OFFICIAL USE
Date of Submission to Coordination Unit:
A. GENERAL INFORMATION
1. Activity Name
Supporting Public-Private Partnership (PPP) Execution in Egypt2. Requestor Information
Name: Ramy Afifi / Title: Program Coordinator for International Financial Institutions and the MENA Transition FundOrganization and Address: Ministry of International Cooperation, 8 Adly St, Down Town, Cairo
Telephone: +20-2-23918971 / Email:
3. Recipient Entity
Name: Atter Hanora / Title: Director, PPP Central UnitOrganization and Address: PPP Central Unit, Ministry of Finance of Egypt, Tower #2 – Ext of Ramsis str. Nasr City, Cairo
Telephone: +20-2-23421283 / Email:
4. ISA SC Representative
Name: Hildegard Gacek / Title: Managing Director, Southern and Eastern MediterraneanOrganization and Address: European Bank for Reconstruction and Development, One Exchange Square, London EC2A 2JN, United Kingdom
Telephone: +44 20 7338 7703 / Email:
OFFICIAL USE
OFFICIAL USE
5. Type of Execution (check the applicable box)
√ / Type / Endorsements / Justification√ / Country-Execution / Attach written endorsement from designated ISA
Joint Country/ISA-Execution / Attach written endorsement from designated ISA / (Provide justification for ISA-Execution)
ISA-Execution for Country / Attach written endorsement from designated ISA / (Provide justification for ISA-Execution)
ISA-Execution for Parliaments / Attach written endorsements from designated Ministry and ISA
OFFICIAL USE
OFFICIAL USE
OFFICIAL USE
OFFICIAL USE
6. Geographic Focus
Individual country (name of country): EgyptRegional or multiple countries (list countries): N/A
7. Amount Requested (USD)
Amount Requested for direct Project Activities:(of which Amount Requested for direct ISA-Executed Project Activities): / USD 2,270,000
Amount Requested for ISA Indirect Costs:[1] / USD 136,200 (6% of direct Project costs), of which:
• 3% (equal to USD 68,100) for Monitoring and Evaluation.
• 3% (equal to USD 68,100) for Preparation, Administration and Management of the Project.
Total Amount Requested: / USD 2,406,200
8. Expected Project Start, Closing and Final Disbursement Dates
Start Date: / November 2016 / Closing Date: / November 2018 / End Disbursement Date: / December 20189. Pillar(s) to which Activity Responds
Pillar / Primary(One only) / Secondary
(All that apply) / Pillar / Primary
(One only) / Secondary
(All that apply)
Investing in Sustainable Growth. This could include such topics as innovation and technology policy, enhancing the business environment (including for small and medium-sized enterprises as well as for local and foreign investment promotion), competition policy, private sector development strategies, access to finance, addressing urban congestion and energy intensity. / √ / Enhancing Economic Governance. This could include areas such as transparency, anti-corruption and accountability policies, asset recovery, public financial management and oversight, public sector audit and evaluation, integrity, procurement reform, regulatory quality and administrative simplification, investor and consumer protection, access to economic data and information, management of environmental and social impacts, capacity building for local government and decentralization, support for the Open Government Partnership, creation of new and innovative government agencies related to new transitional reforms, reform of public service delivery in the social and infrastructure sectors, and sound banking systems. / √
Inclusive Development and Job Creation. This could include support of policies for integrating lagging regions, skills and labor market policies, increasing youth employability, enhancing female labor force participation, integrating people with disabilities, vocational training, pension reform, improving job conditions and regulations, financial inclusion, promoting equitable fiscal policies and social safety net reform. / Competitiveness and Integration. This could include such topics as logistics, behind-the-border regulatory convergence, trade strategy and negotiations, planning and facilitation of cross-border infrastructure, and promoting and facilitating infrastructure projects, particularly in the areas of urban infrastructure, transport, trade facilitation and private sector development. / √
B. STRATEGIC CONTEXT
10. Country and Sector Issues
Municipal services in Egypt all face urgent demands for investment to provide better access and improved quality. Key challenges exist in upgrading and decentralizing the municipal infrastructure sector. Such challenges can be identified across all basic municipal infrastructure sectors, notably including the transportation and water sector. As a result, Egypt’s largest cities suffer from severe congestion and air pollution problems and large investment gaps exist in mass transit systems, bus operations and river transportation services. Low sanitation coverage, particular in rural areas, in combination with deficiencies in wastewater treatment, results in severe water quality problems. Insufficient managerial and financial autonomy, very low tariffs, lack of incentives to improve performance, and continued overstaffing also lead to a poor financial situation of most utility companies. In addition to that, the regulatory and legal organization of the sector shows weaknesses hampering new investments and the efficient provision of services.To tackle such problems, authorities have shown an increasing interest in pursuing partnerships with the private sector to fund infrastructure projects. A Public Private Partnership (“PPP”) programme was commenced in 2006 and a new PPP Law enacted in 2010, establishing a sound regime for private participation in large infrastructure projects. The creation of a PPP Central Unit (PPPCU) in the Ministry of Finance in 2006 and the adoption of the PPP programme aimed to allow for and promote the retraction of the government’s role in the economy and pave the way towards a market economy in which the private sector is an active participant. It addresses the inefficiencies of the public sector in managing state assets, and assists the burdened government in solving the problems of a declining national budget and limited resources by bringing in capital, knowledge, and the technology and management expertise of the private sector. Ultimately creating a more attractive investment arena for the private sector and compensating for historical weaknesses in the investment process that may have deterred the private sector. Nevertheless, the effects of such changes remain to be tested in practice. Further challenges remain in the planning and implementation of PPP structures, especially in the municipal infrastructure sector. Best practice precedencies through the implementation of pilot projects have not yet been established, key impediments such as the public perception of PPPs as privatization and the resistance to change pose further challenges to the agenda. Hence, the PPPCU - responsible for establishing the national PPP policy framework for implementation, manage PPP transactions and provide technical and advisory support as well as ensure compliance with legislative framework - encounters significant obstacles and a high workload burden.
11. Alignment with Transition Fund Objective
The Transition Fund Objective is: “to improve the lives of citizens in transition countries, and to support the transformation currently underway in several countries in the region (the “Transition Countries”) by providing grants for technical cooperation to strengthen governance and public institutions, and foster sustainable and inclusive economic growth by advancing country-led policy and institutional reforms.”.The proposed Technical Cooperation is in line with the overall objective of the Transition Fund, in particular it aims at:
· Improving the quality, reliability and access to municipal services
Municipal services in Egypt all face urgent demands for investment to provide better access and improved quality. Urban traffic management and inadequate solid waste management are the top priorities among urban environmental issues. Non-sovereign financing is not widespread, but developing decentralized financing solutions can encourage improved cost recovery and commercial discipline. However, further tariff reforms will be needed to improve the sustainability of municipal services going forward. Egypt’s largest cities suffer from sever congestion and air pollution problems and large investment gaps exist in mass transit systems and bus operations.
In the growing urban-industrial centers, local municipal infrastructure struggles to keep the balance between environmental protection, safe waste disposal and provision of clean water and financing in the sector should aim to provide the population with wider access to better quality urban services. The development of transport and municipal infrastructure can deliver significant improvements in quality of life and support economic development. In developing municipal services efforts will be made to understand the differentiated priorities and needs of men and women so as to effectively address them and ensure that both can equally share in the benefits of the proposed investments and so have an opportunity to improve their respective employment opportunities and socio-economic status.
The delivery of essential services should be a driving force in improving the environment, with a focus on people’s welfare and quality of life; decentralized, transparent and accountable institutions; engagement with stakeholders; and economic and environmental efficiency. The Government of Egypt has decided that, in part, the private sector should be engaged in achieving these objectives. The focus is on improved municipal services, notably in water and wastewater, public transport, urban roads and lighting, solid waste management, district heating and energy efficiency. The aim of an enhanced PPPCU is to deliver quality, sustainable, market-based and demand-driven infrastructure that is responsive to people as citizens. This will help address the challenge of providing essential services in areas with very different demographics.
· Establishment of PPPCU Support and the setting of PPP methodologies and guidelines in line with the local legislation
The large presence of the public sector in the economy poses a challenge both to private sector development and to the reduction of market distortions. Although the mechanisms for involving the private sector overall remain incomplete, it is generally acknowledged that the inclusion of the private sector will require a number of prior steps. In addition, any such private sector participation (PSP) would need to be country-led and subject to clear and transparent procedures, in line with international best practice, supported by appropriate institutional structures. This requires creating confidence in the PSP process, by both potential investors as well as the Egyptian public. One important step towards developing a more sustainable future is to ensure that all knowledge and tools are available to contribute towards development and delivery of solutions. One main initiative sought by the Government is support for the PPPCU with the Ministry of Finance.
The objective is to provide day to day support to the PPPCU to: (i) ensure improved overall quality and reliability of contracts entered into and therefore the improved municipal services; (ii) promote sub-sovereign financial solutions and proactively engage with both public utilities and private sector participants to identify opportunities for future PPP investments as well as to assist the PPPCU in designing, structuring and implementing such projects; and (iii) improve the overall standards of services in Egypt.
· Promote sub-sovereign financial solutions and proactively engage with both the PPPCU and private sector participants to identify opportunities for future PPP investments as well as to assist the PPPCU in designing, structuring and implementing sound projects
The role of international and national private companies, small contractor companies and the informal sector is undoubtedly recognized by relevant Ministries and is needed to achieve the desired efficiency and proper service quality in municipal services management, despite the past unfavorable experience of Private Sector Participation (PSP) for the past 15 years.
PSP is now viewed as necessary for engaging and contracting private entities to handle the growing challenge in providing quality basic services and also acknowledging the lack of capabilities within the public system to manage the services to the level of high public satisfaction. The priority challenge to public entities is not only technical or administrative but is a chronic financial deficiency. Poor national budget allocations coupled with a lack of enthusiasm of the general public to share in the cost of municipal services, have put a significant burden on both official entities to seriously seek the cooperation of expert private companies, in meeting their contractual obligations. For example, in the country report on the solid waste management (SWM) in Egypt, issued by SWEEP-Net in 2010, it was estimated that there is a 35 per cent funding gap between the cost of operating the current municipal solid waste management system and the revenues that are raised through user fees imposed on households and businesses. Indeed PPPs do not necessarily reduce the cost of services but improve the quality and efficiency; EBRD has experienced in many countries the willingness of service users to pay more for better services.
The PPP market in Egypt, although developing, lacks a strong body of knowledgeable and capable firms to partake in tenders. It is important that this base is developed if public sector led PPPs are to continue to be a success in Egypt.
The requested Technical Cooperation is complementary to broader EBRD engagement and financing package in Egypt, which includes a number of projects in the municipal sector that are structured as PPPs, for example projects that have EBRD involvement are listed below, however, this intervention would support other similar projects:
· EBRD’s priorities in the municipal sector are to (i) ensure right incentives to use water more efficiently through: the introduction of cost recovery principles and developing appropriate tariff methodologies to cover costs; metering to enable water companies to monitor consumption; improving collections; introducing improved contractual arrangements; active policy dialogue to promote legal and regulatory frameworks to promote local autonomy and long term sustainability; and to (ii) improve efficiency and service levels through financial and operating performance improvement programs; promote energy efficiency; and introduce monitoring and benchmarking programs. EBRD is committed in sharing lessons learned and best practice with Egypt, replicating its successful engagement in the municipal water sector in its traditional region of operation (Central and Eastern Europe, and Turkey) in the last 20 years.
EBRD is already supporting Egypt to prepare two projects in the public sector for private sector finance. Throughout the preparation of the two below outlined projects, it was recognized that the PPPCU would benefit support to enhance its capability and capacity. These projects are otherwise not directly related to this intervention.
· The Nile River Ferries project will improve the provision of ferry services and to expand the scope of river transport on the Nile through a PPP process being led by the PPPCU in cooperation with the Ministry of Transport. The project is an important step in addressing Cairo’s challenging transport situation, which accounts for 20 million motorized person-trips per day and approximately 13 million tonnes of CO2 a year. The project will help to alleviate Cairo’s traffic congestion levels, which cause high economic losses, have been estimated at 4 per cent of Egypt’s GDP or equivalent to around USD 8 billion on an annual basis. The EBRD intends to provide financial support to the winning concessionaire, who will renovate, operate and maintain the Nile River Bus transportation fleet and buy up to 41 vessels. Additionally, the 15 existing piers will be modernized, made more commercial and managed, and potentially increased to 27 piers, all under a 30-year concession contract.
· The Project will expand and upgrade the Abu Rawash Wastewater Treatment Plant from a primary to secondary treatment process. The PPP process is being led by the PPPCU in cooperation with the Ministry of Housing. The objectives of the Ministry of Housing are to enter into a PPP with a view to: (i) provide an environmentally safe WWTP; (ii) achieve participation of the private sector in the development of infrastructure to better allocate and manage the resources, reducing the fiscal burden of building new infrastructure; (iii) increase the WWTP’s capacity; (iv) make optimal capital investments; and (vi) ensure long-term financial, technical and environmental sustainability of the system, taking into account end-user affordability constraints.
12. Alignment with Country’s National Strategy