Does Egypt Sell Gabal El-Zeit Wind Farm Below Cost?

Egypt plans to sell the Gabal El-Zeit wind farm for $339 million, despite its $514 million cost, as part of its privatization strategy amidst an ongoing economic crisis.
Imam Ramadan

In March 2023, Cairo decided to offer shares in more than 40 companies and banks across 18 sectors to investors, initiating the state’s withdrawal from projects and leaving space for the private sector. This move was in line with the International Monetary Fund’s (IMF) directives, as Egypt awaits its second and third reviews in the coming months. The divestment plan was initially set to conclude in March 2024 but has been extended until December.

Among these divestments are wind and renewable energy plants located in the Red Sea and Aswan regions, starting with the Gulf of Suez Plant, the Kom Ombo Power Plant, and the Gabal El-Zeit Wind Farm, the largest in Egypt and Africa.

Is Egypt Getting a Fair Price for These Assets?

Former Finance Minister Mohamed Maait stated that the state aims to collect revenues of about $6.5 billion by the end of this program. The plan targets state withdrawal from seven main sectors, including pharmaceuticals, construction, and chemicals, and reducing direct investments in seven other sectors, with electricity plants being a top priority. The plan also aims to create opportunities for private and foreign investment in four additional sectors.

Saudi Arabia and Electricity Plant Deals

Saudi Arabia, through ACWA Power, has secured three significant deals involving electricity and solar energy plants. The first deal, involving both foreign and one Egyptian partner, started in the fourth quarter of 2017 to develop, finance, build, own, and operate three photovoltaic solar power plants in the Benban project in Aswan, southern Egypt. Commercial operations began in 2019, generating power from the three sub-projects (Benban 1, Benban 2, Benban 3). These plants provide electricity to about 80,000 homes, reducing carbon emissions by 156,000 tons annually with a production capacity of 120 megawatts and a total project cost of $185 million.

In 2024, ACWA Power secured two more deals. The most notable is a 25-year usufruct agreement to develop, build, and operate the Suez Wind Energy Plant with a capacity of 1.1 gigawatts and an investment value of $1.5 billion. The Egyptian Electricity Transmission Company will benefit from this project, providing energy to over one million homes and reducing carbon emissions by 2.4 million tons annually.

The third deal, where ACWA Power holds a 100% stake, involves an agreement signed in 2018 with the Egyptian government to develop, finance, build, and operate the Kom Ombo photovoltaic solar power plant with a capacity of 200 megawatts. The plant will meet the energy needs of 130,000 homes, reducing carbon emissions by 280,000 tons annually at a cost of $165 million. The company recently received a commercial operation certificate for the project, with the agreement extending for 25 years. The financial impact of the plant’s operation is expected to start appearing from the third quarter of 2024.

Electricity Brokers’ Corruption

Mohamed Sayed Hassan, an associate professor specializing in aerospace and nanotechnology at a Japanese university, points out that the Saudi company ACWA Power owns two major projects, one in Saudi Arabia and the other in Egypt. The cost of producing one kilowatt-hour of electricity at the company’s plants in the kingdom is 1.6 US cents, equivalent to “6 hallalas,” with the company’s total capacity in the kingdom reaching 5,500 megawatts annually.

Hassan shifts his discussion with Zawia3 to the company’s projects in Egypt, asserting unprecedented corruption regarding the partnerships and projects Saudi Arabia has secured under the usufruct system. These include the 200-megawatt Kom Ombo plant in Aswan and the 1,465-megawatt Benban plant, which the company operates alongside other foreign partners. According to the agreement, the Saudi company will build and operate the Kom Ombo project, while other companies will participate in the second plant. In both projects, Egypt is committed to purchasing the energy from these plants for the 25-year contract duration. After this period, the plants will return to Egypt. Hassan emphasizes that the solar panels have a 25-year lifespan, meaning Cairo will receive the station and panels when they are no longer functional. This is not even the worst part.

At what price will Egypt buy electricity from the company? Hassan posed this question and answered it himself, stating that former officials within the Egyptian Ministry of Electricity revealed the state would buy electricity at a price ranging from 8.4 to 14.3 US cents per kilowatt-hour. He highlighted that the company’s production cost is 1.6 cents per kilowatt-hour, while the state will purchase it at 14 cents—eight times the production cost. This burden will inevitably fall on the consumer, with the state obligated to buy the entire output at this price for 25 years. Hassan called for an investigation into the “brokers and corrupt individuals” who facilitated this deal.

Consistent with this, information revealed by sources in the Ministry of Electricity in January of this year showed that the monthly payments for purchasing solar energy produced from the Benban plants in Aswan exceed one billion pounds. This was after the official exchange rate of the local currency dropped to 30.90 pounds per dollar. The sources explained that the electricity company has prior commitments, according to the agreement, to regularly pay for the purchased energy without delay and to pay the developers of the energy projects in Benban in local currency. The Central Bank then arranges the dollars to pay the companies.

The crisis arises from the agreement that the Egyptian Electricity Transmission Company will pay 70% of the kilowatt tariff at the exchange rate at the time of maturity, based on the Central Bank’s official rate, while the remaining 30% will be paid at the contract’s exchange rate, which was approximately 7.40 to 8 pounds per dollar at the time of the agreement. Thus, the state is obligated to pay 70% of the energy price at the current exchange rate, which exceeds 48 pounds, with the remaining amount at the old rate when the contract was signed.

Why Is Egypt Selling Below Cost?

News reports in local and international media have circulated about Egypt offering the Gabal El-Zeit wind farm for sale. This prompted the Cabinet’s Media Center to issue a clarification in early May, stating that Cairo has not put up the largest wind farm in Egypt and Africa for sale but has instead conducted a competitive bidding process for investment in the plant. Through this process, the investor obtains usufruct rights for the project land and the plant for 25 years, after which the plant and land return to the state.

The center confirmed that the investing company would inject the necessary investments to refurbish the turbines, extending the plant’s lifespan by ten more years, and generate energy for Egypt. Additionally, Egypt would receive an upfront payment and an annual share of the plant’s revenue as usufruct compensation. However, just days later, the CEO of the Sovereign Fund of Egypt, Ayman Soliman, stated in an interview with CNBC Arabia, during the Egypt-European Investment Conference, that the fund is close to finalizing the sale of the Gabal El-Zeit wind farm, despite the official denial stating the process was merely a 25-year usufruct for a company.

According to the official website of the Presidency, six years ago, the Gabal El-Zeit wind farm was established at kilometer 118 in the Gabal El-Zeit area south of Ras Ghareb. It covers an area of 100 square kilometers, costing 478 million euros, equivalent to approximately 514 million US dollars. It is among the largest wind farms in the world in terms of area and the number of turbines, reaching 290 turbines with a total generating capacity of 580 MW. Egypt’s total electricity consumption is 163,985 million kWh, according to the Ministry of Electricity’s statistics for 2022.

Depreciation of Investment Value

Zawia3 contacted a knowledgeable source in the Egyptian government who confirmed that the Gabal El-Zeit wind farm would indeed be sold in a deal worth 339 million dollars. The deal is to be finalized with a British company, Actis, through a direct investment agreement with the Sovereign Fund of Egypt after the company increased its offer from 300 million dollars to 339 million dollars.

According to the source, who preferred to remain anonymous, the deal’s price was adjusted only after the company conducted a due diligence audit that lasted two months, facilitated by the New and Renewable Energy Authority to verify the plant’s condition.

Regarding the state selling the plant for less than its cost of over 500 million dollars, the source explained that the government considers the passage of more than six years since the plant’s establishment a reasonable cause. He stated, “A third of the plant’s lifespan has elapsed, necessitating the depreciation of the corresponding investment cost,” which the government sees as a suitable compensation for the sale.

The source added that by selling the plant at this price, despite its higher cost, the state could secure another benefit: providing a significant portion of energy generation at the lowest purchase price, as agreed upon by the relevant authorities with any international investors acquiring the plants, whether through usufruct or sale, including the British company.

Debt and the IMF Deception

Discussing the origins of the crisis that has ensnared the state since 2016, economist Abdel Nabi Abdel Muttalib explained that Egypt did not need to borrow extensively. “In that same year, when Egypt began negotiations with the IMF, we issued several recommendations and initiatives to decision-makers, advising against opening the door wide to international borrowing, either from the IMF or other entities, to avoid exacerbating the situation, but no one listened.”

The economist told Zawia3 about a policy the IMF has followed since the mid-1990s, through which it has achieved complete control over global economic policies by imposing theories – previously taught in universities – suggesting that when a country’s economy can borrow from significant international entities, it indicates the strength of that economy. This requirement was in place when negotiations with the IMF first began, where Egypt was required to secure over 10 billion dollars through international partners, prompting Egypt to seek assistance from Arab countries, successfully obtaining it in the form of deposits.

He continued, “As decision-makers became more convinced that increased borrowing capacity signified global confidence in Egypt’s economy, they implemented the necessary conditions to obtain the first IMF loan. Since then, Egypt has continued to request loans, with the COVID-19 crisis in 2020 being a critical point. During that period, hot money fled to compensate for the losses of entities investing in Egyptian debt instruments, totaling 30 billion dollars, which Egypt could not offset even with help from Arab nations.”

Over time, IMF loans were directed towards covering basic needs and strategic goods, with the remainder directed to the state budget to address the balance of payments deficit. These funds did not benefit the state as they were non-productive. Even the portion directed towards infrastructure projects, which alone cannot generate sufficient revenue for the state or be a source of foreign currency, added to the deficit. Dr. Abdel Nabi emphasized that the state is currently held hostage by these debts and loans, facing the latest crisis of not being able to secure enough dollars to meet obligations or pay accumulated debts to oil and gas exploration companies.