 2009 Project Development Objectives Outcome Indicators Results Framework 1. Eliminate capacity bottlenecks to growth in airport traffic 1.1. Traffic growth at CAI and SSH 1.1. Higher-than-expected passenger growth perceived since the project’s original appraisal. It was higher than PAD estimated by 5% in 2004 and by nearly 40% in 2008. Highest pax traffic growth was in February 08 by 25.2% month-on-month in CAI. In SSH, highest was by 32% in November 08 month-on-month. 1.2. Growth in tourism 1.2. Foreign earnings from tourism in 2008 have been elevated from an expected US$ 1,481 million to US$2,564 million in CAI (revenues has grown 2.4 times since 2003); and from an expected US$ 1,360 million to US$ 2,844 million in SSH. 1.3. Growth in exports from CAI 1.3. After stagnating at around 200,000 tons p.a. from 1999 till project inception, cargo traffic has increased to 287,000 tons compared to anticipated 221,000 only. The Cairo Cargo City project which is currently in progress will add a capacity of an additional 200,000 tons to the existing capacity. 2. Raise the quality of services to international best 2.1. Processing time in CAI and SSH: practice standards at CAI and SSH (i) passenger processing time in CAI for international arrival pax reached an average of 33 min (PAD plan was up-to 35 min) compared to 41 min at base-year 2003; and processing time for departure reaching average 45 min (as planned) down from 65 min in base-year. (ii) passenger processing time in SSH for international arrival pax reached an average of 20 min (PAD plan was up-to 35 min to ) compared to 45 min at base-year; and processing time for departure reaching average 12 min down from 75 min in 2003. 2.2. Certification for SSH from ICAO was issued on 13- Apr-08; certification from ICAO for TB3 in CAI is in progress. 3. Promote private sector participation in airport management and service delivery 3.1. Boosting airport commercial revenues 3.1. The revised analysis also incorporated a lower assumption for commercial and rental revenue (US$2.9 per international passenger compared to actual US$3.9 in FY08 that leaped to US$ 4.4 in FY09). 3.2. Developing private sector jobs 3.2. Private firms are more involved in providing airport services. These firms comprise 37.3% of all CAI staff within the airport area. 3.3. Increasing private sector role in the aviation 3.3. In 2009, airlines staff increased by 7.8%; retail industry companies by 6% to reach 36 companies operating in CAI; 14 cargo companies increased staff by 64%; while Egypt Air staff increased by 6.8%. 4. Support gradual liberalization of the sector and to 4. Ministry of Civil Aviation commitment to liberalize promote operational efficiency and cost-effective the sector began to materialize straight away in delivery of airport services December 2004 when it signed contracts with international operators to assist in managing CAI on one hand, and five regional airports including SSH on the other hand. Liberalization of air transport study implications are detailed in the section below. 33
Annex 3: Results Framework and Monitoring
PDO Outcome Indicators Use of Outcome Information Assist the Government of Egypt in:
(i) Enhancing the quality of (i) Passenger traffic at CAI; connecting (i) Monitor CAI performance and airport services through an passenger traffic at CAI; passenger improve the quality of operations. increase in the capacity of CAI. processing time in the new TB2; commercial revenue per passenger at CAI.
(ii) Strengthening air transport in (ii) Adjust air transport strategy and Egypt. (ii) Number of enforced bilateral reinforce safety measures. agreements; rate of compliance of Egypt’s Civil Aviation in safety and security audits.
Intermediate Outcomes Intermediate Outcome Indicators Use of Intermediate Outcome Monitoring Component 1 Rehabilitation and Expansion of Percentage of physical completion of the TB2 at CAI. new TB2.
Component 2 Technical Assistance and Studies
2.1 The Ministry of Civil Aviation 2.1 Approved report on the air transport has a roadmap to develop Egypt’s policy of Egypt and strategic options. international air services.
2.2 Air traffic control 2.2 Approved report on development infrastructure and air traffic strategy of air traffic control and air traffic management are modernized and management. integrated. Detect implementation delays, identify
causes, and take corrective actions. 2.3 The Egyptian Civil Aviation 2.3 Approved report on Civil Aviation Authority applies ICAO standards Authority’s compliance with ICAO and recommended practices for Standards and Recommended Practices oversight of safety and security. concerning regulatory oversight of safety and security.
2.4 The fee and tax structure of 2.4 Approved report on fee and tax the airport sector is adapted to structure of the air transport sector. support future investments and to balance the interests of airports and airlines.
2.5 The land surface of CAI is 2.5 Approved report on spatial planning of optimized for long-term Cairo airport's area. development.
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Monitoring Indicators Target value Data Collection and Reporting Baseline Outcome Indicators FY2009 FY FY FY FY FY FY FY Frequency of Data Collection Responsibility for 2010 2011 2012 2013 2014 2015 2016 reports Instrument Data Collection
Total passenger traffic at CAI (in millions) 14.21 14.21 14.98 15.78 16.63 17.53 18.47 19.47 nnual A CAI statistics PMU
Connecting passenger traffic at CAI (in 0.67 0.75 1.10 1.83 2.28 2.77 3.31 3.95 Annual CAI statistics PMU millions)1 Passenger processing time in the new TB2 45/372 n/a n/a n/a n/a n/a n/a 36/29 Annual CAI statistics PMU (departing/arriving) (in minutes) Commercial revenue per passenger at CAI 4.3 5.8 5.5 5.4 5.3 6.3 6.7 7.1 Annual CAI statistics PMU (US$) At the end of Number of enforced bilateral agreements 47 67 MOCA MOCA the project Rate of compliance of Egypt’s Civil Aviation in At the end of 75 ICAO reports ECAA safety and security audits (in %)3 the project Target value Data Collection and Reporting Baseline Intermediate Outcome Indicator FY2009 FY FY FY FY FY FY FY Frequency of Data Collection Responsibility for 2010 2011 2012 2013 2014 2015 2016 reports Instrument Data Collection Component 1: Rehabilitation andxpansion E of TB2 at CAI Percentage of physical completion of the new Project progress 0 0 5 15 40 80 100 100 Annual PMU TB2 report Component 2: Technical Assistance and Studies 2.1 Approved report on the air transport policy Project progress X One time PMU of Egypt and strategic options report 2.2 Approved report on development strategy of Project progress X One time PMU air traffic control and air traffic management report 2.3 Approved report on Civil Aviation Authority’s compliance with ICAO Standards Project progress X One time PMU and Recommended Practices concerning report regulatory oversight of safety and security 2.4 Approved report on fee and tax structure of Project progress X One time PMU the air transport sector report 2.5 Approved report on spatial planning of Project progress X One time PMU Cairo Airport's area report 1 All types of connection are considered: international/international, international/domestic, and domestic/domestic. Connecting passenger traffic was 4.7% of total passenger traffic in FY09; this percentage is expected to increase in the following: manner FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 4.7% 5.3% 7.4% 11.6% 13.7% 15.8% 17.9% 20.3% 2 These were processing times in the old TB2 in June 2009, from entry to boarding; all stations were counted including averageeuing quand walking. 3 There is no FY09 baseline for comparison since ICAO has recently changed the method to measure compliance. 35
Annex 4: Detailed Project Description
Component 1: Rehabilitation and Expansion of TB2 at Cairo International Airport (US$433 million - IRBD financing of US$277 million, counterpart financing of US$156 million)
Cairo International Airport (CAI) is currently the largest airport in Egypt and the second largest in Africa after Johannesburg in South Africa. Today, CAI is used by 58 passenger airlines, including charter operators, 10 cargo operators, and has a total capacity of 21 million passengers per annum (mppa). CAI operates two runways and three terminal buildings, TB1, TB2, and TB3, as shown in Figure 1.
Figure 1: General Layout of Cairo International Airport in 2009
Source: Google Maps
TB1 started its operations in 1963 and has a current capacity of 6.5 mppa. TB2 opened in 1986 and has a capacity of 3.5 mppa, although the quality of services provided by the aging facility is no more on a par with worldwide standards for international airports. TB3 was completed in 2009 under ADP financed by the Bank and has a capacity of 11 mppa, with a design allowing the future combined operations of the TB3 and the new facility that will replace TB2 as one integrated terminal. The current and future configurations of TB2 and TB3 are shown in the Figures 2 and 3.
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Figure 2: Current configuration of TB2 and TB3
Source: Google Maps
Figure 3: Future configuration of the new TB2 and TB3 as one integrated terminal
Source: Engineering Consultants Group S.A. in association with Netherlands Airport Consultants B.V.
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When completed, the new TB2 will have a total capacity of 7.5 mppa, while the current old TB2 can only accommodate 3.5 mppa. The old TB2 will be mostly demolished and replaced by state-of-the-art facilities.
Capacity in mppa TB1 Old TB2 New TB2 TB3 Total CAI Before CADP 6.5 3.5 - 11 21 After CADP 6.5 - 7.5 11 25
CAC has hired a joint-venture of an Egyptian engineering firm and an international airport engineering firm to design the new facilities of TB2. The functional design concept, submitted by the joint-venture in April 2008, studied five different scenarios to increase the level of service and capacity of the aging TB2 at CAI. The first three scenarios (1A, 1B, 1C) explored different possibilities within the footprint of the existing TB2 through the renovation and reorganization of the building. It was concluded that no increase in capacity was achievable. The fourth scenario (2) expanded the landside capacity through the construction of a new 4-level building for check-in and baggage handling alongside the current TB2, but did not modify the airside, which limited the maximal capacity at 5.3 mppa. Finally, the fifth scenario (3) draw the lesson from the limited airside of scenario 2 and therefore redesigned a new pier for TB2 in addition to a new check-in hall, thus achieving a maximal capacity of 7.5 mppa. As this last scenario offered the largest increase in capacity for the minimal unit cost per passenger (see table below), EHCAAN chose to build on it for the next stages of the design.
Scenario 1A Scenario 1B Scenario 1C Scenario 2 Scenario 3 Airside costs (US$ mil.) 35 35 35 35 84 Landside costs (US$ mil.) 134 167 169 224 273 Total Cost (US$ mil.) 169 202 204 259 357 Max. Capacity (mppa) 3.5 3.5 3.5 5.3 7.5 Cost per pax (US$/pax) 48 58 58 49 48
Since April 2008, the joint-venture has refined the design of the new TB2 and estimates today the total cost of the investment at US$392 million including 10 percent of physical contingencies. The base cost figure has been confirmed by an independent engineering firm hired by the Bank. The work program includes, among other things, the following activities: • Rehabilitation and expansion of the passenger waiting areas, gates, customs, and baggage claim on the site of the existing terminal. • IT system. • Construction of a new check-in hall, which will be linked with TB3 by an existing pedestrian bridge and linked with TB1 by an automated people mover (the people mover is already under construction but out of the project scope). • Construction of a new pier with 14 connecting bridges. • Construction of a new apron with 16 parking contact stands, which can accommodate two Airbus A380 and a flexible combination of wide-body and narrow-body aircrafts (ten ICAO E-code aircrafts, two C-code aircrafts, and two F-code equivalent to four C-code aircrafts23), and four parking remote stands.
The existing TB2 has a total surface of 60.750 m2, of which 20.000 m2 will be demolished during the project, while the remaining 40.750 m2 will be rehabilitated. An additional surface of 76.576 m2 will be
23 C-code includes A320 and B737, D-code includes A310 and B757, and E-code includes A340, B747, and B777.
38 constructed within the new check-in hall and the new pier, bringing the overall surface of TB2 to about 117,000 m2.
All functional areas of TB2 shall achieve the level B (high) of IATA level of service. Each building will have three levels to allow separating the departure and arrival flows. The project does not include any major infrastructure operation like a new runway (the third runway planned during the preparation of ADP will be completed in October 2010) or land acquisition, and there is no plan for further extension because of the airside’s limited size. The new TB2 will serve 15 to 20 airlines, mainly from the Persian Gulf, while TB3 will be dedicated to Egypt Air and its Star Alliance partners and TB1 will mostly accommodate the members of Skyteam. All terminals will be connected in 2011 by an internal transport system, available both to landside (arriving/departing) and airside (connecting) passengers. The security systems and arrangements will comply with ICAO standards and will be same as for TB3. Although there will be a new IT system for TB2, it will be fully compatible with TB3 system and will be driven from TB3 control room. The IT system will be part of the same contract as the rest of the work.
The new TB2 will include several green or sustainable features which focus on increasing the efficiency of resource use (energy, water, and materials) while reducing building impacts on human health and the environment during the building’s lifecycle, through better sitting, design, construction, operation, maintenance, and removal. Among these features, there will be: (i) a minimal footprint of the building on the airport’s area, (ii) a full recycling of the existing pavement materials which will provide the new airside pavement with a cement treated base course characterized by a remarkable durability and a relatively low cost, (iii) reduced taxi distances and times for aircrafts on the airside to minimize the emissions of greenhouse gases and the noise level, (iv) a free shuttle service and limited parking spaces encouraging the use of public transportation instead of personal vehicles, (v) roof surface materials with high solar reflectance index to reduce the urban heat island effect and hence the need for air conditioning inside the terminal, (vi) natural light for illumination and a daylight dimming control system combined with high efficiency lamps, (vii) solar energy for heating water, (viii) an advanced water treatment and recycling system, low-flow plumbing, and high efficiency fixtures to save water, (ix) international standards to reduce noise pollution, (x) insulated glazing to improve thermal efficiency and prevent unnecessary heat/cold transfer, (xi) insulated roof and wall systems improving air tightness, and (xii) regional materials preventing unnecessary transport, recycled content materials, and non-toxic materials for floors, walls, and ceilings.
The facility complies with the EU requirements for accessibility of disabled and senior citizens, which are more stringent than the UN recommendations reflected in ICAO guidance. This will provide for higher standards than in TB3 as this terminal was designed ten years ago.
Component 2: Technical Assistance and Studies (US$2.8 million financed by IBRD)
Sub-Component 2.1: Review of the Air Transport Policy of Egypt and Strategic Options (US$0.56 million)
Egypt’s future air transport development depends to a great extend on policy choices allowing greater competition in its international air service market. The review of the air transport policy of Egypt and the strategic options should serve as a basis to define and formulate a roadmap for developing the international air services, both for direct traffic to and from Egypt, as well as for transit traffic (hub function). Egypt has already embarked in a gradual liberalization of air services on a bilateral basis with several countries in the Middle East, Africa, and Europe. Nevertheless, there are three multilateral agreements serving these regions, which remain pending, or which have not yet been established (for more details, see the section on air transport market regime in Annex 1).
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The scope of the review will be divided into six key parts: (i) policy options on a bilateral and multilateral level for Egypt, (ii) inventory of current bilateral air service agreements with traffic analysis, (iii) legal implications for further liberalization of air services, (iv) expected market development in the three regions depending on policy choices, (v) risks and opportunities for Egypt’s national carrier in various policy choices, and (vi) policy recommendation for the next ten years.
The review will be carried out by a consulting team including a legal expert in the domain of international treaties and air service agreements. The team will deliver a report for each part described above and a final report. The estimated duration of the assignment is seven months.
Sub-Component 2.2: Development Strategy of Air Traffic Control (ATC) and Air Traffic Management (ATM) (US$0.56 million)
The Egyptian National Air Navigation Services Company (NANSC) is facing an important air traffic growth due to flows using Egyptian airports and over flying traffic. The current infrastructure shall be upgraded in such a way to implement the CNS/ATM concept24 operational and technical requirements. There is a traffic flow management capability based on CFMU (Central Flow Management Unit) connections with Eurocontrol (at Cairo ACC, Cairo, Sharm and Hurghada & control towers). To manage the expected traffic growth, the current operational environment requires, in many aspects, improvements in the concept of operations and ATC systems.
The main objective of the sub-component is to prepare a Strategic Air Traffic Management Master Plan for the next twenty years that will: (i) optimize the airways network and workload for each sector, (ii) optimize the airspace design, (iii) detect the CNS/ATM strength and weakness in Egypt according to the regional plan of the Middle East, (iv) propose the improvements needed in all ATC, terminals, NAVAIDS, communication, and surveillance infrastructure with reference to the performance based navigation concept (PBD) of ICAO, (v) review the possible introduction of new technologies for CNS/ATM, such as replacing traditional equipment with satellite based approaches (GNSS) and transitioning to ADS-B, and (vi) propose specifications for the upgrade of the ATC in the Cairo Air Navigation Center as the first phase and the TMA's (Terminal Control Area) as the second phase.
The scope of work of this sub-component will be divided into six parts: (i) analysis of the strengths and weaknesses of the current airways network, (ii) detailed description of the existing ATC infrastructure and ATM, (iii) development of a new airways network to handle the expected traffic growth, (iv) review of options for the next generation of ATC infrastructure, (v) recommendation proposal to modernize and integrate the ATC infrastructure, and (vi) provision of specifications to modernize the current ATC system in Cairo FIR (Flight Information Region).
The work will be undertaken by a consulting team with a minimum of 10 years of relevant experience, including evidence of carrying out satisfactorily similar studies. The team will deliver a report for each part described above and a final report. The total estimated duration of the work is one year.
Sub-Component 2.3: Review of Civil Aviation Authority’s Compliance with ICAO Standards and Recommended Practices Concerning Regulatory Oversight of Safety and Security (US$0.56 million)
24 Communications Navigation Surveillance / Air Traffic Management
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Egypt has successfully passed the International Civil Aviation Organization’s (ICAO) Universal Safety Oversight Audit (USOAP) in 200525 and the ICAO Universal Security Audit (USAP) in 2009. In addition, Egypt Air is IATA IOSA certified.26 Nevertheless, the expected further growth of the air transport sector (with the possible entry of new carriers) and the upcoming ICAO safety audit encourage the GOE to review the current compliance of the Egyptian Civil Aviation Authority (ECAA) with ICAO Standards and Recommended Practices (SARP) of the annexes of the Chicago Convention in the domain of regulatory oversight of safety and security, with special focus on airport operations.
The objectives of the review are to identify any discrepancies with the SARP and to provide an action plan to correct these discrepancies by the beginning of calendar year 2011, and enhance the aviation security measures, procedures, and assessments. The scope of services will include the five following steps: (i) examine the ECAA’s safety and security oversight system, (ii) perform the gap analysis for safety and security, (iii) outline a corrective action plan for any discrepancy found for safety and security, (iv) provide capacity building in areas where weaknesses have been identified, and where such capacity building could be provided in a short period of time with maximum effectiveness, and (v) perform a re- evaluation of the ECAA’s compliance with SARP.
The consulting team will be composed of several experts with skills covering the following eight areas: legal expertise in civil aviation laws and regulations, expertise in oversight of airports, expertise in personnel licensing, expertise in aircraft operations, expertise in airworthiness of aircraft, expertise in aircraft incident, accident reporting, and investigation, expertise in air navigation services, and expertise in security. The team will perform two on-site visits at the ECAA and will deliver monthly progress reports and a final report including a chart showing the percentage of non-compliance with all eight critical elements of the USOAP, a table outlining the pending compliance of the USAP, and a corrective action plan. The duration of the assignment is estimated at 11 months.
Sub-Component 2.4: Analysis of the Fee and Tax Structure of the Air Transport Sector (US$0.56 million)
EHCAAN depends on fees and taxes to finance operations and investments. While the current fee and tax structure of the aviation sector can be considered generally adequate, the fees and taxes must be reviewed in view of future investments and expansion of services (airports, ATC). EHCAAN is considering increasing departure fees twice in the coming years. In order to help the Higher Council for Pricing Strategy assert the fee policy and structure in the coming years, a review and comparison of the current structure with ICAO guidelines shall be performed.
The mechanism for setting fees and taxes in the aviation sector is defined by Law 93 issued in 2003. Accordingly, the Higher Council for pricing aviation services has been established by presidential decree No.314 of 2004, which is modified by presidential decree No.389 of 2007. The Higher Council for pricing aviation services is responsible for presenting a recommendation to the Minister of Civil Aviation about some fees and remuneration for aviation services. These recommendations are based on studies and researches prepared by its Technical Secretariat and in view of the investments planned for the sector developments.
25 The safety audit generally confirmed Egypt’s high compliance with ICAO Standards and Recommended Practices (SARP). The three critical elements with the highest findings (non-compliance with SARP) were: surveillance obligations (19.28%), resolution of safety concerns (13.33%), and qualification and training of technical staff (11.63%). 26 The IATA Operational Safety Audit (IOSA) program is an internationally recognized and accepted evaluation system designed to assess the operational management and control systems of an airline. IOSA uses internationally recognized quality audit principles and is designed to conduct audits in a standardized and consistent manner. All IATA member carriers must periodically pass an audit to maintain their membership with IATA.
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The main objectives of the analysis are: (i) assessment of how several new charges, such as the European Union Emission Trading System would change the fee and tax structure, (ii) projections on how the current and future fee structure can finance operations of the air transport sector, and (iii) analysis of competitiveness for the air transport sector, given all public and private fees, charges and taxes for air service providers.
The scope of the analysis will include four main components: (i) detailed inventory of all airports and air navigation service related fees and taxes, (ii) review and comparison of existing fees and taxes, including operational charges by private service providers (such as handling companies) against ICAO guidelines and similar airports in the region, (iii) forecast of future traffic growth, and (iv) recommendation for fee increase and financial projections for ten years.
The analysis will be undertaken by a consulting firm, which will deliver a report for each component described above and a final report. The estimated duration of the analysis is nine months.
Sub-Component 2.5: Spatial Planning of Cairo Airport’s Area (US$0.56 million)
CAC, which operates Cairo International Airport, owns altogether 9 million m2 where airport facilities are installed. However, even after providing for the planned expansion of airport activities, including new terminals and the cargo village, a large area with significant potential and in the vicinity of new urban development is still not constructed. CAC has received an unsolicited proposal from an international investor associated with an engineering firm to develop that area, but has not so far seriously considered it, in the absence of a clear strategy to maximize the benefits from developing the area.
Therefore, CAC is looking for the assistance of an experienced consulting firm to prepare a Strategic Master Plan for Cairo Airport, both for meeting traffic needs in the long run and for the development of Cairo’s AeroCity, an “Airport City” which will be the first of its kind in Egypt. The assignment will include the assessment of the potential of Cairo Airport areas for developing business with a focus on commercial real-estate development, which in combination with planned investments for CAC’s own needs will lead to the preparation of a development strategy and a strategic master plan for Cairo Airport and the AeroCity. The master plan will also provide a preliminary environmental assessment, an estimate of infrastructure costs to develop the commercial areas and serve CAC’s own needs, recommendations on different possible activities, recommend on ways to successfully attract private investment, define a time frame as well as recommendations for possible stages of development and provide a basis for negotiations with investors interested in available land.
The consultant will prepare a report for each task described above and a final report reflecting all recommendations on how to best proceed with the project, recommending an implementation strategy and defining a suitable time frame. The total estimated duration of the assignment is one year.
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Cost and Financing of the Project
For component 1 (rehabilitation and expansion of TB2), CAC estimated the total cost of the works contract at US$405.9 million, including about 15 percent of contingencies, while it estimates works supervision at US$5 million. For component 2 (technical assistance and studies), costs are estimated at US$2.8 million. Finally, US$21.6 million are added for physical and financial contingencies, and US$0.7 million for the front-end fee. Accordingly, the overall estimated cost of the project is US$436 million.
The Bank loan of US$280 million will finance the following: • foreign currency part of the rehabilitation and expansion of TB2, which is equivalent to 64.8 percent of those costs under component 1 ; and • 85 percent of component 2 costs including taxes.
The reminder of the total project costs (equivalent to US$156 million) will be financed by loans from local commercial banks to CAC and by CAC’s own resources. CAC will finance 100 percent of the works supervision and the front-end fee. A detailed cost table is provided in Annex 5.
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Annex 5: Project Costs
Local Foreign Percentage Local Bank Total Cost Currency Currency* Financed Financing Financing ITEM by Bank (US$ (US$ (US$ Loan (US$ (US$ million) million) million) million) million) Component 1: Rehabilitation and Expansion of TB2 at Cairo International Airport Demolition and Construction Works 405.9 142.7 263.2 64.8% 142.7 263.2 Supervision of Works 5.0 5.0 0.0 0% 5.0 0.0 Subtotal 410.9 147.7 263.2 147.7 263.2
Component 2: Technical Assistance and Studies Sub-Component 2.1: Review of the Air Transport Policy of Egypt and 0.56 0.00 0.56 100% 0.00 0.56 Strategic Options Sub-Component 2.2: Development Strategy of Air Traffic Control 0.56 0.00 0.56 100% 0.00 0.56 and Air Traffic Management Sub-Component 2.3: Review of Civil Aviation Authority’s 0.56 0.00 0.56 100% 0.00 0.56 Compliance with ICAO Standards and Recommended Practices Concerning Regulatory Oversight of Safety and Security Sub-Component 2.4: Analysis of the Fee and Tax Structure of the Air 0.56 0.00 0.56 100% 0.00 0.56 Transport Sector Sub-Component 2.5: Spatial Planning of Cairo Airport’s Area 0.56 0.00 0.56 100% 0.00 0.56 Subtotal 2.8 0.0 2.8 0.0 2.8
Others Physical and Financial Contingencies 21.6 7.6 14.0 64.8% 7.6 14.0 Front End Fee 0.7 0.7 0.0 0% 0.7 0.0
GRAND TOTAL 436.0 156.0 280.0 156.0 280.0 *64.8% for works and 100% for studies NB: all taxes are excluded
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Annex 6: Implementation Arrangements
1. Proposed Organization of the Project Management Unit (PMU)
1.1 PMU role
The PMU established within EHCAAN for ADP in agreement with the Bank requirements will remain in place with the same responsibilities and the same organization, including a financial management unit, a procurement coordinator, and a statistician in charge among others of monitoring and reporting. The PMU has actively participated in the preparation of the project and will be maintained throughout the implementation phase. EHCAAN will finance the PMU costs from its own budget.
The PMU will be the main counterpart of the Bank for the project implementation, and responsible for the coordination, and in some cases the implementation, of all aspects of CADP, including administrative, fiduciary (financial management and procurement) and safeguard (environmental) issues associated with the project.
The PMU’s duties include:
(i) overall management of project implementation, including ensuring the project is implemented within the budget, on schedule, and according to the implementation arrangements agreed with the Bank; (ii) preparing and providing periodic progress, including a Mid-Term Review Report and a final Completion Report; (iii) ensuring that project implementation meets the fiduciary requirements of the Bank, including the procurement of works, goods and services for activities financed by the Bank according to World Bank guidelines, and financial management and reporting; (iv) establishing and maintaining an appropriate financial management system (FMS) and project accounts. The FMS will encompass all funds – Bank loan and internal EHCAAN funds – for the purposes of CADP; (v) overseeing the management of contracts for the construction of TB2 financed by the loan, or administering contracts with consultants under the institutional component, and processing payments for services rendered; (vi) ensuring compliance with the Bank’s safeguard policies, including effective implementation of the environmental management plan; and (vii) monitoring project progress based on implementation indicators agreed upon with the Bank, evaluating project outcomes, and reporting to the Bank on project progress.
1.2 PMU organization
The PMU will include the following positions:
• PMU Director. The PMU Director will be responsible for managing staff and overseeing the day-to-day activities of the PMU in its management of the implementation of CADP. The Director will report directly to the Chairman of EHCAAN, who will facilitate the resolution of issues related to any internal delays in implementation. • Procurement Officer. The Procurement Officer will be responsible for overseeing all aspects of the procurement process for contracts financed by the project, including the preparation and the supervision of the procurement plan, preparation of TORs and requests for World Bank no-objections, organization of bidders conferences and bid evaluations, oversight of contractual obligations, etc. In cooperation with the Director 45
and other PMU staff, the Procurement Officer will prepare and submit periodic procurement progress reports. With respect to the construction of the new TB2, the Procurement Officer will work closely with the joint-venture carrying out the detailed engineering design and the bid documents, which will provide support during the procurement and contracting phase as well as carry out the construction supervision. • Financial Management Officer. Tasks of the financial management specialist include development and monitoring of annual Project budgets, reporting on the status of Project accounts and the disbursement of funds, liaising with the external auditor, and handling the Project flow of funds (disbursements to project contractors/suppliers and withdrawals from the Project accounts). • Monitoring and Evaluation Specialist. In coordination with the PMU director, the procurement and financial management specialists, the M&E specialist will be responsible for preparing the periodic Project progress reports, including reporting progress on general implementation, procurement, project finances, and progress against agreed indicators.
2. PMU relationship with other institutions
2.1. Relationship with EHCAAN
The PMU will be part of the organizational structure of EHCAAN. For the technical and operational aspects of the Project, the PMU will work closely with assigned staff from the CAC departments concerned: the Planning and Projects department, the Operations department, the Finance department, the Commercial department, etc. These CAC staff will not be part of the PMU, but will be selected by their directors to be the lead technical specialists for the rehabilitation and expansion of TB2. The technical specialists will work closely with PMU staff for specific tasks related to the Project, such as the elaboration of technical specifications, the technical evaluation of bids, the monitoring of the quality of works, etc.
2.2. Oversight of the PMU
The head of the PMU reports directly to the Chairman of EHCAAN regarding Project implementation and issues requiring management decisions. The Project Steering Committee, chaired by EHCAAN, was established on September 7, 2009 by ministerial decree with a mandate to oversee the implementation of the project and the work of the PMU. Representatives include key stakeholders in the project, such as from the Ministry of Civil Aviation, the Ministry of Finance, the Ministry of International Cooperation, and CAC.
2.3. Relationship with the World Bank
The PMU will be the World Bank’s primary interface with EHCAAN on all Project matters, including reporting on the status of the Project, requests for the Bank’s No Objection on procurement documents, the disbursement of loan funds, etc. The PMU will also prepare and provide the Bank with the following project reports: • Quarterly Progress Reports, including a summary of physical and financial progress of project components, explanations of variances between physical and financial progress versus forecasts, a description of issues encountered (such as variation orders under works contracts), a summary of actions considered or undertaken to address them, and updates of implementation and outcome indicators. • Semi-Annual Interim Financial Reports. The format and content of these reports will be detailed in the financial manual.
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• Annual Consolidated Reports, integrating the information provided in the quarterly reports and setting out the recommended measures to ensure the efficient execution of the project and the achievement of objectives. • Annual Project Financial Statements. The format and content of these reports are detailed in the financial manual. • Annual Audited Financial Statements of EHCAAN as reasonably requested by the Bank.
3. Other Implementation Arrangements
3.1 Project Manager
For the rehabilitation and expansion of TB2, CAC has contracted a joint-venture composed of an international airport engineering firm and an Egyptian engineering firm to serve as Project Manager (PM). The Project Manager has developed the design and will assist in the procurement process, including the preparation of bidding documents, and during the works contract management phase. The PM contract with CAC was signed on July 2009, for a period of 36 months with an estimated effort of 208 person-months.
3.2 Environmental Unit
The environmental unit established with CAC under ADP will monitor the implementation of the Environment Management Plan (EMP). An environmental specialist hired by the PMU will assist CAC address the environmental and social safeguards requirements of the World Bank and of the Egyptian Environmental Affairs Agency. Specifically, the environmental specialist will monitor the implementation of the environmental mitigation measures, monitoring plan, and institutional/training requirements of the EMP, and will be responsible for environmental reporting.
3.3 Payment Approval Cycle
The decision-making process, especially with regard to contract awards, will be defined in the EHCAAN-CAC Contractual Agreement and will be reviewed closely by the Bank as part of its due diligence responsibilities, in order to ensure efficient implementation and fiduciary soundness. It has already been agreed with EHCAAN that the payment approval cycle for the works contracts will be carried out in the following manner: 1. The contractor will submit invoices to the PM. 2. The PM will verify the quantities and prices and transmit the invoices to CAC. 3. CAC will review and approve the invoices prior to forwarding them to the PMU. 4. The PMU reviews and approves payments, then processes requests to the World Bank for direct payments to contractors.
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Institutional Structure for Project Management
Project Steering World EHCAAN Chairman Bank Committee
PROJECT MANAGEMENT UNIT (PMU)
PMU Director
1 Office Manager
2 Procurement 2 Financial Management Experts Experts 1 Monitoring and Evaluation Expert
CAIRO AIRPORT COMPANY (CAC)
Planning and Environmental Operations Finance Commercial Projects Department Unit Department Department Department
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Annex 7: Financial Management and Disbursement Arrangements
Executive Summary: An assessment of the Financial Management (FM) arrangements for EHCAAN and CAC was undertaken during the preparation of the ADP, and an additional assessment was undertaken in September 2009 for the preparation of the Cairo Airport Development Project – TB2 (CADP) which will be implemented by the same PMU of ADP. The project includes one contract for the rehabilitation and expansion of TB2 at CAI and five contracts for the technical assistance component, which will be financed by the Bank. The assessment is conducted in accordance with the World Bank Financial Management manual and all relevant policies and procedures. The purpose of CADP FM assessment was to determine whether the financial management arrangements for the project continue to be acceptable to the Bank. The assessment looked at the existing PMU financial management system to ensure it possesses a sound system that is capable of capturing, summarizing, recording, and reporting the project transactions on an accurate and timely manner.
The day-to-day management will be conducted through the PMU established within EHCAAN. The PMU is headed by an engineer and supported with staff employed as short term consultants (procurement manager, procurement officer, finance manager, statistician, and an office manager).
Certain shortcomings were noted during the assessment i.e. a) although the project maintains a FM manual that was prepared by an international audit firm, discussion with the Financial Officer and the PMU Director revealed that the manual information is out-of-date and no longer reflects the procedures and controls applied. In this regard, the PMU agreed a) to prepare a new manual reflecting the procedures and controls which was submitted to the Bank before negotiation; and b) currently the PMU has only one financial officer who is responsible for recording, reporting and also authorizing payments (with the PMU director or EHCAAN chairman). This current setup does not provide proper segregation of duties and it was agreed during the preparation mission that an additional accountant will be appointed to overcome this issue.
Financial Management Risks
General Risks
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Risk Risk Risk Mitigating Measures (MM) After MM Before MM
The Observance of Standards and Codes (ROSC) report (2007), - Hire an independent qualified Country Financial Accountability private audit firm to conduct Assessment (CFAA) report (2007), annual audits and semiannual identified weaknesses in the reviews on the project’s Egyptian financial accountability, in financial reports. Significant Moderate both the public and the private sector. Another issue that affects - The project will be managed inherent risk is the level of by the PMU staffs who have corruption within Egypt as Bank experience from the according to the 2008 Corruption previous ADP. Perception Index Egypt is at 2.8. EHCAAN, CAC and the PMU have already implemented Lack of coordination between the ADP and no lack of involved parties EHCAAN, CAC Low Low coordination was noted as the and the project PMU. project was satisfactorily implemented.
Overall Inherent Risk After Overall Inherent Risk Before MM Significant Moderate MM
Specific Project Risks
Risk Before Risk Risk Mitigating Measures (MM) MM After MM Lack of The PMU team has successfully managed ADP and experienced staff acquired the experience needed to manage CADP. Moderate Low with WB- financed projects - The FM manual documents and describes the procedures and controls that will be followed in CADP. - An additional accountant will be appointed or Lack of proper seconded by CAC with the PMU financial officer internal controls Significant to apply proper segregation of duties and institute Moderate application an additional layer of backup. - All original supporting documents will be maintained at the PMU. - Daily backup of all project’s transactions is maintained. - A financial management system is installed and is operational to assist the project in recording and reporting its transactions in a timely and accurate Reporting and Significant manner. As part of the semiannual project IFRs, the Moderate budgeting PMU will prepare a semiannual forecast of the project’s expected disbursements for the next 6 months for proper cash management.
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- Because the project will have a limited number of contracts, direct payments will be used. However, a Delays in flow of Designated Account (DA) will be opened at a funds or commercial bank in Egypt for other payments of Moderate Moderate Counterpart goods and services that cannot be paid through funds direct disbursements. - The entire counterpart contribution to the project will be made available by CAC by effectiveness. - An independent and a qualified private auditor will be hired in accordance with TOR acceptable to the Lack of timely Bank. audit/review Significant - ADP which was implemented by the same team Moderate reports on has a history of timely audit reports submission to Project FS/IFRs the Bank.
Overall Control Risk Significant Overall Control Risk After MM Moderate Before MM
PMU structure and internal controls: The PMU falls structurally under EHCAAN; however, salaries of the PMU consultants are paid by CAC since it is the PMU service recipient and is the legal entity authorized to sign contracts for goods and services under this project.
Egyptian Holding Company for Airports and Air Navigation (EHCAAN) responsible for project implementation designates the PMU to undertake work.
Cairo Airport Company (CAC) PMU: responsible for Procures and signs contracts payment processing, FM and work Coordination.
The PMU team is headed by the PMU director who oversees a procurement officer, a financial officer, and a statistician. However, it was agreed during the mission with the current financial officer and PMU director that an additional accountant is needed to achieve proper segregation of duties and separate the recording and reporting functions from review and authorization.
All payments are made through bank transfers and no checks are used. Payment authorization is granted to the PMU financial officer along with the PMU director or the EHCAAN chairman.
Reporting and Recording: The project follows cash basis of accounting. Therefore, no foreign exchange gains and losses are realized and project financial reports will be issued in US Dollars.
The project has a FMS which was previously used for ADP. The current system can record and produce reports by category and component. The financial officer of the PMU is responsible for recording and reporting all accounting transactions. In addition, the financial officer prepares the monthly bank reconciliations. Once an additional accountant is appointed, a new layer will be instituted to allow for proper segregation of duties and separate the recording and reporting from
51 the authorization and review functions. The system is owned by the PMU and will be modified to accommodate the new project’s categories and components. Daily back up of system information is being maintained and annual maintenance fees are paid to the system provider.
Interim Financial Reports (IFRs): The project PMU has adequate management information system which can generate necessary financial reports, including sources and uses of funds, cash withdrawals, cash forecasts, and Designated Account reconciliation. As agreed during appraisal, the project PMU will continue to use the ADP format and contents while the frequency of financial reports for CADP will be semiannual. As the PMU’s Finance Officer will prepare the IFRs, the PMU’s PD will be responsible for ensuring that they are submitted to the Bank in a timely manner. As part of the semiannual project IFRs, the PMU will prepare a semiannual forecast of the project’s expected disbursements for the next 6 months for proper cash management.
Flow of Funds: Because the main contract is for civil works and for large amounts, the direct payment method will be used primarily to finance these project-related activities, while a small Designated Account will be used to cover the small payments that cannot be handled through direct disbursements. To avoid commingling of funds, a Designated Account (DA) for IBRD funds (denominated in US Dollars) will be opened at a bank acceptable to IBRD that will be managed by the PMU. Deposits into and payments from the DA will be made in accordance with provisions in the Loan Agreement. As for the local currency contribution, CAC will ensure the entire local contribution required for the project implementation is available by project effectiveness. The funds will be transferred to the Project’s Local Currency Account, on quarterly basis, based on the expected implementation.
Flow of Funds and Payments:
Payments through Designated Account Direct Disbursements
World Bank CAC commercial World Bank Contractor’s banks Payment Invoice
Project Manager Designated Account Local Account Review
EHCAAN PMU PMU Review CAC Review & processing & Approval
CAC (Document for Payment)
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Mechanism for Making Construction Payments: The appointed PM will follow the prescribed mechanism for making payments to contractors, determining amounts due and payable within the powers granted them. The PM will prepare monthly financial reports (cash forecasts), procurements reports, and physical progress reports. The payment mechanism is outlined below. • Contractors will provide the PM with monthly statements showing amounts due at the end of each month. Statements will show the proportions of local and foreign currencies required. • Within 14 days of receipt of monthly statements, PM determines amounts due and payable in respective currencies, and delivers an interim payment certificate to the CAC for review and approval. • CAC will approve the interim payment certificate and deliver it to the PMU for payment. • The PMU reviews and approves payments. • Upon execution of the “Form of Agreement” and provision of bank guarantee, PM certifies a ten (10) percent advance. • Upon issuance of “Taking-Over Certificates,” one half of retention money is certified by PM for payment to Contractor. Upon expiration of “Defects Liability Period,” the other half of retention money shall be similarly certified by PM. • Within forty-two (42) days after receipt of monthly statements from the PM, the PMU pays the amount certified as due to contractor. • Within twenty-eight (28) days of Letter of Acceptance, Contractor shall provide the PM with a quarterly cash flow statement. Also, revised cash flow estimates shall be provided to the PM. Both will be shared with the PMU.
Documents flowchart: The PMU finance department will maintain all the original supporting documents of the project’s disbursements as demonstrated below:
CAC further review and Project Manager reviews Contractor prepares preparation of Payment Payment Certificate * Payment Certificate Request**
Approved payment request and payment certificate submitted to PMU project director and finance officer for payment processing and filing of documents at the PMU finance department.
* In CADP the project designer is the project manager. ** Payment requests are signed by CAC Payment Approval committee which is comprised of three technical and two financial members. The payment request is then approved by CAC project coordinator and Chairman.
For goods and other consulting payments that are not supported by Payment Certificates, invoices along with CAC evidence of receipt and acceptance are submitted to the PMU procurement officer who reviews and prepares a Recommendation for Payment Memo to the PMU director who approves and forwards to the financial officer for payment processing and filing.
External Audit: The Project’s financial statements will be audited by an independent private- sector auditor who will also conduct reviews on the semiannual IFRs. The external independent auditor should be acceptable to the Bank. TORs have been prepared by the PMU and have been reviewed and accepted by the Bank. The external auditor report (in English) shall encompass all Project’s components and activities under the project Agreement and shall be in accordance with
53 internationally accepted auditing standards e.g., International Standards on Auditing (ISA). In addition, the auditor is required to prepare a “management letter” identifying any observations, comments and deficiencies, in the system and controls, that the auditor considers pertinent, and shall provide recommendations for their improvements.
Bank Supervision: Financial management of the Project will be supervised by the Bank in conjunction with its overall supervision of the Project. Initially, support will be provided to the PMU and thereafter supervision will be performed on a semiannual basis and will review the adequacy of Project financial management arrangements at the PMU.
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Annex 8: Procurement
A. General
Procurement for the proposed Cairo Airport Development Project – TB2 (CADP) 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 "Guidelines: Selection and Employment of Consultants by World Bank Borrowers" dated May 2004 and revised October 2006, and the provisions stipulated in the Legal Agreement. The project includes only one contract for the rehabilitation and expansion of TB2 at CAI, which will be financed by the Bank. The contract for Consultants Services for the design and supervision of works will not be financed by the Bank and has been already procured in accordance with the Egyptian procurement procedures and financed by EHCAAN own resources. The project also includes a Technical Assistance and Studies component with Consultant Services financed by the proposed Loan. The procurement plan identifies the contract for Civil Works (financed by the Bank) and different packages for Consultants for technical assistance financed by the Bank. The procurement plan will be updated, at least, annually or as required to reflect the actual project implementation needs and improvements in institutional capacity.
Implementation arrangements
Public sector procurement in Egypt is governed by a legal framework anchored in Public Tender Law No. 89/1998 and further detailed in the Country Procurement Assessment Report (CPAR) of December 2003. Similar to what has happened for the implementation of the Airports Development Project (ADP), the Egyptian Holding Company for Airports and Air Navigation (EHCAAN) and its affiliate, the Cairo Airport Company (CAC), will be the implementing agencies and have been authorized by the GOE to operate under Egypt’s commercial laws, as private sector enterprises for the implementation of the proposed CADP. These arrangements have been confirmed by the GOE and EHCAAN and are recorded accordingly in this PAD. Furthermore, with regard to procurement activities financed in whole or in part by the Bank Loan, the provisions of the Loan Agreement, including the Bank’s procurement guidelines, will supersede any national procurement regulations or practices.
Project Components
The project will include the following:
1. Civil Works: a contract for the rehabilitation and expansion of TB2 at CAI. The work program includes the following activities: • Rehabilitation and expansion of the passenger waiting areas, gates, customs, and baggage claim on the site of the existing terminal. • IT system. • Construction of a new check-in hall, which will be linked with TB3 by an existing pedestrian bridge and linked with TB1 by an automated people mover (the people mover is already under construction but out of the project scope). • Construction of a new pier with 14 connecting bridges. • Construction of a new apron with 16 parking contact stands, which can accommodate two Airbus A380 and a flexible combination of wide-body and narrow-body aircrafts, and 4 parking remote stands.
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2. Technical Assistance and Studies: Extensive discussions with EHCAAN top management, NANSC and ECAA during the preparation of the project have resulted in identifying the following policy and institutional initiatives which the Bank proposes to support, through an institutional component. The following components will be procured under the Bank’s Consultants Guidelines in the number of contracts (and methods of selection) defined in the attached procurement plan: • Review of the Air Transport Policy of Egypt and Strategic Options; • Development Strategy of Air Traffic Control and Air Traffic Management; • Review of Civil Aviation Authority’s Compliance with ICAO Standards and Recommended Practices Concerning Regulatory Oversight of Safety and Security; • Analysis of the Fee and Tax Structure of the Air Transport Sector; • Spatial planning of Cairo Airport’s Area.
Procurement Arrangements
Procurement of Works: Works procured under this project will include only one contract – rehabilitation and expansion of TB2 at CAI. The procurement for that contract funded by Loan proceeds will be carried out using the Bank’s standard documents for prequalification and Standard Bidding Documents (SBD) for civil works under ICB.
Procurement of Goods: No procurement of Goods are included in the Bank financing, except for the goods materials and equipment supplied by the contractor for Civil works as part of his contractual obligations under the Civil Works contract.
Advanced Procurement: To speed-up project implementation and due to urgent needs of the new terminal, EHCAAN/CAC has decided to advance some procurement actions. As such, CAC will start actions for prequalification of potential bidders for the civil works contract and in sequence invite for bids.
Selection of Consultants: As in ADP, EHCAAN/CAC will use Consultants to design the Works required and to supervise the execution of Works, which will be financed by EHCAAN own resources. EHCAAN/CAC has already hired a joint-venture of two engineering firms for such design of the new TB2. The Consultants were selected competitively using Egyptian procurement procedures. The Consultants will prepare the prequalification and the bidding documents help CAC to evaluate the applications for prequalification and the technical proposals in bids, and will supervise the execution of the contract. The consultants will also help managing the project for timely completion of the Works. The Technical Assistance and Studies component of the project will be developed using Consultants selected under World Bank Consultant Guidelines and using Bank’s standard request for proposal under Quality and Cost Base Selection (QCBS). The contracts to be procured are listed in the procurement plan.
B. Assessment of the agency’s capacity to implement procurement
CAC will be responsible for the construction of the terminal to be financed by this Project. The overall assessment of the procurement capacity indicates that the project PMU for this proposed project will be the same as the PMU that implemented the previous project and acquired knowledge in Bank procurement during the very successful implementation of ADP.
To strengthen its capacity, and as indicated above, CAC has signed a contract with the joint- venture of two international engineering firms for the design, supervision of the construction works, as well as to provide project management support during the procurement and contract management phases.
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The PMU staff includes a procurement officer whose responsibilities deals primarily with the guidance and monitoring functions of EHCAAN and CAC in the context of this Project. This procurement officer is the procurement officer of the previous project (ADP) and has solid experience in conducting procurement according to Bank Guidelines. In addition, the procurement officer will deal with the procurement of packages under the Technical Assistance and Studies component. The PMU also includes a procurement staff, with good Bank procurement knowledge. In addition, the Design and Supervision Engineer will provide support to the PMU for the preparation of prequalification documents, bidding documents and for the technical evaluation of applications for prequalification and technical proposals in bids. The PMU has prepared TORs for each sub-component of the technical assistance, which the Bank has reviewed and accepted. The PMU may be further supported by short-term individual consultants to evaluate the proposals.
An assessment of the capacity of the Implementing Agency to implement procurement actions for the project was carried out by the Bank on September 6-9, 2009. 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 happened under the ADP, all procurement actions for the proposed project will be carried out by the PMU.
The recent project implemented by CAC under Bank financing project (ADP) shows that CAC has had very good performance and its implementation capacity has been proven. All fiduciary aspects have been implemented smoothly and compliance with safeguards was rated Satisfactory.
3. The overall project risk for procurement is “Moderate Risk Implementing Agency.”
C. Procurement Plan
Procurement Packages - The project includes one contract for civil works and five contracts for Consultant Services for implementing the Technical Assistance and Studies component. The Borrower has prepared a Procurement Plan for project implementation which, in addition to the contract for Civil Works, provides the procurement methods for Selection of Consultants for the Technical Assistance and Studies component of the project. The final version of the Procurement Plan 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
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 in the first year of project implementation and one mission annually to follow up on implementation issues and visit the field to carry out the review of the implementation of contracts and procurement actions.
The following Procurement Plan lists contract packages to be procured following ICB method. It comprises only one contract for Civil Works and five contracts for Consultant Services.
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Procurement Plan
Procurement of Works
Ref # Contract Desdcription Cost Procurement BankBidding Documents Invitation Bid Opening Evaluation Report Contract Estimate Method Review Date Returned Date Date Returned Date Signature Handover Submitted from W.Bank Bank Submitted from W.Bank Bank US$million Prior/Post to Bank /Comments No Objection Date Date to Bank /Comments No Objection Date Date
W – 01 Rehabilitation and Expansion of TB2 at CAI 406 ICB Prior 01-May-10 31-May-10 06-Jun-10 07-Sep-10 09-Nov-10 09-Dec-10 13-Jan-11 12-Jan-14
Selection of Consultants
Ref # Contract Desdcription Cost Selection Bank EOI Request for Proposals (RFP) Technical Evaluation Report Final Evaluation Contract Estimate Method Rev iew Date Returned Date Date Returned Date Date Date Signature Compl. (US$ Pr ior / Date Submitted from W.Bank Bank Submitted from W.Bank Bank Submitted Bank million) Pos t Published to Bank /Comments No Objection to Bank /Comments No Objection to Bank No Objection Date Date
Review of the Air Transport Policy C – 01 0.56 QCBS Prior 20-Jun-10 19-Aug-10 02-Sep-10 18-Nov-10 02-Dec-10 16-Dec-10 30-Dec-10 30-Jan-11 27-Sep-11 of Egypt and Strategic Options
Development Strategy of Air Traffic C – 02 0.56 QCBS Prior 01-Sep-10 31-Oct-10 14-Nov-10 30-Jan-11 13-Feb-11 27-Feb-11 13-Mar-11 12-Apr-11 08-Apr-12 Control and Air Traffic Management
Review of Civil Aviation Authority’s Compliance w ith ICAO Standards C – 03 and Recommended Practices 0.56 QCBS Prior 25-May-10 24-Jul-10 07-Aug-10 24-Oct-10 07-Nov-10 21-Nov-10 05-Dec-10 04-Jan-11 04-Dec-11 Concerning Regulatory Oversight of Safety and Security
Fee and tax structure of the air C – 04 0.56 QCBS Prior 01-Apr-10 31-May-10 14-Jun-10 28-Aug-10 11-Sep-10 25-Sep-10 09-Oct-10 08-Nov-10 11-Jul-11 transport sector
Spatial planning of Cairo Airport’s C - 05 0.56 QCBS Prior 02-May-10 03-Jul-10 18-Jul-10 03-Oct-10 17-Oct-10 31-Oct-10 14-Nov-10 14-Dec-10 14-Dec-11 Area
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Annex 9: Economic and Financial Analyses
The forecasts for growth of passenger traffic at CAI used in the base case scenario of the economic and financial analyses are as follows:
FY2010 FY2011-2016 FY2017-2025 Total FY2010-2025 0% 5.4% 3.3% 3.9%
These forecasts are based on a model initially developed by an international consulting firm in 2005 under a technical assistance financed by ADP. This model essentially uses historic elasticity of demand with respect to GDP. In forecasts made for the project, a zero growth is assumed for FY2010 because of the current global economic crisis. Then the growth goes from 5.4 percent in FY2011-2016 to 3.3 percent in FY2017-2025. This corresponds to an average annual growth of 3.9 percent on the entire period, which is lower than the growth rate forecasts made by other institutions, such as Boeing (5.2 percent) or ACI (5.7 percent). 27 This is also much lower than the actual annual growth rates observed at CAI in 2003-2008 (11.9 percent) or in 1998-2008 (7.4 percent), which were mainly driven by the boom of air transport in 2007-2008. In addition, 3.9 percent is higher than the historic growth rate observed before the boom in 1993-2006 (3.7 percent). For all these reasons, the retained forecast of 3.9 percent can be considered as conservative and therefore valid as a base scenario for the economic and financial analyses
A. Economic Analysis
Method of analysis
The economic outcome of reconstructing TB2 was estimated using a conventional cost benefit analysis. In this, estimates were made of the costs and benefits that would be incurred during a period of twenty-five years starting from the year in which the civil works would commence. The annual flow of costs and benefits was used to calculate an economic internal rate of return (ERR) and a present value of net benefits (NPV), the latter using a discount rate of 12 percent.28
Given the inter-relationships between the use of each of the three terminals, the economic evaluation was undertaken considering the three terminals as a single unit. Using this approach it was not necessary to speculate on how passenger services would be allocated between the three terminals. Also, it was possible to estimate the delays to passengers should the TB2 rehabilitation and expansion not take place, without having to account for the distribution of passengers between the three terminals.
Estimates of passenger growth rates
An essential input to the estimates of benefits is a projection of the numbers of passengers of each category that would be expected to use the airport in the absence of any capacity constraints. The current numbers of passengers were available from CAC statistics, as are estimates of the growth in numbers of international and domestic passengers. The available estimates of growth rates are
27 Boeing Current Market Outlook for 2009-2028 and Airports Council International (ACI) Global Traffic Forecast for 2009-2027. These two forecasts reflect the views as of the current year and thus take into account the more recent economic developments. 28 The discount rate for economic evaluation is based on a different concept to that for financial evaluation. The latter is based on the long term risk free interest rate of capital, while the former is based on the long term time preference rate for consumers (for the benefits discount rate) while the same long term risk free interest rate of capital is used as a proxy for the time preference rate of capital.
59 different for two periods of time, 2011 to 2016 and 2017 onwards. Estimates of growth in numbers of passengers are higher for the first period than the second, with a short transition period with an intermediate growth rate.
Table 1: Estimated growth rates in numbers of passengers 2011-16 2017-2030 International Business National 5.0% 2.5% Foreign 5.6% 2.5% International Leisure National 4.0% 3.5% Foreign 7.8% 3.7% Domestic Business 4.5% 3.2% Leisure 5.9% 4.4% Average 5.4% 3.3% Source: Authors and CAC for Average
For the economic evaluation it was necessary to further divide passengers into those travelling for business purposes and those travelling for other purposes, and between Egyptian nationals and foreigners. We used existing estimates of the share of each of these four groups of passengers, and made our estimates of the growth rate of each group that gave overall average growth rates for the two periods that were compatible with the CAC estimated for international and domestic passengers, and with the estimates used in the financial evaluation. The different growth rates for different types of passenger result in a slightly different composition of the mix of passengers over time. In particular, foreign leisure passengers are projected to increase from their current 15 percent of the total to more than 27 percent, by the end of the evaluation period. The shares of all the other types of passenger would reduce.
Table 2: Shares and numbers of different categories of passenger at CAI in 2008 and 2030 Statistic and International Domestic Total Year Business Leisure Business Leisure National Foreign National Foreign % in 2008 25% 15% 15% 25% 12% 8% 100% No. in 2008 3.6m 2.1m 2.2m 3.6m 1.7m 1.2m 14.5m % in 2030 22% 11% 14% 31% 11% 10% 100% No. in 2030 7.3m 3.7m 4.8m 10.3m 3.8m 3.2m 33.0m Source: Authors
Airport terminal capacities
The operational capacities of the existing terminals were assessed to be 6.5 million passengers for TB1 and 11.0 million passengers for TB3, with the existing TB2 having a capacity of 3.5 million passengers, giving a total of 21.0 million. Using the passenger growth rates in Table 1, this capacity would be reached in about 2016. However, during the reconstruction of TB2 all its passengers would have to transfer to TB3. The 100 percent capacity limit of Terminals 1 and 3 will also be reached around 2016 (their capacity at 85 percent demand/capacity ratio will be reached in 2011, but the new TB2 cannot be completed by then), and because of this constraint 2015 has been identified as the opening date of the new TB2.
The rehabilitation and expansion of TB2 will give an addition 4.0 million of capacity, bringing the total to 25.0 million, a level of demand that would require all three terminals to operate at 100 percent of their capacity until 2022. With the policy of keeping the demand/capacity ratio below 85 percent, the desirable capacity limit would be 21.25 million, a level that with the passenger growth rates in Table 1 will be reached around 2016. Even at a 100 percent demand/capacity ratio, the airport terminals would run out of capacity in 2025. The benefits of reduced congestion
60 would also have ended by that time, as would those of increased tourism. The existing runways would also reach capacity at a safe and efficient operating ratio in the same year. The end of the period for economic evaluation was extended from 2025 to 2030, by including an allowance for congestion within the terminals, even with the additional capacity of the new TB2. By 2030, the level of congestion would be such that new terminal capacity would be needed.
Table 3: Cairo Airport Terminals Capacity Limits Capacity Demand/Capacity ratio 100% 85% 100% 85% Year for capacity of T1+T3 17.50m 14.90m 2013 2011 Year for capacity T1+T3 + current T2 21.00m 17.85m 2016 2014 Year for capacity T1+T3 + extra T2 25.00m 21.25m 2025 2023
Costs included in the analysis
The costs included in the evaluation were those of rehabilitating and expanding TB2 and of operating and maintaining the three terminals. It was assumed that no significant expenditure will need to be undertaken in Terminals 1 or 3 to provide for the projected capacity, 6.5 million passengers in TB1 and 11 million passengers in TB3. The estimates of civil works and operating costs were based on those in the financial evaluation. The appropriate capital cost includes the allowance for physical contingencies but not financial contingencies, as the economic evaluation is undertaken at constant 2008 prices. No allowance was made for taxes in converting financial to economic prices as no extra-ordinary taxes apply to the construction, operating or maintenance costs.29 No allowance was made for possible distortions in the exchange rate of the Egyptian pound against other currencies. The total cost based on these assumptions is US$413m, and the annual operating and maintenance costs are US$31.5m.
The economic evaluation takes account of four sources of benefit to Egypt of having TB2 rehabilitated and expanded. The first is the net expenditure per additional tourist that will be able to visit Cairo. This benefit accounts for about 75 percent of the total measured benefits. The second benefit is that of additional net expenditure by foreign visitors in airport shops, bringing about 5 percent of the total measured benefits. The third benefit is that of job creation, which, since it only applies to the additional jobs created by the extra expenditure in airport shops and the additional leisure visitors that can travel to Egypt because of the extra airport capacity, only brings about 12 percent of the total benefits. The final benefit is the time saving to passengers using CAI. This will bring the final 6 percent of total benefits.
Time savings to passengers
The additional capacity that will be provided by expanding TB2 will prevent most of the passenger congestion that would occur otherwise. The congestion would happen throughout the processing of passengers, both arriving and departing, and both domestic and international: arriving passengers would have to wait while inbound aircraft wait for a gate, through waiting at customs (for international passengers) to waiting to claim their baggage and for transport out of the airport; the main delay to departing passengers would be in waiting at check-in counters and for emigration formalities (for international passengers).
29 It is now generally accepted that “normal” tax rates are used to generate income for justifiable government expenditure that would not be otherwise funded, and as such represent real economic resources and should therefore be included in the costs.
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These delays should be avoided in the new TB2 at least until the terminal use will near its capacity. There would however be some increased congestion during the period in which TB2 is being rehabilitated and expanded, as the loss of terminal capacity will increase, the congestion in TB1, and the cost of these delays would partially offset the later benefits.
We have assumed that the benefit of reduced delays will end when the combination of all three terminals are operating at 90% of their planned capacity. We have also assumed that the length of delay to each passenger will increase as demand approaches capacity, consistent with general queuing theory. We have further assumed that the cost of each minute of delay to each passenger is proportional to the passengers’ income, the particular proportion depending on the purpose for which the passenger is travelling. Even tourist passengers have a cost associated with congestion delays, but not so much as business passengers.
For tourist passengers the cost per minute of delay is based on what they would be willing to pay to avoid the delay; based on previous studies of passenger behavior in airports, we have assumed that they would be willing to pay an amount equivalent to 25 percent of the hourly income to avoid congestion delays. For business passengers a different approach is used, the value of the time they lose in congestion is estimated based on the value of the work that would otherwise be able to do. Again, based on previous studies of airport congestion, we have assumed that for business passengers the cost of congestion delays is equivalent to 125 percent of their average wage rate.
However, unlike most other analyses of airport congestion, we have not assumed any increase in the unit cost of congestion delays as the incomes of the passengers increase in real terms over time. Since the passengers come from many different countries, each with its particular propensity for economic growth and growth in real wages, we adopted the conservative assumption that on average incomes per person would not increase in real terms over time. The following table indicates the unit values of time per hour of congestion delay that we derive from the above assumptions.
Table 4: Unit values of congestion time Type of passenger Average value of congestion delay time U$ per hour International Business National 3.09 Foreign 4.24 International Leisure National 1.02 Foreign 1.40 Domestic Business 3.09 Leisure 1.02 Source: Authors
Tourist expenditure in Egypt
The most recent estimate for net expenditure per tourist in Egypt is for US$1,500 and we have assumed that business visitors, although having shorter stays actually spend about 50% more. We have assumed that these amounts remain constant in real terms, although the higher growth rate for tourists results in a gradual reduction in the average expenditure per foreign visitor. However, not all this expenditure is an economic gain for Egypt, as economic resources (mostly time and materials) will have to be expended to achieve it. We have assumed that the economic cost of these inputs is about 90% of the total expenditure, leaving a net gain of about US$150 per tourist and US$165 per business visitor. The number of additional tourists will be limited to the added capacity of TB2 of 4 mppa.
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Tourist expenditure in the terminal
It is debatable whether additional expenditure by tourists in the airport is a net benefit to Egypt as additional tourist expenditure or just a transfer from expenditure they would make otherwise. Given that, the marketing of airport shops is aimed at departing passengers and is aimed at encouraging them to spend any of their remaining holiday allowances before returning to their home country, we assume that all net revenue from the expenditure is a benefit to Egypt. The next question is whether foreign tourists are likely to spend more in a new terminal than an existing terminal and we assume that they are. Consequently, the benefit of the new terminal in terms of tourist expenditure comes from two sources. First, tourists who would use the airport even if the new TB2 were not built, would spend 10% more, if the new TB2 were available to them. Second, the tourists who would not come if the extra capacity were not available, and the benefit from them is the whole of the net revenues from their airport expenditure. For the first category, the net revenue would increase by US$1 per international passenger and for the second category; the net revenue would be US$10 per additional international passenger.30
Job creation
Increased activity at an airport generates additional employment in a combination of high technology positions (such as aircraft maintenance) and regular service employment (shops, taxi drivers, shop assistants, museum guides etc).
We have assumed that each 1,000 additional passengers per annum at the airport will create 2.4 additional direct and indirect jobs. This value is the based on the average for airports in Europe, the United States and Asia for which measurements have been made.31 This figure is commensurate with the job creation ratio measured at CAI during 2005 – 2009 which stands at 1.6. Employment generated during construction and operation of the airport is an additional economic benefit. We have used the standard civil works employment creation rate of 50 jobs per US$1m of expenditure, and attributed these jobs the national average wage rate.
Airport charges
Airport charges are assumed to be levied to cover operating costs and not to generate profits, at least in an environment of competition between airports and countries for passengers and tourists. So no net benefit has been assumed for the revenues generated from airport charges on foreign airlines and passengers.
Table 5: Distribution of types of benefit Type of benefit Share of benefits Undiscounted Discounted Additional tourist expenditure in Egypt 73% 77$ Avoided congestion time 5% 3% Additional tourist expenditure at CAI 8% 9% Job creation 14% 11% Total 100% 100%
30This is the average current expenditure per passenger at a sample of eight international airports, Graham, Anne Managing Airports, An International Perspective, Second Edition, 2003 Butterworth Heinemann, Oxford UK. 31 Graham, Anne op cit
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Results
Starting construction in 2010 would give an ERR (Economic rate of return) of 20.3 percent and an NPV (Present Value of net benefits) of US$415 million.
Sensitivity tests
The estimate of benefits that the TB2 rehabilitation and expansion will bring is based on many assumptions, some of which are subject to significant uncertainty. The first set of sensitivity tests reported here was designed to see what difference would result from making less optimistic but still plausible assumptions. The second set of sensitivity tests was designed to see what combinations of alternative assumptions would bring about an unacceptable result, and then the plausibility of those alternative assumptions could be assessed.
The assumptions that were tested in this way were those relating to the starting date of the civil works, what would be the most probable outcome in restraining demand if the terminal were not to be reconstructed and expanded, what the effect of the job creation assumption had on the total estimate of benefits, the additional net expenditure that each foreign visitor would bring to the country, the level of service that would be sought in the new and existing (T1 and T3) terminals, the rate of growth in numbers of passengers and the costs of the civil works and subsequent airport operating costs.
The results of the sensitivity tests are summarized in Table 6
i. Delay in start of construction
Deferring the start of construction till 2012 would increase the ERR to 21.5% and the NPV to US$525. Any delay beyond 2012 would reduce both the ERR and NPV. Therefore, 2010 to 2012 is the optimum period for the start of construction with the difference between them being so small that the economic evaluation cannot distinguish between them.
ii. Allowing congestion instead of deterring tourists
If we had assumed that rather than deterring tourists, passengers had been subjected to excessive delays, the economic result would have been little less favorable, with an ERR of 17.3 percent and an NPV of US$243 million (the changes not being the same for each parameter as the distribution of benefits over time changes. The delay costs start higher and finish lower than the loss of tourism costs.
iii. Ignoring the benefits of job creation or increased airport shopping
Ignoring the benefits of job creation would reduce the ERR to 19.2 percent and the NPV to US$373 million. Ignoring the benefit of increases airport shopping would have a slightly larger negative impact, reducing the ERR to 10.2 percent and the NPV to US$374 million.
iv. Lower tourist expenditure
If we had assumed that the benefits of each additional foreign tourist were 25 percent less than the values originally used, the ERR would reduce to 16.3 percent and the NPV to US$210 million.
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v. Higher level of service in all airport terminals
If we had assumed that a higher level of service would be preferable, that is that demand should not exceed 85% of capacity rather than not exceed 90 percent, the ERR and NPV would increase to 21.5 percent and US$501 million respectively. This is because the existing terminals would reach capacity sooner, and in the do-nothing situation more tourists would have to be deterred to maintain the lower demand to capacity ratio.
Table 6: Summary of sensitivity tests Assumption ERR NPV Basic assumptions 20.3% U$415m Sensitivity tests Construction deferred to 2012 21.5% U$525m Congestion allowed to develop instead of deterring tourists 17.3% U$243m Ignoring the benefits of job creation 19.2% U$373m Ignoring the benefits of increased airport shopping 18.7% U$360 Only considering benefits of increased tourism 17.3% U$263 25% lower national benefit per foreign visitor 16.3% U$210m Higher level of service, maximum demand to supply ratio of 0.8 21.5% U$501m Passenger growth rates reduced y 50% 4.7% -U$302m Increasing civil works and terminal operating costs by 25% 12.1% U$51m Sensitivity tests for switching values 50% lower benefits per foreign visitor 12.0% U$32m 50% lower passenger growth rate, construction start in 2020 and 33% higher 12.0% U$48m benefit per foreign visitor Passenger growth rates reduced y 25% 12.0% U$18m Start of construction deferred to 2015 and ignore benefits of job creation 11.9% -U$4m Only benefits of increased tourism and reducing these by 36% per capita 12.0% U$21m Civil works costs increased by 80% and only benefits of foreign tourists 12.0% U$36m
The sensitivity tests indicate the economic evaluation results are robust to plausible ranges of all the independent variables and assumptions, with the possible exception of the demand growth rates. The average growth rates used are 5.4 percent up to 2016 and 3.3 percent from then onwards. Reducing these averages by 47 percent, to 2.6 percent and 1.15 percent respectively, would reduce the ERR to just 4.7 percent and produce a negative NPV of about U$302 million.
The switching values for the growth rates in the two periods are 4.0 percent and 2.6 percent respectively. These switching growth rates are still lower than those assumed in the economic evaluation of TB3 in the ADP and little more than half the average growth rate experienced in the five years, up to June 2009, including the period of global economic recession.
For these 50 percent lower growth rates to give an ERR of at least 12 percent, the start of construction would have to be deferred to 2019 and the benefits per foreign visitor increased by one third.
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Table 7: Economic Analysis of TB2 reconstruction at CAI Costs Benefits Investment Operation Increased Reduced Airport Jobs Net Year Tourism Congestion Shops Creation Benefit US$ million 2009 0.00 0.00 0.00 0.00 2010 41.3 0.00 0.00 0.00 27.48 -41.30 2011 123.9 0.00 0.00 0.00 73.62 -123.90 2012 123.9 0.00 0.00 0.00 65.73 -123.90 2013 82.6 0.00 0.67 0.00 39.12 -82.60 2014 41.3 14.0 0.00 0.74 0.00 23.40 -55.33 2015 23.5 0.00 0.83 6.63 8.87 -23.48 2016 23.5 7.84 0.94 6.36 7.92 12.62 2017 27.4 24.64 0.96 5.88 8.25 29.68 2018 26.6 36.22 0.96 7.70 10.15 83.52 2019 39.1 47.34 0.98 8.01 13.31 131.79 2020 39.4 54.32 0.99 8.04 12.96 202.80 2021 39.4 59.58 1.00 7.99 12.51 257.86 2022 39.4 55.09 1.04 7.26 12.14 314.39 2023 39.4 49.01 1.05 6.47 11.64 329.66 2024 39.4 43.60 1.08 5.77 11.14 333.73 2025 39.4 38.97 1.12 5.15 10.71 338.12 2026 39.4 34.68 1.15 4.59 10.20 344.77 2027 39.4 30.87 1.19 4.09 9.70 349.89 2028 39.4 27.59 1.25 3.66 9.26 355.45 2029 39.4 24.56 1.30 3.26 8.77 363.40 2030 39.4 21.87 1.35 2.91 8.30 369.98 2031 39.4 19.55 1.44 2.60 7.89 377.18 2032 39.4 17.40 0.00 2.32 7.44 387.09 2033 39.4 15.50 0.00 2.07 7.02 395.86 2034 39.4 13.86 0.00 1.85 6.64 405.63 2035 39.4 12.34 0.00 1.65 6.25 413.07 ERR 20.3% NPV 415.01
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B. Financial Evaluation
I. Financial Analysis of Cairo Airport Company (CAC)
Past and Current CAC Performance
Financial statements from the audited accounts for FY2004 through FY2009 (ending June 30, 2009) were reviewed. Tables 9-2, 9-3 and 9-4 in this Annex present simplified income statement, balance sheet and sources and uses of funds for the period from July 1, 2003 to June 30, 2009 showing that:
A. For the period covering FY 2004 to FY2008 (from July 1, 2003 to June30, 2008): • operating revenues more than doubled due to: (i) a more than expected favorable traffic growth (traffic growth skyrocketed by 16.7% in 2007 and by 14.2% in 2008 averaging an annual growth of some 9.75% between 2003 and 2009); (ii) a more realistic and adapted, although competitive, tariff policy implemented mostly on departure fees (which were multiplied by a factor of 5.5); Table 9-1 CAC annual Traffic growth
CAC Traffic Year Total Pax Growth In million in % 1999 8.180 2000 8.641 5.6% 2001 8.080 -6.5% 2002 8.149 0.8% 2003 8.193 0.5% 2004 9.534 16.4% 2005 10.218 7.2% 2006 10.778 5.5% 2007 12.577 16.7% 2008 14.360 14.2% 2009E 14.244 -0.8% 1999-2009 Average 5.7% 1999-2003 Average 0% 2003-2009 Average 9.75%
• while operating expenses increased by only 30 percent during the same period; • as a consequence, after tax income rose from EGP72 million in FY2004 to EGP316 million in FY2007 and EGP479 million in FY2008; • working ratio improved from 54 percent in FY2004 to 42 percent in FY2008 averaging 46 percent during the period; and • operating ratio also improved during the period from 79 percent in FY 2004 to 57 percent in FY2008 averaging 64 percent during the period.
B. Situation fundamentally changed in FY2009, when CAC was hit by the global economic and financial crisis. Traffic did not increase and stayed more or less at the level of FY2008. Revenues stagnate more or less at the FY2008 level. At the same time, operating expenses jumped by some 40 percent with TB3 becoming operational in April 2009. This is essentially due to an important
67 increase in operating costs (50 percent from FY2008), the increase in depreciation (+79 percent) and financing expenses (+33 percent). Working ratio rose to some 48 percent while the operating ratio reached some 82% Profit after tax decreased drastically from EGP479.1 million to EGP155.4 million.
This clearly demonstrates that CAC is a profitable enterprise but can still be vulnerable. It shows that CAC would need, in the uncertain and volatile economic and financial environment of the next coming years, a careful and precise financial management and monitoring to keep profitability at acceptable levels to face the long and medium term financial needs, and to ensure sustainable financial equilibrium both on the short-term and on long and medium range.
Ta bl e 9 - 2 CAC Statement of Income: FY04 thru FY09 (audited accounts) In EGP million 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 actual actual actual actual actual actual 1 Revenues Operating revenue 461.2 488.3 522.0 701.1 1,015.1 1,053.1 Other operating revenues 7.2 13.4 3.6 3.2 2.0 2.5 Total revenues 468.4 501.7 525.6 704.3 1,017.1 1,055.6 Operating costs 132.3 95.5 92.6 102.1 120.6 199.7 Service Development Funds share in operating revenues 76.8 79.9 84.0 130.5 193.9 197.5 Marketing expenses 4.2 4.8 6.2 8.7 11.5 21.1 Gros Operating Profit 255.0 321.5 342.8 463.0 691.1 637.3 General & Administrative expenses 55.0 62.0 85.1 101.7 115.8 124.6 Financing expenses 7.2 26.1 36.4 74.6 127.2 169.4 Depreciation 43.2 49.1 59.6 56.4 55.3 102.9 Provisions (Net) 66.1 15.6 41.7 -51.2 15.7 25.8 Other operating income 27.3 27.0 25.8 32.1 45.4 50.0
Net Operating Profit 110.8 195.7 145.8 313.6 422.5 264.6 Net non operating Income -7.4 -9.9 -2.9 3.3 56.6 -64.3 Pre-tax income 103.4 185.8 142.9 316.9 479.1 200.3 Tax 31.1 -34.0 44.9 Income after tax 72.3 185.8 176.9 316.9 479.1 155.4 Ratios Working ratio 54% 46% 49% 47% 42% 49% Operating Ratio 79% 64% 74% 57% 57% 81% 1: updated before negotiations with audited accounts
CAC Financial structure and long and medium term financial equilibrium:
CAC’s financial structure fundamentally changed during the period between July 2003 and June 2009 as shown in Table 9-3 below. The total assets and liabilities on the balance sheet were multiplied by a factor of some 4.5 mostly since FY 2007/08. At the same time, the long and medium term debt jumped from a non relevant EGP45 million (3 percent of total liabilities) in FY2004 to EGP3.0 billion (some 48 percent of total liabilities) in FY2009 while the equity funds were just multiplied by a factor of 2 and their weight in the balance sheet was moving from 62 percent in FY2004 to an estimated 29% in FY2009, changing fundamentally the financial structure of the institution.
Current ratio was always below 1 reaching 0.73 in FY2008 showing a constant high level of short debts only partially covered by the current assets; and the total debt to equity ratio reached a level of more than 2 (2.35 calculated on the FY 2009 audited accounts) since 2007.
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This rapid physical development of CAI and the operational growth maintained in the recent years shows that CAC might need some financial structural consolidation and it is recommended to increase CAC’s equity at a healthier level. This could be studied, analyzed and implemented during the first year of CADP implementation once uncertainties on the ongoing world economic and financial crisis would have cleared up.
Ta bl e 9 - 3 CAC Balance Sheet: FY04 thru FY09 (audited accounts) In EGP million 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 actual actual actual actual actual actual 1 Total gross assets 1,255.0 1,377.4 1,501.2 1,525.1 1,564.3 5,030.5 Accumulated depreciation 331.5 385.7 442.0 498.3 550.4 626.2 Net fixed assets 923.5 991.7 1059.2 1,026.8 1,013.9 4,404.3 Work in progress 196.8 550.5 848.1 1,889.9 3,207.9 575.0 Investments 23.0 38.3 51.2 62.9 67.2 83.0 Total long term assets 1,143.3 1,580.5 1,958.5 2,979.6 4,289.0 5,062.3 Current assets 260.3 248.3 359.4 555.7 740.9 1,198.3 Inventories 22.3 25.4 31.4 32.8 30.8 46.2 Accounts receivable 66.3 58.3 68.9 86.1 134.3 126.2 Other current assets 48.9 49.5 68.5 140.6 237.6 465.2 Cash in bank & hand 122.8 115.1 190.6 296.2 338.2 560.7 Total assets 1,403.6 1,828.8 2,317.9 3,535.3 5,029.9 6,260.6 Equity 869.6 891.7 1,025.7 1,120.8 1,386.8 1,797.9 Annual net profit 72.3 185.8 176.9 316.9 479.1 155.4 Long & medium term debt 45.4 298.1 569.4 1,354.3 2,087.0 3,017.0 Provisions 119.9 127.6 128.7 55.1 57.0 81.2 Current liabilities 296.4 325.6 417.2 688.2 1,020.0 1,209.1 Creditors and others 204.2 294.5 395.2 668.4 972.6 936.9 Other current liabilities 92.2 31.1 22.0 19.8 47.4 272.2 T otal liabilities 1,403.6 1,828.8 2,317.9 3,535.3 5,029.9 6,260.6 1: updated before negotiations with audited accounts
The Sources and Uses of Funds
The context of CAC’s long and medium term financial equilibrium has also been profoundly changed by the physical development at CAI and CAC’s operation sustained growth in dealing with the traffic increase of the past years.
Table 9-4 below presents the evolution of the statement of cash flows. It shows that yearly funding of various development projects at CAI was multiplied by a factor of 7.5, when yearly applications of funds were only multiplied by a factor of 6.5 during the same period. As a consequence, cash on hand and at the banks increased from EGP122 million in June 2004 to some EGP560.7 million in June 2009.
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Ta bl e 9 - 4 CAC Statement of Cash Flows: FY04 thru FY09 (audited accounts) In EGP million 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 actual actual actual actual actual actual 1 Gross cash flow 216.9 253.8 235.5 373.3 574.4 278.6 LT Borrowings 265.7 282.3 789.9 759.7 1,193.7 Credit Bank 3.3
Working capital decrease and others 11.7 57.6 169.1 279.5 47.3 Total sources 231.9 519.5 575.4 1,332.3 1,613.6 1,519.6 Investments 207.6 502.2 436.7 1,132.7 1,412.2 1,093.2 LMT Debt service 23.0 12.1 11.6 16.4 27.1 40.7 Credit Bank 3.3 Distribution 51.6 77.6 132.3 163.2
Working capital increase and others 9.6 Total applications 230.6 527.2 499.9 1,226.7 1,571.6 1,297.1 Variation of cash 1.3 -7.7 75.5 105.6 42.0 222.5 Cash beginning of year 121.5 122.8 115.1 190.6 296.2 338.2 Cash end of year 122.8 115.1 190.6 296.2 338.2 560.7 Debt service coverage 7.4 7.3 5.7 4.9 4.5 2.1 Variation of cash position 1.3 -7.7 75.5 105.6 42.0 222.5 1: updated before negotiations with audited accounts
Because of the financing conditions and grace period granted in the legal agreements, CAC benefited from a very high debt service coverage ratio (average of 3 over the whole period) until FY2009 when important repayments started and this ratio went down from 4.5 in FY2008 to an estimated 2.1 in FY2009. Taking into account anticipated figures for 2010 and 2011, it shows the critical point reached by CAC at this stage, with the combination of long and medium term debt services starting to pick up and the global economic crisis hitting CAC at the same time and slowing down the level of cash generated by operations. It also demonstrates the necessity to follow carefully the development of the effects of the world economic downturn on CAI operations and finances in the very next coming year.
Table 9-5 below, which summarizes the aggregated amounts for the whole period between 2003 and 2009, analyses the sources and uses of funds. It shows that it was constituted by the cash flow generated by operations for some 33 percent and the long and medium term borrowings for some 57 percent; the remaining 10 percent coming from the variation in working capital. It also illustrates that these funds were mostly used in: (i) investments for some 90 percent; (ii) profit distribution for some 8 percent; and (iii) and debt repayment for only 2 percent, as FY2009 is really the first year of long and medium term debt repayment - debt service jumped from EGP27 million in 2008 to EGP 47 million in 2009. This will change drastically as the amount dedicated to long and medium term debt repayment is expected to increase rapidly (to an average of EGP375 million) in the coming years and represent between 20 percent and 45 percent of the forecasted uses of long and medium term funding.
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Table 9-5 CAC- Sources and Uses of Funds - 2003-2009
In EGP million 2003-2009 actual 1 in % Gross cash flow 1,932.6 33% LT Borrowings 3,321.3 57% Credit Bank 0% Working capital decrease and others 528.8 10% Total sources 5,782.7 100% Investments 4,784.6 90% LMT Debt service 130.9 2% Credit Bank 3.3 0% Dist ribut ion 424.7 8% Working capital increase and others Total applications 5,343.5 100% Variation of cash 439.2 Cash beginning of year 121.5 Cash end of year 560.7 Debt service coverage 4.2 Variation of cash position 439.2 1: updated before negotiations with audited accounts
Main Assumptions Used in the Financial Projection
During the past years, CAC developed financial modeling and forecasting capabilities with external support and expertise. The Financial Department uses specific integrated software “Financial Planner” which can detail all financial accounts based on detailed input. During preparation of the project, CAC has identified and proposed to the Bank three scenarios based on different traffic assumptions for the future (developed based on Louis Berger study). A base case scenario has been developed and detailed considering the most realistic and probable traffic growth, whose main assumptions are presented below. Then, a high and low case scenario have been computed and tested. Based on these scenarios, CAC has then run detailed financial forecasts on their own software. On these bases, a financial model, linked to the economic model and to the project costing, was developed to project CAC’s future financial performance. Simplified income statement, balance sheet and sources and uses of funds for the base case scenario and for the period 2005-2015 are presented in Tables 9-7, 9-8 and 9-9 at the end of this annex.
Main assumptions used are as follows:
• The period analyzed covers 2005 up to 2025 although only financial statements for the period 2005 to 2015 are presented below. • The revenues collected by CAC are generated from aviation and commercial activities representing respectively some 65 percent and 30 percent of operating revenues as an average over the period. • The aviation activities are mostly constituted by the departure fees (averaging 70 percent), landing fees (about 15 percent) and jet ways, housing and parking revenues.
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Commercial revenues are mostly generated from concession activities (more than 95 percent): duty-free shops, aviation and tourism companies and services, cargo complex, car parking, rental and other commercial activities. Operating revenues are based on traffic growth assumptions for the base case scenario, which is also used in the economic analysis:
The graph below presents a summary of the results. All scenarios estimate growth for 2009/10 at 0 percent. Then the base case scenario plans an annual average growth of 5.4 percent starting 2010/11, up to 2016/17 when the average annual growth is expected to level up at some 3.3 ceiled to full operational capacity of all terminals estimated at maximum 26 million passengers in 2025.
CAC-Traffic Forecast Base case scenario In millions pax 30.0
25.0
20.0
15.0
10.0
5.0
- 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 /07 /08 /09 /10 /11 /12 /13 /14 /15 /16 /17 /18 /19 /20 /21 /22 /23 /24 /25
Departures Pax International Departures Pax Charter Departures Pax Domestic Arrivals .
The low case scenario which has also been tested expects an annual average growth of 2.7 percent starting 2010/11 instead of the 5.4 percent and then as in former case an annual growth of 3.3 percent up to 2025 when it reaches some 22 million passengers.
Aviation revenues will also grow according to aeronautical fee increases which are expected to follow the following pattern presented in Table 9-6 in all three scenarios payable in foreign currency for some 75 percent of them:
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Table 9-6 Tariff increases planned (In US$ per passenger and/or in % increase)
Item 2009/10 2013/14 2017/18 Departure Int'l & Charter US$15 US$20 US$25 Departure Domestic US$3 US$4 US$5 Landing Fees +10% +10% Parking Fees +10% +10% Housing Fees +10% +10% Jetways +10% +10%
Based on these assumptions, in the base case scenario aviation revenues are expected to grow from EGP750 million in FY2010 to some EGP1, 225 million in FY2015; and EGP1, 750 in FY2020. The income statement forecasts up to FY2020 are presented in Table 9-8-B mostly to show the future trends, once the new TB2 has been commissioned.
Higher commercial revenues have also been computed according to negotiated contracts, price changes or based on quantity effects for concessions, usufructs and rentals. Concession revenues will continue to represent some 80 percent of commercial revenues averaging some EGP475 million per year over the period 2010-2015 growing from some EGP400 million in FY2010 to some EGP640 million in FY2015, happening mostly in 2013/14 with the tariff increase implementation and then in 2014/15 with the space expansion following the commissioning of the new terminal.
On the expenditure side: Table 9-7 below gives the index evolution (Index 100 being for the year 2008/09) of main expenditures compared to revenues and estimates the average annual growth of each type of revenue and expenditure:
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Table 9-7 - CAC Index evolution 100=2008/09 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 Average actual forecast forecast forecast forecast forecast forecast annual growth
Activity revenues 100 113 118 123 129 158 182 10.5% Non activity revenues 100 369 362 461 461 445 538 32.4% including SDF payback (55%) 100 105 156 161 156 164 10.5% Other non activity revenues 100 149 130 118 106 101 176 9.9% Total revenues 100 125 129 139 144 171 199 12.2% Wages and Salaries 100 125 144 165 167 168 188 11.1% Material 100 122 127 133 139 145 190 11.3% Purchased services 100 125 145 130 152 154 192 11.5%
Financing expenses 100 141 155 153 172 182 190 11.3% on MLT debt 100 141 155 153 172 182 190 11.3% on ST debt ------Depreciation 100 233 252 349 356 366 473 29.5% Other expenses 100 123 123 123 123 123 123 3.5% SDF share in operating revenues 100 103 108 114 120 160 169 9.1% Other losses 100 8 8 8 8 8 8 0.0% Total Expenses 100 119 131 145 154 167 192 11.5% Pre-Tax income 100 151 122 108 102 192 227 14.8% Tax 100 135 109 96 91 171 203 12.5% Income after tax 100 156 126 111 105 198 234 15.3%
To be noted and monitored are the financing expenses which should double during the period, the peak being in 2013/14 and 2014/15 when the new terminal should be commissioned. The financing plan includes the World Bank for an amount of US$280 million equivalent at an interest rate of 5.5 percent over a period of 30 years including a grace period of 5 years. The reminder of the total construction costs (equivalent to US$151 million) was assumed to be financed by loans from local commercial banks, to CAC with a 10-year payback, a 4-year grace period, and an interest rate of 10 percent in Egyptian Pounds.
Depreciation expenditures are expected to be multiplied by 5 during the same period.
Working capital aggregates have been calculated and constrained in order to respect a current ratio of no less than 1 in order to introduce a healthier financial structure. To this effect, as already mentioned, some purchases of assets have been differed for an estimated amount in the base case scenario presented of some EGP650 million over the period analyzed 2010-2015.
At this stage the whole financial analysis has been done in constant prices and a constant exchange rate to the US$.
Assuming: (i) the world economic downturn is over within the next 12-18 months; (ii) global economic recovery happens; and (iii) all assumptions of the base case scenario, which is based on the most likely traffic growth, are met and in particular tariffs increase for departure fees and landing service charges are timely implemented as planned: the capacity of CAC to generate cash will regain better level (75 percent to 80 percent of the record level of FY2008) in 2010 and 2011 and gradually nearly double between FY2011 and FY2015 reaching some EGP850 million (in constant prices) and making it possible for CAC to face all its financial commitments and in particular those directly linked to such proposed investment on TB2 site and a large portion of the remaining future invest program proposed by CAC.
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To maintain a healthy financial status and structure, it is suggested to closely monitor targets to two financial ratios from FY2010 onward: • a current ratio32 of no less than 1, beginning in 2010; and • a debt service coverage ratio33 of no less than 1.2, beginning in 2010.
CAC’s base case scenario was constrained and some investments were differed (for a total of an estimated EGP650 million over the period between 2010 and 2015) in order for CAC to rigorously meet the targets proposed above.
32 The current ratio is a financial ratio that measures whether or not a company has enough resources to pay its debts over the next 12 months. Here it is defined as: Current assets / Current liabilities. 33 The debt service coverage ratio is a financial ratio that measures the ability of a company to produce enough cash to cover its debt payments. Here it is defined as: (Gross cash flow + Financing expenses) / (LMT Debt service + Financing expenses).
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II. Summary of Financial Analysis of Egyptian Holding Company for Airports and Air Navigation (EHCAAN)
Past and Projected Income Statement and Funds Flow Statement for EHCAAN
EHCAAN is a holding and its financial status relies on its four subsidiaries Cairo Airport Company (CAC), Egyptian Airports Company (EAC), National Air Navigation Services Company (NANSC) and Aviation Information Technology Company (AVIT). The above analysis covers CAC, the main contributor (average 55 percent) to EHCAAN costs. Revenues from EAC and NANSC have been forecasted by EHCAAN and are estimated credible for the purpose of the analysis.
Past performance of EHCAAN, based on audited accounts presented in Table 9-11 (past and projected statement of income) and 9-12 (past and projected statement of cash flows) proved that EHCAAN operation has been profitable and generated enough cash during the period to sustain its role as a holding company. Obviously, its financial performance depends on the performance and financial status of its four affiliates. It relies mostly on CAC and EAC which contributed some 80 percent as an average over the period covered (50 percent and 30 percent respectively). The Table below shows the evolution and structure of the revenues received by EHCAAN. It shows that revenues more than triple between 2003 and 2009.
EHCAAN Main sources of revenues In EGP million 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 actual In % actual In % actual In % actual In % actual In % actual In % Revenues from: EAC 28.2 27% 28.8 28% 43.3 26% 45.6 21% 60.8 20% 153.9 49% CAC 54.2 53% 56.5 55% 82.0 50% 132.3 61% 163.2 55% 106.9 34% NANSC 20.5 20% 17.8 17% 38.0 23% 39.7 18% 72.3 24% 51.8 16% AIC 0.3 0% 0.4 0% 0.5 0% 0.4 0% 4.1 1% Others To t a l 102.9 100% 103.4 100% 163.7 100% 218.1 100% 296.7 100% 316.7 100% Index evolution 100 100 159 212 288 308
Despite the difficult downturn in 2009 (EHCAAN revenues from CAC dropped by an estimated 35 percent), the three main subsidiaries are expected to remain profitable to very profitable (see CAC financial analysis) in the future, once global economic recovery settles. EHCAAN should demonstrate a healthy financial status and good performances as, over the period from 2010 to 2015, revenues as well as profit after taxes are expected to be more or less stable and then more than double from an estimated EGP180 million in 2015 to some EGP410 million in 2016 and an estimated forecasted EGP1,100 in FY2020. The income statement forecasts up to FY 2020 are presented in Table 9-11-B mostly to give an indicative idea of the future trends. The statement of cash flows does not show transactions (either sources nor applications) related to the long and medium term debt management and servicing because EHCAAN will get from each of its subsidiaries, and CAC in particular, sufficient funds to be affected to the debt service as per the conditions stipulated in the Project Agreement signed between the World Bank and CAC.
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Fiscal Impact
Since the sector’s restructuring at the beginning of the first airport development program, most of the entities involved in the sector have been corporatized and the main ones (CAC, EAC and NANSC) have already demonstrated their financial performance and profitability and healthy status. The financial analysis carried out above as well as the calculated internal financial rate of return for the increase of CAI capacity by the construction of a new terminal on the site of the present TB2 clearly demonstrates that in addition to the ongoing financial commitments, there is a very high probability that the additional revenues generated by the new terminals will be sufficient to cover the incremental operating costs and debt service requirements of this new investment. Financial support from the EHCAAN is therefore not anticipated.
On the contrary, it is anticipated that revenues will be more important, as they are forecasted to more than double between 2010 and 2016 and then quickly more than triple by 2020. At the same time, the State should receive growing taxes from both the subsidiaries (CAC in particular for an aggregated amount of some EGP360 million between 2010 and 2015) and the holding company.
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III. Internal Financial Rate of Return (IFRR) of the extension of CAI capacity by the construction of a new terminal at the actual location of TB2
The Internal Financial Rate of Return (IFRR), which in constant prices relates the operating revenues to the capital and operating costs of the rehabilitation and expansion of TB2 (equivalent to the construction of a new terminal on the current location of TB2) for an investment cost of some US$436 million equivalent was computed as an indication of the minimum economic return. The life of the project has been estimated and computed until 2035. Aviation and commercial revenues attributable to the project were used as a first estimate (including tariffs increase as per assumptions presented above) in quantifying the estimated internal rate of return for the proposed project.
The cost stream includes: (i) the base costs and physical contingencies for civil works, equipment, engineering studies, supervision and operation and maintenance for the rehabilitation and expansion of TB2; and (ii) the operation and maintenance cost of using the new terminal.
The benefit stream includes the cash revenues generated by the additional number of passenger at CAI using the new terminal. The additional capacity added to CAI has been calculated at 7.5 million passengers per year and gradually reaching that level over a period of four years starting in FY2015, once the new terminal will be commissioned. It was assumed and computed that, in the base case, the new TB2 would reach its full capacity of 7.5 m passengers per annum in four years according to the following ramp-up profile: 25 percent in FY2015, 50 percent in FY2016, 75 percent in FY2017 and 100 percent in FY2018.
Based on these, the calculated IFRR is estimated at 15.7 percent. The net present value of the investment calculated at a discount rate of 8 percent (effective rate of interest: best estimated proxi for the project financing cost) is estimated around EGP1,600 million (US$ 283.1 million equivalent). The IFRR is considered good. The computation of the IFRR is shown below in Table 9-13.
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Table 9-13
ppj Financial Analysis Financial Rate of Return for CAI extension at TB2 Target in million pax 7.5 YEAR A. Direct Investment (*) B. Add. Investment (*) Total Investment (*) Operating Cost (**) Total Cost Traffic New TB2 Traffic Average revenue Revenues Net benefits (in million LE) (in million LE) (in million LE) (in million LE) (in million LE) (in million) (in million) (in LE/PAX) (in million LE) (in million LE) 2009/10 0.0 0.0 0.0 63.7 63.7 14.2 1.9 84.0 159.6 95.9 2010/11 263.9 0.0 263.9 263.9 15.0 82.9 0.0 -263.9 2011/12 527.9 0.0 527.9 527.9 15.8 82.9 0.0 -527.9 2012/13 791.8 0.0 791.8 0.0 791.8 16.6 82.9 0.0 -791.8 2013/14 615.9 0.0 615.9 0.0 615.9 17.5 0.0 103.5 0.0 -615.9 2014/15 263.9 0.0 263.9 73.4 337.3 18.5 1.9 103.5 194.1 -143.2 2015/16 0.0 146.7 146.7 19.5 3.8 103.5 388.2 241.4 2016/17 0.0 220.1 220.1 20.1 5.6 103.5 582.2 362.1 2017/18 0.0 295.7 295.7 20.8 7.5 116.1 870.6 574.9 2018/19 0.0 295.7 295.7 21.4 7.5 116.1 870.6 574.9 2019/20 0.0 295.7 295.7 22.1 7.5 116.1 870.6 574.9 2020/21 0.0 295.7 295.7 22.9 7.5 116.1 870.6 574.9 2021/22 0.0 295.7 295.7 23.6 7.5 116.1 870.6 574.9 2022/23 295.7 295.7 24.4 7.5 116.1 870.6 574.9 2023/24 295.7 295.7 25.2 7.5 116.1 870.6 574.9 2024/25 295.7 295.7 26.0 7.5 116.1 870.6 574.9 2025/26 295.7 295.7 26.0 7.5 116.1 870.6 574.9 2026/27 295.7 295.7 26.0 7.5 116.1 870.6 574.9 2027/28 295.7 295.7 26.0 7.5 116.1 870.6 574.9 2028/29 295.7 295.7 26.0 7.5 116.1 870.6 574.9 2029/30 295.7 295.7 26.0 7.5 116.1 870.6 574.9 2030/31 295.7 295.7 26.0 7.5 116.1 870.6 574.9 2031/32 295.7 295.7 26.0 7.5 116.1 870.6 574.9 2032/33 295.7 295.7 26.0 7.5 116.1 870.6 574.9 2033/34 295.7 295.7 26.0 7.5 116.1 870.6 574.9 2034/35 295.7 295.7 26.0 7.5 116.1 870.6 574.9 Total 2,463.4 0.0 2,463.4 5,826.7 8,290.1 16,995.3 8,705.3 Internal Financial Rate of Return 15.7%
NPV at estimated Effective Rate of Interest 8.0% NPV 1,813 0 1,813 2,098 3,620 5,219 1,600
(*) Investments costs are related to A. the construction works for the new terminal at TB2 and B. other works to be defined covering the interim period and a sunk cost of the remaining value of TB2 at be (**) Operating and maintenance costs represent the computation of the detailed estimates for the incremental pax (average).
Sensitivity Analysis:
Table 9-14 presents the various key variables tested and their influence on overall project internal rate-of-return. It shows that the IFRR is pretty robust but as it can be anticipated rather sensitive to the revenues; stressing again the importance of introducing such effective sound financial measures as may be necessary or desirable to ensure the financial well being and sustainability of EHCAAN and CAC throughout the project implementation period, including increases in fees indicated in Table 9-6.. The IFRR was also tested to the limit to estimate the value of the key assumptions which would bring the IFRR down to the lower limit of eight percent. It would take: • an increase of some 88.2 percent of the investment cost; • a 91.5 percent increase of the operation and maintenance cost; but • only a decrease of 31.5 percent in revenues; as already noted above.
This justifies the mention of financial sustainability in the Project Agreement. Table 9-14 Sensitivity/IFRR +20% Base -20% Investment 13.3% 15.7% 19.1% Revenues 19.5% 15.7% 11.2% O&M 14.3% 15.7% 17.1%
The 3 combined 15.6% 15.7% 16.0%
Sensitivity/IFRR 7.50 7.00 6.50 Pax max in million 15.7% 14.8% 13.9%
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Table 9-8-A - CAC Statement of Income : FY04 thru FY09 (actual) and FY10 thru FY15 (forecast)- in EGP million 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 actual actual actual actual 1 forecast forecast forecast forecast forecast forecast
Activity revenues 525.6 704.3 1,017.1 1,055.6 1,196.4 1,246.5 1,299.2 1,364.2 1,667.4 1,924.6 Non activity revenues 25.9 35.4 104.9 50.6 186.7 183.0 233.3 233.5 225.2 272.4 including SDF payback (55%) 111.4 117.3 173.4 179.8 174.0 183.2 Other non activity revenues 25.9 35.4 104.9 50.6 75.3 65.8 60.0 53.7 51.3 89.2 Total revenues 551.5 739.7 1,122.0 1,106.2 1,383.1 1,429.5 1,532.5 1,597.7 1,892.7 2,197.0 Wages and Salaries 85.3 101.7 127.8 158.2 197.6 227.2 261.3 263.9 266.6 297.5 Material 29.8 32.3 39.4 53.4 65.2 68.0 70.9 74.0 77.1 101.3 Purchased services 47.5 57.5 57.2 98.1 122.5 142.0 127.5 149.6 150.8 188.4
Financing expenses 36.4 74.6 127.2 169.5 239.2 262.5 259.7 290.7 308.3 322.0 on MLT debt 36.4 74.6 127.2 169.5 239.2 262.5 259.7 290.7 308.3 322.0 on ST debt 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Depreciation 57.7 56.4 55.3 102.9 239.4 259.1 358.8 366.5 376.1 486.6 Other expenses 0.2 0.9 1.4 2.8 3.5 3.5 3.5 3.5 3.5 3.5 SDF share in operating revenues 84.0 130.5 193.9 197.5 202.6 213.2 224.3 236.0 316.3 333.0 Other losses 67.8 -31.1 40.6 123.5 10.0 10.0 10.0 10.0 10.0 10.0 Total Expenses 408.6 422.8 642.9 905.9 1,080.0 1,185.4 1,316.0 1,394.2 1,508.8 1,742.3 Pre-Tax income 142.9 316.9 479.1 200.3 303.1 244.1 216.5 203.5 383.9 454.6 Tax -34.0 0.0 0.0 44.9 60.6 48.8 43.3 40.7 76.8 90.9 Income after tax 176.9 316.9 479.1 155.4 242.5 195.3 173.2 162.8 307.1 363.7 Ratios Working ratio 49% 47% 42% 49% 49% 53% 54% 54% 49% 49% Wages and salaries/Expenses 27% 35% 28% 25% 33% 34% 37% 36% 32% 32% 1 : updated before negotiations with audited accounts
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Table 9-8-B - CAC Statement of Income : FY04 thru FY09 (actual) and FY10 thru FY15 (forecast)- in EGP million and FY20 (forecats in EGP million) 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 actual actual actual actual 1 forecast forecast forecast forecast forecast forecast forecast forecast forecast forecast forecast
Activity revenues 525.6 704.3 1,017.1 1,055.6 1,196.4 1,246.5 1,299.2 1,364.2 1,667.4 1,924.6 2,022.4 2,081.5 2,424.9 2,496.2 2,569.7 Non activity revenues 25.9 35.4 104.9 50.6 186.7 183.0 233.3 233.5 225.2 272.4 290.3 301.5 361.5 388.5 400.3 including SDF payback (55%) 111.4 117.3 173.4 179.8 174.0 183.2 192.8 198.5 248.9 256.3 264.0 Other non activity revenues 25.9 35.4 104.9 50.6 75.3 65.8 60.0 53.7 51.3 89.2 97.5 103.0 112.6 132.2 136.3 Total revenues 551.5 739.7 1,122.0 1,106.2 1,383.1 1,429.5 1,532.5 1,597.7 1,892.7 2,197.0 2,312.7 2,383.0 2,786.4 2,884.7 2,969.9 Wages and Salaries 85.3 101.7 127.8 158.2 197.6 227.2 261.3 263.9 266.6 297.5 312.4 328.0 344.4 361.6 379.7 Material 29.8 32.3 39.4 53.4 65.2 68.0 70.9 74.0 77.1 101.3 105.7 108.1 110.6 113.1 115.7 Purchased services 47.5 57.5 57.2 98.1 122.5 142.0 127.5 149.6 150.8 188.4 189.7 176.7 166.6 167.5 168.3
Financing expenses 36.4 74.6 127.2 169.5 239.2 262.5 259.7 290.7 308.3 322.0 289.1 236.6 198.6 160.6 130.1 on MLT debt 36.4 74.6 127.2 169.5 239.2 262.5 259.7 290.7 308.3 322.0 289.1 236.6 198.6 160.6 130.1 on ST debt 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Depreciation 57.7 56.4 55.3 102.9 239.4 259.1 358.8 366.5 376.1 486.6 486.3 463.0 467.5 460.7 384.4 Other expenses 0.2 0.9 1.4 2.8 3.5 3.5 3.5 3.5 3.5 3.5 3.5 3.5 3.5 3.5 3.5 SDF share in operating revenues 84.0 130.5 193.9 197.5 202.6 213.2 224.3 236.0 316.3 333.0 350.6 361.0 452.6 466.1 479.9 Other losses 67.8 -31.1 40.6 123.5 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.1 10.1 10.1 Total Expenses 408.6 422.8 642.9 905.9 1,080.0 1,185.4 1,316.0 1,394.2 1,508.8 1,742.3 1,747.2 1,686.9 1,753.8 1,743.1 1,671.8 Pre-Tax income 142.9 316.9 479.1 200.3 303.1 244.1 216.5 203.5 383.9 454.6 565.5 696.1 1,032.6 1,141.6 1,298.1 Tax -34.0 0.0 0.0 44.9 60.6 48.8 43.3 40.7 76.8 90.9 113.1 139.2 206.5 228.3 259.6 Income after tax 176.9 316.9 479.1 155.4 242.5 195.3 173.2 162.8 307.1 363.7 452.4 556.9 826.1 913.3 1,038.5 Ratios Working ratio 49% 47% 42% 49% 49% 53% 54% 54% 49% 49% 48% 47% 45% 45% 45% Wages and salaries/Expenses 27% 35% 28% 25% 33% 34% 37% 36% 32% 32% 32% 33% 32% 32% 33% 1: updated before negotiat ions wit h audited accounts
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Ta bl e 9 - 9 - C AC Balance Sheet : FY04 thru FY09 (actual) and FY10 thru FY15 (forecast)- in EGP million 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 actual actual actual actual 1 forecast forecast forecast forecast forecast forecast T otal gross assets 1,501.2 1,525.1 1,564.3 5,030.5 5,181.5 5,580.7 6,800.3 6,900.3 7,270.3 9,894.9 Accumulated depreciation 442.0 498.3 550.4 626.2 865.6 1,124.7 1,483.6 1,850.1 2,226.3 2,712.9 Net fixed assets 1059.2 1,026.8 1,013.9 4,404.3 4,315.9 4,456.0 5,316.8 5,050.2 5,044.1 7,182.0 Work in progress 848.1 1,889.9 3,207.9 575.0 1,348.0 1,865.9 1,322.1 2,110.9 2,518.4 447.8 Investments 51.2 62.9 67.2 83.0 72.5 156.1 184.8 208.4 297.0 437.0 Total long term assets 1,958.5 2,979.6 4,289.0 5,062.3 5,736.4 6,478.0 6,823.7 7,369.6 7,859.5 8,066.8 Current assets 359.4 555.7 740.9 1198.3 812.3 782.8 718.4 659.4 671.8 807.6 Inventories 31.4 32.8 30.8 46.2 46.3 47.8 49.3 50.9 52.5 54.1 Accounts receivable 68.9 86.1 134.3 126.2 190.0 196.6 203.5 212.1 252.1 286.0 Other current assets 68.5 140.6 237.6 465.2 149.2 149.2 149.2 149.2 149.2 149.2 Cash in bank & hand 190.6 296.2 338.2 560.7 426.9 389.3 316.5 247.3 218.0 318.2 Total assets 2,317.9 3,535.3 5,029.9 6,260.6 6,548.7 7,260.8 7,542.1 8,029.0 8,531.3 8,874.4 Equity 1,025.7 1,120.8 1,386.8 1,797.9 1,973.7 2,201.2 2,403.4 2,561.0 2,622.9 2,877.4 Annual net profit 176.9 316.9 479.1 155.4 242.5 195.3 173.2 162.8 307.1 363.7
Long & medium t erm debt 569.4 1,354.3 2,087.0 3,017.0 3,391.5 3,896.3 4,018.9 4,383.7 4,582.6 4,381.9 Provisions 128.7 55.1 57.0 81.2 129.5 184.7 224.8 262.6 348.9 439.8 Current liabilities 417.2 688.2 1,020.0 1,209.1 811.5 783.4 721.8 658.9 669.8 811.6 Creditors and others 395.2 668.4 972.6 936.9 811.5 783.4 721.8 658.9 669.8 811.6 Other current liabilities 22.0 19.8 47.4 272.2 Total liabilities 2,317.9 3,535.3 5,029.9 6,260.6 6,548.7 7,260.8 7,542.1 8,029.0 8,531.3 8,874.4 Ratios Current ratio 0.86 0.81 0.73 0.98 1.00 1.00 1.00 1.00 1.00 1.00 LMT Debt to equity 0.56 1.21 1.50 1.68 1.72 1.77 1.67 1.71 1.75 1.52 Total Debt to equity 0.96 1.82 2.24 2.35 2.13 2.13 1.97 1.97 2.00 1.80 Return on net fixed assets 17% 38% 60% 8% 13% 11% 9% 10% 14% 11% 1: updat ed before negot iat ions wit h audit ed accounts
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Table 9-10- CAC Statement of Cash Flows: FY04 thru FY09 (actual) and FY10 thru FY15 (forecast)- in EGP million 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 actual actual actual actual 1 forecast forecast forecast forecast forecast forecast Gross cash flow 233.6 373.3 574.4 278.6 481.9 454.4 532.1 529.3 683.3 850.3 LT Borrowings 282.3 789.9 759.7 1193.7 617.4 1,286.3 748.2 748.2 - - Credit Bank Working capital decrease/ (Increase) and others 57.6 169.1 279.5 47.3 56.5 (330.2) (156.3) (27.5) 585.3 431.9 Total sources 573.5 1,332.3 1,613.6 1,519.6 1,155.8 1,410.5 1,123.9 1,250.0 1,268.5 1,282.2 Investments 436.7 1,132.7 1,412.2 1093.2 918.5 990.7 669.5 837.5 727.4 394.0 LT Debt service 11.6 16.4 27.1 40.7 248.9 275.4 361.5 361.5 457.0 529.1 Credit Bank Distribution 51.6 77.6 132.3 163.2 122.3 181.9 165.7 120.2 113.4 258.9
Total applications 499.9 1,226.7 1,571.6 1,297.1 1,289.7 1,448.1 1,196.7 1,319.2 1,297.8 1,182.0 Variation of cash 73.6 105.6 42.0 222.5 (133.8) (37.6) (72.8) (69.2) (29.3) 100.2
Cash beginning of year 115.1 190.6 296.2 338.2 560.7 426.9 389.3 316.5 247.3 218.0 Cash end of year 190.6 296.2 338.2 560.7 426.9 389.3 316.5 247.3 218.0 318.2
Debt service coverage 5.6 4.9 4.5 2.1 1.5 1.3 1.3 1.3 1.3 1.4 Variation of cash position 75.5 105.6 42.0 222.5 (133.8) (37.6) (72.8) (69.2) (29.3) 100.2 1: updat ed before negot iations wit h audit ed account s
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Table 9-11-A EHCAAN Statement of Income: FY04 thru FY09 (audited accounts) and FY10 through FY15 (forecast) In EGP million 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 actual actual actual actual actual actual 1 forecast forecast forecast forecast forecast forecast Operating revenue 102.9 103.4 163.7 218.1 296.7 316.6 130.9 139.9 127.1 131.9 153.3 180.2 Other operating revenues 6.4 11.1 Total revenues 102.9 109.8 174.8 218.1 296.7 316.6 130.9 139.9 127.1 131.9 153.3 180.2 General & Administrative expenses 34.0 22.1 15.8 18.5 23.6 28.0 15.2 16.6 18.0 18.2 19.8 21.0 Provisions (Net) 4.6 0.2 -0.1 10.1 -3.3 14.3 3.6 3.7 3.9 4.1 4.3 4.5
Operating Profit 64.3 87.5 159.1 189.5 276.4 274.3 112.2 119.5 105.1 109.6 129.2 154.6 Interest loans to subsidiary company 0.5 0.5 0.4 0.1 0.0 Interest income 1.5 8.6 12.5 8.4 6.0 18.8 4.9 8.5 10.5 8.2 2.1 5.5 Other revenues 1.3 0.4 0.1 0.2 0.1 0.5 Capital gain (losses) 1.1 0.2 0.2 Other investment revenue 5.1 20.4 35.7 29.5 20.1 20.1 20.1 20.1 20.1 20.1 Gains (losses) currency differences 0.9 -1.9 0.6 -0.4 -3.6 1.0 Pre-tax income 73.6 95.1 172.7 219.3 314.9 324.3 137.2 148.1 135.8 138.0 151.4 180.3 Tax 2.1 1.5 0.8 4.7 1.2 1.7 1.8 1.3 0.0 0.1 Income after tax 73.6 95.1 170.6 217.7 314.1 319.6 136.0 146.5 134.0 136.6 151.4 180.2 1: updated before negotiations with audited accounts
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Ta bl e 9 - 1 1 - B EHCAAN Statement of Income: FY04 thru FY09 (audited accounts) and FY10 through FY15 (forecast) and FY20 In EGP million 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 actual actual actual actual actual actual 1 forecast forecast forecast forecast forecast forecast forecast forecast forecast forecast forecast Operating revenue 102.9 103.4 163.7 218.1 296.7 316.6 130.9 139.9 127.1 131.9 153.3 180.2 413.7 541.3 734.1 966.4 1,067.4 Other operating revenues 6.4 11.1 Total revenues 102.9 109.8 174.8 218.1 296.7 316.6 130.9 139.9 127.1 131.9 153.3 180.2 413.7 541.3 734.1 966.4 1,067.4 General & Administrative expenses 34.0 22.1 15.8 18.5 23.6 28.0 15.2 16.6 18.0 18.2 19.8 21.0 22.3 22.8 24.1 25.3 26.3 Provisions (Net) 4.6 0.2 -0.1 10.1 -3.3 14.3 3.6 3.7 3.9 4.1 4.3 4.5 4.8 5.0 5.2 5.5 5.8
Operating Profit 64.3 87.5 159.1 189.5 276.4 274.3 112.2 119.5 105.1 109.6 129.2 154.6 386.7 513.5 704.7 935.6 1,035.3 Interest loans to subsidiary company 0.5 0.5 0.4 0.1 0.0 Interest income 1.5 8.6 12.5 8.4 6.0 18.8 4.9 8.5 10.5 8.2 2.1 5.5 10.9 16.3 25.5 48.5 63.8 Other revenues 1.3 0.4 0.1 0.2 0.1 0.5 Capital gain (losses) 1.1 0.2 0.2 Other investment revenue 5.1 20.4 35.7 29.5 20.1 20.1 20.1 20.1 20.1 20.1 20.1 20.1 20.1 20.1 20.1 Gains (losses) currency differences 0.9 -1.9 0.6 -0.4 -3.6 1.0 Pre-tax income 73.6 95.1 172.7 219.3 314.9 324.3 137.2 148.1 135.8 138.0 151.4 180.3 417.8 550.0 750.3 1,004.3 1,119.3 Tax 2.1 1.5 0.8 4.7 1.2 1.7 1.8 1.3 0.0 0.1 0.9 1.8 3.3 7.6 10.3 Income after tax 73.6 95.1 170.6 217.7 314.1 319.6 136.0 146.5 134.0 136.6 151.4 180.2 416.8 548.2 747.0 996.7 1,109.0 1: updated before negotiations with audited accounts
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Table 9-12 EHCAAN Statement of Cash Flows: FY04 thru FY09 (audited accounts) and FY10 through FY15 (forecast) In EGP million 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 actual actual actual actual actual to be actual 1 forecast forecast forecast forecast forecast forecast Net profit 73.6 95.3 170.7 217.7 314.1 319.6 136.0 146.5 134.0 136.6 151.4 180.2 Depreciation 3.7 3.7 3.8 3.3 3.1 2.5 2.7 2.9 1.7 1.9 2.1 Revenues from invest. in subsidiaries (8.6) (12.4) (218.1) Credit interest (101.1) (103.5) (163.8) (8.4) Working capital decrease (increase) and others 114.8 122.3 120.4 236.1 8.0 (56.9) 18.0 (4.6) 11.0 22.5 (37.9) (38.5) Others 64.6 124.5 (0.7) 9.3 (4.2) (7.1) 2.3 2.1 2.1 2.8 4.3 4.4 Gross cash flow 37.1 111.4 117.9 240.4 313.2 258.7 158.8 146.7 150.0 163.6 119.7 148.2 Cash flow from investing activities 440.7 Cash flow from financing activities 1.8 22.9 209.5 296.5 Total sources 38.9 134.3 117.9 240.4 522.7 995.9 158.8 146.7 150.0 163.6 119.7 148.2 Cash flow from investing activities 4.2 14.4 3.3 227.5 479.0 694.5 2.0 1.3 1.2 1.6 1.0 1.0 Cash flow from financing activities 85.8 118.0 250.1 273.6 114.3 123.1 112.4 114.5 127.0
Working capital increase and others Total applications 4.2 14.4 89.1 345.5 479.0 944.6 275.6 115.7 124.3 114.0 115.5 128.0 Variation of cash 34.7 119.9 28.8 (105.1) 43.7 51.3 (116.7) 31.0 25.8 49.6 4.2 20.2 Cash beginning of year 100.9 135.6 255.5 284.3 179.2 222.9 274.2 157.5 188.5 214.2 263.8 268.0 Cash end of year 135.6 255.5 284.3 179.2 222.9 274.2 157.5 188.5 214.2 263.8 268.0 288.2 Variation of cash position 34.7 119.9 28.8 (105.1) 43.7 51.3 (116.7) 31.0 25.8 49.6 4.2 20.2 1: updated before negotiations with audited accounts
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Annex 10: Safeguard Policy Issues
General
According to the World Bank’s Operational Policy OP 4.01 on Environmental Assessment, the proposed project is classified as category B project, requiring an environmental assessment in the form of an Environmental and Social Impact Assessment (ESIA) report. The ESIA was carried out by an independent third party (an Egyptian consulting firm hired by CAC), focused on the impacts and mitigation measures during the construction phase of the project as well as the operation phase of the terminal building of the airport. The ESIA report was completed according to the terms of reference prepared by CAC and cleared by the Bank. The ESIA includes an environmental management plan (EMP), detailing institutional settings, mitigation measures, and monitoring plan for the potential impacts expected from the project during the construction and operation phases. No other safeguard policies are triggered by the project.
The project does not entail any land acquisition or resettlement as all new TB2 construction-related activities will take place inside the existing boundaries of the airport. Therefore, the operational policy OP 4.12 on Involuntary Resettlement is not triggered.
Legal and Institutional Aspects
The Egyptian law requires that any new project should comply with all relevant articles pertinent to environmental attributes which could be impacted by project activities. Law 4/1994 and its executive regulations set the overall framework for environmental protection. According to this law, an environmental impact assessment should be prepared with the application for the license of a project. The law divides the types of projects into three lists, A, B, and C list projects. The development project of TB2 at CAI is a C list project. According to the Egyptian Environmental Affairs Agency (EEAA), the EIA of the project should be submitted for approval by the competent administrative authority, in this case the Ministry of Civil Aviation.
Public Consultations
Stakeholder consultations were carried out during the ESIA preparation. The first public consultation meeting was held on September 8, 2009 at Horus Hall in the existing Terminal Building 2 of Cairo Airport. The meeting was publically announced in the most widely distributed newspaper (Al-Ahram). Invitations were also passed to NGOs and syndicates. The meeting was attended by 55 participants (with almost equal gender representation) from the airport employees, research and academia, airlines and business community.
A second public consultation meeting was held on September 29, 2009 at the same place after the consultant finished the draft ESIA and posted the findings on his website. The meeting was attended by 60 participants from both genders. A radio interview with the manager of the environmental unit at CAC was broadcast live and repeated that same day on Cairo radio.
Local stakeholders include employees at the airport, owners of nearby businesses and services, and residents in areas surrounding the airport. As proposed by participants during the first public consultation, a more systematic social assessment/survey has been carried out to involve the above local stakeholders more systematically and to get their perspectives on the proposed project. The issues raised by the participants in both meeting addressed the possible impacts of the development on the noise and air quality in the airport and surrounding communities. The consultant addressed their concerns and relayed information to their satisfaction as documented in the ESIA.
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Initial interviews with local stakeholders seem to indicate that the current knowledge of the project is limited, and a media campaign will be initiated to raise awareness about the project. This should build on the experience of previous campaigns carried out in Egypt. Seminars will also be arranged for airport employees prior to project implementation, in order to ensure timely dissemination of information about the project as well as associated employment opportunities.
Potential Environmental Impacts
Different potential environmental impacts are expected during the construction and the operation phase. No significant impacts of the project are expected on the surface or water resources, natural habitats, or physical and cultural resources. The project site is a developed area owned by the airport company which encloses the existing terminal building and part of the parking lot adjacent to it. During the construction phase, it is likely that noise and dust will originate from the construction site. It is also expected that those activities will create large amounts of construction waste and debris. Transporting construction materials to the site and construction waste away from the airport will increase the demand on the road system connected to the airport during the construction phase, and will alter the traffic composition with a larger portion of heavy trucks and equipment.
In the operation phase of the terminal building, the effects of the project on air quality and noise levels in the airport and neighboring communities have been studied by employing noise and air quality models, and utilizing data from the existing monitoring stations that are distributed in the airport and the surroundings. The rehabilitation and expansion of the terminal building will reduce noise levels inside the departure and arrival halls due to the modernization. The development of the terminal building TB2 is not expected to significantly increase the noise levels inside and outside the airport when compared to baseline noise levels originating from other noise sources.
The monitoring results of the gaseous concentrations of nitrogen and carbon emissions around the airport indicated that the contribution from Cairo Airport on local and regional air quality is very small. For peak hour cases and specific locations around the airport, the concentrations of these emissions approached adverse levels.
The increase in airport vehicular traffic because of TB2 rehabilitation and expansion will have impacts on the three access roads to the airport, with Orouba and the Autostrad-El Nassr roads being the most affected. Traffic volumes on these two roads will increase and will translate into more congestions and delays.
Environmental Management Plan, Mitigation, and Monitoring
The environmental management plan employed different mitigation measures to suppress the negative impacts of the construction activities in the airport, especially noise, air quality, and traffic flow to the airport and to continue monitoring the noise and gas emissions in the airport and surrounding communities during the operation phase. The EMP employed measures to minimize the dust and noise originating from the construction site during construction. Heavy trucks transporting materials and waste from the site will be restricted to off-peak hours to minimize traffic congestions. CAC has already taken measures to improve public transport services, dispatching shuttle bus services, enforcement of short-term parking to reduce idling time of vehicles. Those measures are expected to reduce the air pollution from other sources associated with the airport operations. The ESIA recommended traffic measures that will help distribute traffic from/to the airport to the most efficient use of the roads leading to the airport. It also recommended measures to encourage use of car pools and public transport to reduce congestions. CAC will finance the EMP costs out of its own resources. Details of the EMP, mitigation measures,
88 monitoring, and institutional responsibilities for the implementation of the EMP and associated costs are included in table (1).
Institutional Strengthening and Capacity Building for Implementation
EHCAAN/CAC has a well-established environmental management unit in place, with dedicated staff, and with continuous monitoring of air quality and noise from the monitors installed for TB3. This capacity should allow CAC to smoothly implement the EMP. In addition, the EMP requires special capacity development in pollution abatement for CAC Environmental Department, and Air Traffic Control staff. Environmental training will be conducted to the target staff as well as public awareness campaign to the public and airport employees. Details on the training and capacity strengthening of CAC are included in Table (2). The total combined cost for capacity building and other aspects for EMP implementation is estimated at US$421,000.
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Table (1) Summary of Environmental Management Plan during the construction and operation phases and their proposed mitigation measures of TB2
Project Activity Potential Proposed Mitigation Measures Institutional Responsibilities Cost Monitoring indicators Environmental/Social Enforcement Coordination Estimates Impacts ($) During Construction Construction activities Safety risk to the public - Construction sites closed to the Contractor PMU and part of the at areas accessible to the at or near construction public. CAC construction public sites. environmental unit cost Noise and emissions − (As per Factory Act Contractor PMU and To be Noise complaints register to from construction requirements) Shall to utilize CAC covered as identify concerns and check Vehicle/equipment hearing protection./ Workers environmental part of the validity. exhaust exposed to loud noise unit. construction cost. − Site design layout to avoid noise Impacts on residential areas wherever possible and/or necessary. Soil and Painting − Vehicle movements will be Construction Third party To be Monitoring of PM10 (Dust removal, modification, restricted to construction areas contractor Inspection. covered as Levels) on the concerned mixing, compaction, and roads. Biweekly part of the sites monthly. loss, or contamination − (environmental construction due to modernization Contractors will work according consultant to be cost. activities. to strict management hired) requirements. − Topsoil and excess soil cleared from the modernization activities will be stored in the soil storage area and must be protected from wind and regularly sprinkled with water until reused for fill or disposed outside the site
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Project Activity Potential Proposed Mitigation Measures Institutional Responsibilities Cost Monitoring indicators Environmental/Social Enforcement Coordination Estimates Impacts ($) During Construction Generation of dust and − All material resulting from Construction Third party $15,000 emissions due to contractor Inspection. part of the excavation must be put in a Monitoring Dust Levels. modernization activities. location protected from wind (environmental construction On the indoor working and regularly sprinkled with consultant to be cost water until reused for fill or hired) Reports to environment disposed outside the site. Environmental Unit at CAC − All excavations shall be backfilled and reinstated to a similar condition as existed
before the excavation started.
− Temporary haul roads shall be watered whilst in use to reduce Ambient NO2, SO2, and dust production during CO concentrations construction. − All hauling trucks must be securely covered to eliminate dust scatter while moving in and out of the site. − All vehicles delivering material to the site shall be covered to avoid material spillage. While unloading Material, fall height shall be kept low to minimize fugitive dust generation.
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Project Activity Potential Proposed Mitigation Institutional Responsibilities Cost Estimates ($) Monitoring indicators Environmental/Social Measures Enforcement Coordination Impacts During Construction − All construction material should be protected so as to minimize generation of dust. − Vehicles and Construction site to be watered equipment periodically to minimize passing normal fugitive dust generation. inspection test − Limiting vehicles and equipment speed inside the construction site and unpaved roads by introducing speed depth to reduce re-suspended dust generation. − Restricting off road driving − Regular cleaning of asphalted roads used by construction traffic to reduce re-suspended dust generation. − All vehicles and equipment used should be mechanically checked to avoid excess emission Project Activity Potential Proposed Mitigation Measures Institutional Responsibilities Cost Estimates ($) Monitoring indicators Environmental/Social Enforceme Coordination Impacts nt During Construction Waste disposal Adequate management of Contractor CAC $100/ton + additional, review of contractor transportation/disposal special record and asbestos and any possible Environmental costs to contractor bid evidence from certified hazardous waste Unit throw field price landfill supervision
Risk of damaging - Collect infrastructure maps Contractor CAC authorities Part of construction cost Record of accident infrastructure and site tracing
Habitat displacement, − Construction activities will Contractor CAC $10,000 lose, and destruction Population lose be kept within the Environmental part of the construction boundary of the site. Unit cost
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− Site access roads will optimized to traverse a Third party small proportion of the Inspection. available habitat, Monthly − Extra care will be taken to (environmental ensure that the footprint in consultant will be the project area of hired) influence will be minimized − Construction will take place as quickly as possible. − Construction activities will be timed to avoid the most sensitive nesting periods. − Light, noise and movement will be kept to an absolute minimum. Construction Safety − The construction contractor Construction CAC part of the construction Workers camp kept in contractor will submit an HSE plan Environmental cost good condition for construction activities. Unit − All contractors must Number of accidents supply their workers with
proper clothing and gears (PPE) and appropriate safety training and instructions.
− The construction workers Third party camp will include adequate Inspection. sanitary facilities and will Monthly as much as possible be protected from high noise ( environmental level. consultant to be hired )
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Project Activity Potential Proposed Mitigation Measures Institutional Responsibilities Cost Monitoring indicators Environmental/Social Enforcement Coordination Estimates Impacts ($) During Operation Noise impacts on − Adopting and applying the − Environmental PMU and Noise Levels communities. CAC ICAO standards for landing and unit at CAC Do not exceed Compliance environmental unit takeoff procedures with Law 4, 1994 and its − Management of landing and modification. take off between runways so as to minimize noise between 11.00pm and 6.00am
− Install three new permanent − External $75,000 automatic noise monitoring Contractor
system with current software to
correlate radar Information to
noise level.
− − Noise Consultant for the INM consultant for monitoring system compilation 6 month $36,000 and noise analysis. Air Quality during − Portable gas analyzers for External PMU and $70,000 Following up and checking operation on indoor measuring the gaseous Contractor and CAC the indoor environment environment consultant emissions. validity − Portable Dust monitor. − Ventilation meter.
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Project Activity Potential Proposed Mitigation Measures Institutional Responsibilities Cost Monitoring indicators Environmental/Social Enforcement Coordination Estimates ($) Impacts During Operation Soil contamination − A spill response plan will be CAC CAC part of the Number and volume of during operation developed for the site that will Environmental Environmental construction fuel/oil spill and/or deal in detail with the Unit Unit cost leakage incidents
identification and response to major, non-routine incidents.
− Areas susceptible to potential
spills of contaminants, such as
diesel fuel loading, storage and transfer areas, will be covered in an impermeable layer (hard
cover) with drainage to a
suitable holding, separation or treatment facility. - Monitoring program to follow up Aircraft's Wastewater with the operation and CAC CAC CAC Water analysis record and maintenance (O&M) in order to Environmental Environmental Environmental progress reports secure the treatment efficiency and Unit Unit Unit -day to compliance with the environmental day work law.
Technical Assistance during operation − Hiring local Environmental External EMP PMU and $70,000 Compliance with EMP Supervision and Consultant to assist and consultant for 18 CAC monitoring of EMP supervise the implementation month. Environmental of the EMP and noise Unit monitoring stations − Follow Up the daily monitoring of indoor environment dust. − QC/QA of ambient air quality monitoring stations to estimate the effect of modernization and updating activities on the ambient environment
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Table (2) Institutional strengthening and training for implementation requirements
Date / Institutional Strengthening Activity Position(s) Responsibilities Cost Estimates Implementation Supervision ($) Winter 2010 − Director Institutional capacity - CAC Management 50.000 Modification of organization for environmental unit at − Environmental Monitoring Center building consultant CAC Department Head − Environmental Inspection and grievance Department Head − Environmental Affairs Department Head Summer 2011 − Director Environmental - PMU unit 60.000 Specialized updating environmental training courses − Environmental Monitoring Center consultant - CAC Management for CAC staff in the following subjects: Department Head & senior staff (environmental • Noise, − Environmental Inspection and consultant to be hired) • Air quality, grievance Department Head • Waste management and pollution abatement. − Environmental Affairs Department Head − Engineers and chemists Spring 2013 − Environmental unit at CAC Press department of - CAC Management 60.000 Environmental awareness program for CAC and CAC with Environmental public using Cairo Airport unit at CAC
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Annex 11: Project Preparation and Supervision
Planned Actual PCN review 09/03/2009 09/03/2009 Initial PID to PIC 09/22/2009 09/22/2009 Initial ISDS to PIC 07/10/2009 07/10/2009 Appraisal 11/16/2009 11/16/2009 Negotiations 01/17/2010 01/17/2010 Board approval 02/23/2010 02/23/2010 Planned date of effectiveness 06/30/2010 Planned date of mid-term review 09/30/2012 Planned closing date 11/30/2015
Key institutions responsible for preparation of the project: • Ministry of Civil Aviation (MOCA) • Ministry of International Cooperation • Egyptian Holding Company for Airports and Air Navigation (EHCAAN) • Cairo Airport Company (CAC)
Bank staff and consultants who worked on the project included:
Name Title Unit Mr. Michel Bellier Lead Transport Specialist MNSSD Mr. Vincent Vesin Transport Specialist MNSSD Dr. Charles Schlumberger Senior Air Transport Specialist ETWTR Mr. Robin Carruthers Consultant Transport Economist MNSSD Mr. Philippe de Naurois Consultant Financial Analyst MNSSD Mr. Armando Araujo Consultant Procurement AFTEG Mr. Akram El-Shorbagi Senior Financial Management Specialist MNAFM Mr. Wael Elshabrawy Financial Management Specialist MNAFM Dr. Maged Ahmed Mahmoud Hamed Senior Environmental Specialist MNSRE Mr. Zeyad Abu-Hassanein Senior Infrastructure Specialist MNSEG Mr. Knut Opsal Senior Social Scientist MNSSO Ms. Fatiha Amar Program Assistant MNSSD
Bank funds expended to date on project preparation: 1. Bank resources: US$300,000 2. Total: US$300,000
Estimated Approval and Supervision costs: 1. Remaining costs to approval: US$10,000 2. Estimated annual supervision cost: US$100,000
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Annex 12: Documents in the Project File
A. Bank Assessments
Review of Preliminary Design for TB2 at Cairo International Airport, September 2009
Review of Forecasts prepared for TB2 Expansion Planning, November 2009
B. Others
Draft Functional Design Concept Report for TB2 at Cairo International Airport, April 2008
Final Functional Design Report for TB2 at Cairo International Airport, December 2008
Preliminary Design Report for TB2 at Cairo International Airport, August 2009
Draft Environment and Social Impact Assessment, October 2009
Environment and Social Impact Assessment, November 2009
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Annex 13: Statements of Loans and Credits
Difference between expected and actual Original Amount in US$ Millions disbursements Project ID FY Purpose IBRD IDA SF GEF Cancel. Undisb. Orig. Frm. Rev’d P112346 2010 EG-Affordable Mortgage Finance DPL 300.00 0.00 0.00 0.00 0.00 300.00 0.00 0.00 P101103 2009 EGYPT-RAILWAYS RESTRUCTURING 270.00 0.00 0.00 0.00 0.00 270.00 0.00 0.00 P100047 2009 EG-Ain Sokhna Power 600.00 0.00 0.00 0.00 0.00 600.00 0.00 0.00 P095392 2008 EG-NATURAL GAS CONNECTIONS 75.00 0.00 0.00 0.00 0.00 75.00 10.70 0.00 P094311 2008 EG INTEGRATED SANITATION & 120.00 0.00 0.00 0.00 0.00 112.70 6.12 0.00 SEWERAGE INFR P087970 2007 West Delta Water Conserv. & Irrig. Rehab 145.00 0.00 0.00 0.00 0.00 145.00 126.67 41.67 P093470 2007 EG-MORTGAGE FINANCE 37.10 0.00 0.00 0.00 0.00 8.58 -0.77 0.00 P091945 2006 EG-EL TEBBIN POWER 259.60 0.00 0.00 0.00 0.00 93.25 33.42 0.00 P090073 2006 EG-Second Pollution Abatement 20.00 0.00 0.00 0.00 0.00 15.96 13.12 13.12 P082952 2005 EG-Early Childhood Education 20.00 0.00 0.00 0.00 0.00 12.89 11.31 0.00 Enhancement P073977 2005 EG-INTEGRATED IRRIGATION IMPR. 120.00 0.00 0.00 0.00 0.00 108.87 51.37 0.00 & MGT P049702 2004 EG-SKILLS DEVELOPMENT 5.50 0.00 0.00 0.00 0.00 0.42 0.42 -0.51 P045499 2000 EG-NATIONAL DRAINAGE II 50.00 0.00 0.00 0.00 0.00 0.35 0.35 0.00 P050484 1999 EG Secondary Education Enhancement 0.00 50.00 0.00 0.00 0.00 18.61 14.12 0.00 Proj P049166 1998 EG East Delta Ag. Serv. 0.00 15.00 0.00 0.00 0.62 2.85 1.62 -1.02 Total: 2,022.20 65.00 0.00 0.00 0.62 1,764.48 268.45 53.26
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 2002 Ceramica Al-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
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2001 IT Worx 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 2001 Port Said 41.07 0.00 0.00 132.53 41.07 0.00 0.00 132.53 2002 SEKEM 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 2001 SUEZ GULF 40.40 0.00 0.00 129.07 40.40 0.00 0.00 129.07 1997 UNI 2.05 0.00 0.00 0.00 2.05 0.00 0.00 0.00 2001 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 III 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
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Annex 14: Country at a Glance
Egypt, Arab Rep. at a glance 1/ 2 8 / 0 9
M. East Lower Key Development Indicators & North middle Egypt Africa income Age distribution, 2007 (2007) Male Female
Population, mid-year (millions) 75.5 313 3,437 75-79 Surface area (thousand sq. km) 1,001 8,778 35,510 P o pulatio n gro wth (%) 1.7 1.7 1.0 60-64 Urban population (% of total population) 43 57 42 45-49
GNI (A tlas metho d, US$ billio ns) 119.5 876 6,485 30-34
GNI per capita (A tlas metho d, US$ ) 1,580 2,794 1,887 15-19 GNI per capita (PPP, international $) 5,400 7,413 4,544 0-4
GDP gro wth (%) 7.1 5.8 9.7 15 10 5 0 5 10 15 GDP per capita growth (%) 5.2 4.0 8.6 percent
(most recent estimate, 2000–2007)
Poverty headcount ratio at $1.25 a day (PPP, %) <2 5 .. Under-5 mortality rate (per 1,000) Poverty headcount ratio at $2.00 a day (PPP, %) 18 19 .. Life expectancy at birth (years) 71 70 69 Infant mortality (per 1,000 live births) 29 34 41 100
Child malnutrition (% of children under 5) 5 .. 25 80
Adult literacy, male (% of ages 15 and older) 83 83 93 60 Adult literacy, female (% of ages 15 and older) 59 63 85 40 Gross primary enrollment, male (% of age group) 107 108 112 Gross primary enrollment, female (% of age group) 102 103 109 20
Access to an improved water source (% of population) 98 89 88 0 Access to improved sanitation facilities (% of population) 66 75 54 1990 1995 2000 2006
Egypt, Arab Rep. Middle East & North Africa
Net Aid Flows 1980 1990 2000 2007 a
(US$ millions) Net ODA and official aid 1,381 5,426 1,328 873 Growth of GDP and GDP per capita (%) Top 3 donors (in 2006): European Commission 32 48 73 228 8 United States 834 2,346 635 196 Germany 107 347 65 141 6 4 Aid (% of GNI) 6.4 12.9 1.3 0.8 2 Aid per capita (US$) 32 98 20 12 0
Long-Term Economic Trends -2 95 05 Consumer prices (annual % change) .. 21.2 2.8 11.0 GDP implicit deflator (annual % change) 18.0 18.4 4.9 12.6 GDP GDP per capita Exchange rate (annual average, local per US$) 0.7 2.2 3.4 5.7 Terms of trade index (2000 = 100) .. 97 100 113 1980–90 1990–2000 2000–07 (average annual growth %) Population, mid-year (millions) 43.7 55.1 66.5 75.5 2.3 1.9 1.8 GDP (US$ millions) 22,912 43,130 99,839 130,476 5.4 4.4 4.3 (% o f GDP ) Agriculture 18.3 19.4 16.7 14.1 2.7 3.1 3.3 Industry 36.8 28.7 33.1 22.8 3.3 5.1 4.5 M anufacturing 12.2 17.8 19.4 15.7 .. 6.3 4.0 Services 45.0 52.0 50.1 63.1 7.8 4.1 4.8
Household final consumption expenditure 69.2 72.6 75.9 72.4 3.6 3.8 2.9 General gov't final consumption expenditure 15.7 11.3 11.2 11.3 3.1 4.4 2.8 Gross capital formation 27.5 28.8 19.6 20.9 0.0 5.8 5.4
Exports of goods and services 30.5 20.0 16.2 30.3 5.2 3.5 16.7 Imports of goods and services 42.9 32.7 22.8 34.8 -2.0 3.0 13.5 Gross savings .. 21.4 18.7 22.5
Note: Figures in italics are for years other than those specified. 2007 data are preliminary. .. indicates data are not available. a. Aid data are for 2006. Development Economics, Development Data Group (DECDG).
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Egypt, Arab Rep.
Balance of Payments and Trade 2000 2007 Governance indicators, 2000 and 2007 (US$ millions) Total merchandise exports (fob) 6,388 22,018 Total merchandise imports (cif) 17,860 37,834 Voice and accountability Net trade in goods and services -6,774 -5,554 Political stability Workers' remittances and co mpensatio n o f emplo yees (receipts) 2,852 5,865 Regulatory quality
Current account balance -1,163 2,696 Rule of law as a % o f GDP -1.2 2.1 Control of corruption
Reserves, including gold 15,161 30,320 0 25 50 75 100
Central Government Finance 2007 Country's percentile rank (0-100) higher values imply better ratings 2000 (% of GDP) Current revenue (including grants) 21.6 23.2 Source: Kaufmann-Kraay-Mastruzzi, World Bank Tax revenue 14.6 15.4 Current expenditure 20.5 26.4 Technology and Infrastructure 2000 2007 Overall surplus/deficit -3.9 -7.3 Paved roads (% of total) 78.1 81.0 Highest marginal tax rate (%) Fixed line and mobile phone Individual 32 20 subscribers (per 1,000 people) 10 55 Corporate 40 20 High technology exports (% of manufactured exports) 0.3 0.5 External Debt and Resource Flows Environment (US$ millions) Total debt outstanding and disbursed 29,015 30,444 Agricultural land (% of land area) 3 4 Total debt service 1,832 2,422 Forest area (% of land area) 0.1 0.1 Debt relief (HIPC, M DRI) – – Nationally protected areas (% of land area) .. 5.6
Total debt (% of GDP) 29.1 23.3 Freshwater resources per capita (cu. meters) .. 25 Total debt service (% of exports) 8.9 5.0 Freshwater withdrawal (% of internal resources) 3,794.4 ..
Foreign direct investment (net inflows) 1,235 10 , 0 4 3 CO2 emissions per capita (mt) 2.1 2.2 Portfolio equity (net inflows) 269 502 GDP per unit of energy use (2005 P P P $ per kg o f o il equivalent) 6.1 5.4 Composition of total external debt, 2006
IDA, 1,481 Energy use per capita (kg of oil equivalent) 683 841 IBRD, 544 Short-term, IMF, 0 1,635 Other multi- lateral, 1,882 World Bank Group portfolio 2000 2007 Private, 3,719 (US$ millions)
IB RD Total debt outstanding and disbursed 639 1,181 Disbursements 6 723 Principal repayments 87 97 Interest payments 41 47 Bilateral, 19,503 US$ millions IDA Total debt outstanding and disbursed 1,266 1,490 Disbursements 49 13 Private Sector Development 2000 2008 Total debt service 32 58
Time required to start a business (days) – 7 IFC (fiscal year) Co st to start a business (% o f GNI per capita) – 18.3 To tal disbursed and o utstanding po rtfo lio 163 500 Time required to register pro perty (days) – 72 o f which IFC o wn acco unt 163 255 Disbursements for IFC own account 25 78 Ranked as a major constraint to business 2000 2007 Portfolio sales, prepayments and (% o f managers surveyed who agreed) repayments fo r IFC o wn acco unt 14 18 Tax rates .. 80.0 Economic and regulatory policy uncertainty .. 63.8 MIGA Gross exposure 0 0 Stock market capitalization (% of GDP) 28.8 106.8 New guarantees 0 0 Bank capital to asset ratio (%) 5.6 5.5
Note: Figures in italics are for years other than those specified. 2007 data are preliminary. 1/28/09 .. indicates data are not available. – indicates observation is not applicable.
Development Economics, Development Data Group (DECDG).
102
Millennium Development Goals Egypt, Arab Rep.
With selected targets to achieve between 1990 and 2015 (estimate closest to date shown, +/- 2 years) Egypt, Arab Rep.
Goal 1: halve the rates for extreme poverty and malnutrition 1990 1995 2000 2007 Poverty headcount ratio at $1.25 a day (PPP, % of population) 4.5 2.5 <2 <2 Poverty headcount ratio at national poverty line (% of population) .. 22.9 16.7 .. Share of income or consumption to the poorest qunitile (%) 8.6 8.8 8.6 8.9 P revalence o f malnutritio n (% o f children under 5) .. .. 4.3 5.4
Goal 2: ensure that children are able to complete primary schooling Primary school enrollment (net, %) 86 .. 93 96 P rimary co mpletio n rate (% o f relevant age gro up) .. .. 98 98 Secondary school enrollment (gross, %) 71 .. 85 88 Youth literacy rate (% of people ages 15-24) .. 73 .. 85
Goal 3: eliminate gender disparity in education and empower women Ratio of girls to boys in primary and secondary education (%) 81 .. 92 95 Women employed in the nonagricultural sector (% of nonagricultural employment) 21 19 19 20 Proportion of seats held by women in national parliament (%) 4 2 22
Goal 4: reduce under-5 mortality by two-thirds Under-5 mortality rate (per 1,000) 91 68 51 35 Infant mortality rate (per 1,000 live births) 67 52 40 29 M easles immunization (proportion of one-year olds immunized, %) 86 89 98 98
Goal 5: reduce maternal mortality by three-fourths M aternal mortality ratio (modeled estimate, per 100,000 live births) ...... 13 0 Births attended by skilled health staff (% of total) 37 46 61 74 Contraceptive prevalence (% of women ages 15-49) 47 48 56 59
Goal 6: halt and begin to reverse the spread of HIV/AIDS and other major diseases P revalence o f HIV (% o f po pulatio n ages 15-49) .. .. 0.1 0.1 Incidence of tuberculosis (per 100,000 people) 37 37 31 24 Tuberculosis cases detected under DOTS (%) .. 43 45 59
Goal 7: halve the proportion of people without sustainable access to basic needs A ccess to an impro ved water so urce (% o f po pulatio n) 94 96 97 98 A ccess to impro ved sanitatio n facilities (% o f po pulatio n) 50 55 61 66 Fo rest area (% o f to tal land area) 0.0 .. 0.1 0.1 Nationally protected areas (% of total land area) ...... 5.6 CO2 emissions (metric tons per capita) 1.4 1.6 2.1 2.2 GDP per unit of energy use (constant 2005 PPP $ per kg of oil equivalent) 5.7 6.1 6.1 5.4
Goal 8: develop a global partnership for development Telephone mainlines (per 100 people) 2.9 4.5 8.2 14.9 M obile phone subscribers (per 100 people) 0.0 0.0 2.0 39.8 Internet users (per 100 people) 0.0 0.0 0.7 11.4 P erso nal co mputers (per 100 peo ple) .. 0.4 1.2 4.3
Education indicators (%) Measles immunization (% of 1-year ICT indicators (per 1,000 people) olds)
125 100 60
100 50 75 75 40
50 50 30
25 20 25 0 10
2000 2002 2004 2006 0 0
1990 1995 2000 2006 2000 2002 2004 2006 Primary net enrollment ratio Fixed + mobile subscribers Ratio of girls to boys in primary & secondary Egypt, Arab Rep. Middle East & North Africa Internet users education
Note: Figures in italics are for years other than those specified. .. indicates data are not available. 1/28/09
Development Economics, Development Data Group (DECDG).
103
Annex 15: Aerial View of CAI after completion of the new TB2
Source: Engineering ConsultantsGroup S.A. in association with Netherlands Airport ConsultantsB.V.
104
Annex 15: Map
105
IBRD 37315
ARAB REPUBLIC OF EGYPT CAIRO AIRPORT DEVELOPMENT PROJECT - TB2 TERMINAL FINANCED UNDER THE PROJECT NATIONAL AND INTERNATIONAL AIRPORTS LANDING GROUNDS ARAB REPUBLIC OF EGYPT NATIONAL CAPITAL GOVERNORATE CAPITALS MAIN CITIES AND TOWNS MAIN ROADS RAILROADS INTERNATIONAL BOUNDARIES
25°E 30°E WEST BANK AND0 GAZA50 100 150 200 Kilometers To M e d i t e r r a n e a n S e a To Darnah Tel Aviv SalûmSalûm MarsaMarsa 0 50 100 150 Miles MatruhMatruh DamiettaDamietta KafrKafr ElEl ElEl AlexandriaAlexandria PortPort SaidSaid ArishArish SheikhSheikh This map was produced by the Map Design Unit of The World Bank. ElEl MansuraMansura ISRAELISRAEL KhaldaKhalda DamanhurDamanhur ElEl GoraGora The boundaries, colors, denominations and any other information ElEl AlameenAlameen Borg TantaTanta MeleihaMeleiha ZagizigZagizig shown on this map do not imply,JORDANJOR onD theA partN of The World Bank El Arab ShibinShibin ElEl KomKom IsmailiaIsmailia Group, any judgment on the legal status of any territory, or any BenhaBenha endorsement or acceptance of such boundaries. 30°N 30°N OctoberOctobeGizaGriza BadrBadr ElEl DinDin Giza SuezSuez AbuAbu ElEl CAIROCAIRO 35°E GhradieqGhradieq QâraQâra TabaTaba SîwaSîwa ElEl FFayoumayoum G a ulf of Suez BeniBeni SuefSuef AbuAbu RudeisRudeis Aqab of
Gulf St.St. CatherineCatherine RâsRâs GhâribGhârib SAUDISAUDI ElEl TToror RasRas ShuShu KeirKeir AlAl MinyaMinya ARABIAARABIA ZeitZeit BayBay SharmSharm ElEl SheikhSheikh LIBYALIBYA Nile AssiutAssiut AlAl GhurdaqahGhurdaqah
River BîrBîr SSeiyâlaeiyâla SohagSohag QenaQena QuseirQuse.ir
LuxorLuxor ElEl DakhlaDakhla ElEl KKhargaharga
25°N MarsaMarsa ''AlamAlam 25°N
KomKom OmboOmbo
AswanAswan Red Sea
Lake Nasser
SharkShark ElEl OweinatOweinat AbuAbu SimbelSimbel HalaibHalaib
To To To Port Sudan SUDANS U D A N Dongola Berber 20°N 20°N
25°E 30°E 35°E JANUARY 2010