Audit of Egypt"s Suez and Quattamia cement plant projects, USAID/Egypt project nos. 263-0012 and 0052

Audit report covers the period 1977-11/84 and is based on a review of project records and interviews with USAID/E, Government of Egypt (GOE), and Suez Cement Company (SCC) officials. Despite the expenditure of $370 million ($195 million from A.I.D.), the SCC has yet to become a viable private sector cement producing company, mainly because of a heavy long-term debt burden, which has absorbed the cash required for short-term operating needs, and technical problems which have kept the plant from becoming fully operational. Because cement production has not met project targets and domestic sales have not materialized, the project has not reduced GOE foreign exchange outlays as expected. The SCC"s success as a private sector venture also seems questionable, since 90% of SCC stock is still owned by 14 public sector companies. Further, GOE control of the price of energy and of the selling price of cement may have reduced SCC"s investment attractiveness. For its part, USAID/E neither sufficiently developed at the planning stage nor effectively monitored GOE compliance with conditions precedent relating to equitable cement pricing and divestiture of SCC stock. The draft audit recommended that: (1) prior to further A.I.D. funding USAID/E and the GOE assess the viabilty of SCC as a private venture, and if viability is determined, pursue negotiations on a formal stock divestiture plan, equitable energy pricing among the SCC and public cement companies, and competitive cement pricing; and (2) USAID/E, the GOE, and SCC negotiate a solution to SCC"s long-term debt, determine a competitive cement selling price, and establish a formal SCC plan to solve its technical operating problems. Despite steps taken during the audit to achieve these ends, the original recommendations stand. Project experience has demonstrated the need to ensure that critical conditions precedent and covenants, especially those related to funding, are fully and realistically developed, and that evidence of compliance with conditionalities is required.