Soft Loans Blow Egypt's Way as Germany Targets Energy Sector Share

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Researched by Industrialinfo.com (Industrial Information Resources, Incorporated; Houston, Texas). German companies are making a concerted effort to boost their investments in Egypt's gas, petrochemical, and energy sectors. At a recent meeting of the German-Arab Chamber of Industry and Commerce (GACIC), the Egyptian minister of petroleum urged German companies to beef up their investments in the country's Upper Egypt region, which is considered to be very promising for future gas production. He noted that Italian, French, and U.S. companies had pledged to work in the area.

The South Valley Holding Company is set up to intensify oil and gas prospecting. An agreement has been signed with a Spanish company, Union Fenosa (MADRID:FENOSA ( Madrid, Spain), to establish a factory for gas liquefaction in Damietta. This plant is scheduled to process four billion cubic feet of gas (five million tons) for export annually, mainly to supply Spanish electrical power plants.

In December 2002, Union Fenosa sold 50% of its gas interests to ENI (MILAN:ENI) ( Milan, Italy) in a deal that makes the Italian company its strategic partner in gas related activities. ENI and British Petroleum (LSE:BP)( London, United Kingdom) are joint owners of the exploration license which covers the prolific Tennin field which is in close proximity to Damietta.

Confirmed reserves of crude oil, natural gas and condensates were an estimated at 14 billion barrels at the beginning of 2003 much of these coming from discoveries in deep waters of the Mediterranean and Red seas. Direct German investments in Egypt's oil sector total around $2.6 billion. Egypt's known gas reserves have increased steadily over the past ten years and in October 2002 were set at 1,656 billion cubic meters (58.5 trillion cubic feet).

Renewable energy also figures in the New and Renewable Energy Authority (NREA) in which a consortium of German and Egyptian companies have contracted to build a 47 MW wind farm at Zafarana . The foreign portion of the $44 million project is financed with a 25% grant from the German Construction Bank (KFW) plus a 75% soft loan (0.75% interest rate and a repayment period of 40 years including a 10-year grace period). The local portion is financed by Egypt's National Investment Bank.

The contract consists of 71 turbines each rated at 660 KW and includes supporting electrical and mechanical equipment. The Egyptian members of the consortium will under take the local civil engineering work and manufacture the turbine towers. The new project, which is a successor to Zafarana's first 33 MW stage, should be producing electricity by June 2004.

Zafarana has also attracted the support of the Danish Development Programme Agency (DANIDA), which is providing $20 million finance, 30% as a non-refundable grant, with the project balance in soft loans. The Egyptian part, in the agreement with the Danes, is to contribute 30% of the project's equipment to be locally manufactured in local workshops and plants. This stage of the Zafarana windfarm project will put in place 46 turbines each rated at 660 KW and should be operating by October this year.

The total Zafarana project is planned to have a total, installed wind generating capacity of 600 MW completed by 2010. This will provide around 4% of Egypt's power needs in clean energy.