VZCZCXRO0116
PP RUEHBC RUEHDE RUEHKUK RUEHROV
DE RUEHEG #0650 1050826
ZNR UUUUU ZZH
P 150826Z APR 09
FM AMEMBASSY CAIRO
TO RUEHC/SECSTATE WASHDC PRIORITY 2213
RHEBAAA/DEPT OF ENERGY WASHINGTON DC PRIORITY
INFO RUEHEE/ARAB LEAGUE COLLECTIVE PRIORITY
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY

UNCLAS CAIRO 000650 
 
SENSITIVE 
SIPDIS 
 
ENERGY FOR ERICKSON, EEB FOR SULLIVAN, NEA/ELA FOR ALLEN 
 
E.O. 12958: N/A 
TAGS: ENRG ECON PGOV EINV EG
SUBJECT: POWERING GROWTH: PROPOSED ELECTRICITY LAW SEEKS TO 
LIBERALIZE ELECTRICITY GENERATION AND DISTRIBUTION 
 
¶1. (SBU) Key Points: 
 
-- The Ministry of Electricity and Energy (MOEE) is preparing 
a law that would open electricity generation and distribution 
to the private sector. 
 
-- According to industry contacts, the draft law would 
facilitate investment in new distribution networks to expand 
the national grid, and would allow private generation 
companies to sell directly to residential and industrial 
consumers, rather than to the MOEE. 
 
-- Electricity consumption was up 13 percent in 2008. 
 
¶2. (SBU) COMMENT:  This is Egypt's second attempt to attract 
investment to the power generation sector.  In 1997, an 
investment law promoting independent power producers (IPP) 
provided a number of incentives and resulted in three 
generation facilities, built by InterGen with Edison and EdF, 
respectively, for a total of 2 GW. However, the power 
purchase agreements were denominated in U.S. dollars, and the 
Ministry of Electricity and Energy (MOEE) abandoned the IPP 
program when the currency was devalued, sharply driving up 
the cost of generating power.  The Ministry of Investment and 
MOEE withdrew the incentives program for IPPs in order to 
limit Egypt's exposure to foreign exchange risk.  While the 
Egyptian pound is currently stable, the GOE continues to have 
a reputation for changing the rules of the game without 
warning.  Investors will likely remain skeptical of the 
proposed new IPP framework, absent sovereign guarantees to 
respect and uphold the letter and spirit of the law. END 
COMMENT. 
 
¶2. (SBU) MOEE sources told the press on April 1 that the 
ministry is preparing a draft law to liberalize power 
generation and distribution, controlled at present by the 
Egyptian Electricity Holding Company (EEHC), a division of 
MOEE.  Dr. Asem El Gawhary, manager of PGESCO, one of the 
largest energy services companies in Egypt (a joint venture 
between Bechtel and MOEE), confirmed that MOEE will submit a 
bill to restructure and liberalize the electricity sector to 
the State Council for review in the coming months. The 
proposed law would permit private companies to build and 
operate power plants, add to the national distribution 
network, and sell directly to industrial and residential 
consumers by 2012.  El Gawhary said that EEHC will continue 
to control prices for residential and small business 
customers, but intends to allow prices for industrial 
consumers to be set by the market. 
 
¶3. (SBU) According to industry analysts, Egypt's current 
installed capacity is 23 gigawatts (GW) and it faces a 
deficit of at least 2 GW.  MOEE Undersecretary Mohamed Mousa 
Omran told us that the ministry has committed to develop 
plants generating an additional 10.45 GW by 2012, and intends 
to develop an additional 11 GW between 2012-2017 to deal with 
skyrocketing demand for electricity. He admitted that MOEE 
has had to institute rolling brownouts in rural areas at peak 
load hours, in order to ensure uninterrupted power to Cairo 
and industrial cities in the Delta.  El Gawhary said that 
EEHC has only secured financing to build an additional 7.5 GW 
worth of capacity, and speculated that it has to liberalize 
the industry in order to secure investment to meet increased 
demand.  El Gawhary and industry analysts at the Egyptian 
Center for Economic Studies state that electricity 
consumption increased 13 percent in 2008. 
 
--------------------------------------------- ---------- 
COMPETING INTERESTS: ATTRACTING INVESTMENT VS. REDUCING 
ENERGY SUBSIDIES 
--------------------------------------------- ---------- 
 
¶4. (SBU) Over sixty percent of Egypt's electricity is 
generated from domestically produced natural gas.  Contacts 
in the American Chamber of Commerce in Cairo's energy 
committee told us that MOEE provides natural gas at a 
concessionary rate of $1.25 per MMBTU to companies already 
generating electricity for EEHC, and to attract investment in 
several new manufacturing zones.  El Gawhary said that the 
Ministry of Petroleum wants to eliminate MOEE's right to 
offer concessionary pricing to new customers, and price gas 
at $3 per MMBTU. (Note: Gas traded at $3.55 per MMBTU on the 
NYMEX on April 13. End note.) 
SCOBEY