USAID/Egypt : electricity sector assessment

Both attachments were prepared in-house by USAID/E. Since 1975, USAID/E has provided over $1 billion through eight projects to expand and upgrade electrical power systems in Egypt. The projects have helped to construct a number of new generation facilities (the one exception being the Ismailia plant, which has a history of operating problems) and have significantly upgraded the capacity of the Egyptian Electrical Authority (EEA). The AID-funded plants today provide about 24% of Egypt"s electrical generation capacity, with more power coming on-line by 1990; the plants are more efficient than older EEA plants and their revenues are adequate to cover operating expenses. However, owing to institutional constraints, A.I.D. projects to improve overall power system efficiency have not fully achieved their objectives; in the future, these should be tailored to the particular needs of the individual distribution companies. The projects teach that choice of a contracting method is a key initial decision. The turnkey approach has been very effective when a standardized package of services is utilized, but greater client control is needed when "customized" services are procured and when large multi-donor plants are constructed. When procuring sophisticated state-of-the-art technology, solicitation of proposals is preferable to developing equipment specifications and invitations for bids. The introduction of new technology requires intensive educational efforts, and sufficient spare parts should always be provided for the life of the equipment. Energy in Egypt has traditionally been heavily subsidized, and as of 11/86, electricity was receiving a subsidy of about 80%, amounting to LE 2.8 billion annually. Energy tariffs have actually declined in relative terms in recent years. As a result, USAID/E has made future energy assistance contingent upon major price increases. In fact, substantial increases (including a 29% hike in electricity tariffs) were announced in 5/87 as part of an agreement with the IMF. USAID/E then reversed a previous decision not to finance additional rehabilitation for the Aswan High Dam power plant. As further increases are expected, USAID/E is also prepared to finance planning and feasibility work, and will provide additional assistance if prices are significantly increased again during 1987. If prices do rise substantially, however, USAID/E expects the World Bank to become the major power sector donor.