Recent Study: Egypt Power Report Q4 2013

This quarter, we have slightly revised down our forecast for Egypt, reflecting the increasing political instability in the country. That said, a continuous and reliable supply of electricity is paramount for Egypt's socio-economic development, and a series of politically-charged electricity outages over the second half of 2012 and first half of 2013 has illustrated that power is a hot political issue. Yet, the challenge of ramping up supply is immense; not only does it require a re-prioritisation of natural gas feedstock away from exports and towards domestic consumption, but weak economic activity and high political uncertainty are set to take a toll on the country's ability to channel investments towards the sector.

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With economic growth hinging on the provision of adequate and reliable power to vital sectors (ranging from industry and agriculture to tourism and transport), the expansion of Egypt's electricity infrastructure is a key priority. An ambitious power sector investment programme was implemented in 2002 - with 7,000 megawatts (MW) during the first phase (2002-2007) and 11,850MW added during the second phase (2007-2012); yet, power shortages have fully displayed the need to improve capacity and made the development of the sector an even more urgent policy priority for the country.

These short-term measures aside, we reiterate our view that the state's long-term strategy for the electricity sector should be bifurcated. On the one hand, it needs to ensure more feedstock availability for existing and planned gas-fired generating capacity by prioritising domestic users. On the other hand, the government needs to push for more diversification, increasing hydro and renewables capacities, given that nuclear remains off the near-term agenda.

Key trends and recent developments in the Egyptian electricity market appear to suggest that the government is looking to pursue a privatisation and diversification strategy:

* Egypt's state-run New and Renewable Energy Authority resumed an international contest for wind prospecting concessions at six sites in the Gabal El Zeit area of the Gulf of Suez, each earmarked for up to 100MW of development. This confirms the government's pre-existing wind programme to 2020, with 7.2GW of capacity to be added.
* A US$1.6bn deal to link Egypt and Saudi Arabia via a 3,000MW electricity cable will allow the two countries to meet peak demand via load sharing and could be part of a longer-term solution to Egypt's electricity supply problems.

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