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Kuwait Financial Centre “Markaz” recently released the executive summary of its report on Egypt Power. In this report, Markaz examines and analyzes the current status of Egypt Power sector. The report highlights the demand, supply and investment trends in the sector. The report also highlights the growth drivers, barriers and potential for each of the countries.
Egypt is the largest non-OPEC oil producer in Africa and the second largest dry natural gas producer on the continent. The country’s economy is heavily dependent on agriculture, tourism, oil and gas exports and Suez Canal revenues. Since 2000, the government has tried to implement a series of structural reforms in monetary and fiscal policy, such as privatization of industries etc. which helped Egypt move towards a more market driven economy and integrate itself with other countries in the world. But presently, the Egypt economy is struggling to move forward and its future depends on swift resolution to its present political problems.
Though rich in natural resources, the country is plagued by political and economic instability, to fully benefit from them. Problems with existing infrastructure that have caused widespread transmission and distribution problems, declining oil production and natural gas exports, and lack of technical expertise to scale up the power infrastructure are major obstacles facing the country. Depleting resources and global environmental awareness have prompted the Egypt government to increase the share of renewable resources in power generation. Presently, over four-fifths of Egypt’s power is generated through hydrocarbon resources. Domestic oil consumption in Egypt has grown leaps and bounds over the last decade, as the government plans to invest over USD 100 billion dollars to bridge the gap between supply and demand.
The economy has been reeling under the negative consequences of political instability, fears of insecurity and intermittent protests, since 2011. Power subsidies have existed for quite a long time, but they have come into question for their sustainability and their impact on the economy, as one-third of government budget is spent on providing energy subsidies. Power sector is predominantly under government control and the region has the lowest level of foreign direct investment (FDI) in the world. Egypt’s population continues to grow at a rate of 2.2-3 per cent annually with the cities growing even faster due to rural to urban migration. Population and economic growth are putting greater pressure on the power sector, and the country had planned for a systematic reduction in subsidies, which could help in attracting investments. Private players in the power sector face difficulties in raising loans as banks are reluctant to extend finances in the present environment. The necessity to meet the needs and aspirations of a growing population, and the widening gap between power demand and supply, has made Egypt to look at alternative sources of power generation, particularly wind and solar, and is nurturing nuclear power generation.
In its 7th Five-Year Plan, 2012/13- 2016/17, Egypt outlined plans to install a total capacity of 12,400 MW; but for the country to successfully come out of Arab spring and take full advantage of its natural resources, institutional reforms, both economic and political, are required. Systematic reduction in subsidies, improving in technological expertise and skilled human resource management are necessary to attract both FDI and private players into the power sector.