New Executive Regulations for Sinai

Investment in Sinai was – and still is – a delicate subject for various governments in light of the need to balance its investment potential with its political and strategic importance. This has led to an unclear legal and regulatory framework for investment in Sinai over the last few years and accordingly an inadequate investment environment. During the last year and a half, however, the following legislative changes have been issued:

• Decree-Law No. 14 of 2012 (the “Law”),[1] issued by the Supreme Council for the Armed Forces (“SCAF”), which put forward a new legal framework for investment in Sinai, including clarifying the rules and restrictions on the ownership of land therein by Egyptians and foreigners, organizing the right of usufruct, and the establishment of a new authority for the development of Sinai (“the Authority”). The Law also stated that the Authority would have its own independent legal personality and report to the Cabinet of Ministers, and have a Board of Directors composed of a Chairman and representatives of the Ministries of Defence, Agriculture, Water Development, Housing, Industry, Tourism, Petroleum, Transport, Finance, Planning, Electricity, Interior, and Communications, as well as the North and Sinai Governorates, the Investment Authority, Intelligence, and the local councils of North and South Sinai, in addition to three investors. The Board is to be composed for three years and is to have powers over planning, proposing legislation, and following up on investments in Sinai, in addition to issuing and withdrawing licenses, and in general undertaking the role of a regulator.

• Prime Minister’s Decree No. 600 of 2012[2] forming the Authority’s Board of Directors, to be headed by General Mohamed Shawky Rashwan, and naming other Board members.

• Prime Minister Decision No. 915 of 2012[3] which did not add new substantive provisions, but rather organized the functioning of the Authority. It did, however, state that the Authority would have to obtain the approval of the Ministries of Defence and Interior as well as the Intelligence on its decisions.

The New Decree

In order to complete this overall regulatory framework, the Prime Minister recently issued a new Decree No. 959 of 2012[4] with the Executive Regulations of Law No. 14 of 2012 (the “Decree”). The new Decree introduces the following new provisions:

• Determining the geographical scope of the Law, to include not only North and South Sinai Governorates, but also the lands that are part of the administrative domain of Suez, Ismailia and Port Said;

• The specific lands subject to the Law are to be determined by decision of the Minister of Defence;

• The Cabinet of Ministers shall determine which lands are allocated to which ministries and public entities;

• The restriction on non-Egyptians to own land and build up properties, and on companies that are not wholly owned by Egyptians;

• The continuation of ownership by non-Egyptians that is prior to the passing of the Law, and its registration in a special registry;

• Non-Egyptians are to benefit from lands and properties only on the basis of a right of usufruct, which in the case of built property may not exceed fifty years and with the permission of the Ministries of Defence and Interior as well as the Intelligence;

• As an exception to the above, foreigners may own built properties without the land on which it is built but only with the permission of the Ministries of Defence and Interior and the Intelligence;

• It I possible to register the usufruct right but it is not possible to register any mortgage or lien thereon;

• Those with established effective ownership on lands prior to the coming into force of the Law (Egyptians only) may apply for formal registered ownership provided they have actually built thereon or have reclaimed or planted such lands, and after the permission of the Ministries of Defence and Interior and the Intelligence;

• Any investment projects in Sinai have to be in the name of an Egyptian join stock company, where Egyptian ownership is no less than 55%, and such companies may not be listed or traded on the Stock Exchange except after the permission of the Ministries of Defence and Interior, the Intelligence, the General Authority for Investment and Free Zones and the Egyptian Financial Supervisory Authority. Moreover, no transaction may be executed on the stocks of such companies above 10% of its capital except with the prior approval of the Authority.

• Investment in Sinai is in the following fields: tourism, agriculture, industry, mining, commerce, housing, and development (i.e. electricity, power, sanitation, roads and bridges, transport, communications, water networks, and commercial malls).

Conclusion

The new Executive Regulations complete the new regulatory framework for investment in Sinai, building on the Law. In that sense, it is a necessary component that should help clarify and complete. However, in terms of content, the Decree restates that the new Authority is a regulatory agency and not a promotion arm and it increases significantly the administrative burden. More importantly, the Decree clarifies the rules and conditions for real estate ownership in Sinai. The question, however, remains; will all of this encourage investment in Sinai?   [1] SCAF’s Decree-Law No. 14/2012 on the Development of Sinai, Official Gazette, Issue No. 3 (cont.), 19 January 2012. [2] Prime Minister’s Decree No. 600/2012 forming the Board of Directors of the National Authority for the Development of Sinai, Official Gazette, Issue No. 22 (bis) (b), 4 June 2012. [3] Prime Minister Decision No. 915/2012 enacting the Statutes of the National Authority for the Development of Sinai, Official Gazette, Issue No. 34 (cont.), 23 August 2012. [4] Prime Minister’s Decree No. 959/2012 enacting the Executive Regulations of Law No. 14/2012 on the Development of Sinai, Egyptian Gazette, Issue No. 210 (cont.), 13 September 2012.