Executive Regulations for the Indus

About three months following the issuance of the new Law for the Facilitation of Industrial Licenses, the Ministry of Trade and Industry issued, on 16 August 2017, the Law’s Executive Regulations.

Background

On 3 May 2017, the Law for the Facilitation of Industrial Licenses No. 15 of 2017 was published in the Official Gazette (the “Law”).[1] The new Law aimed at providing a simpler and clearer process for the issuing of industrial licenses. It mainly:

• Identified the Industrial Development Agency (“IDA”) as the one-stop-shop for obtaining all industrial licenses;

• Set clear and transparent timelines for the issuance process;

• Established a licensing committee tasked with streamlining and overhauling all licensing requirements (the “Licensing Requirements Committee”), including approvals for civil defence, environment, industrial and professional health and safety;

• Created a simple licensing-by-notice process for low risk industrial activities;

• Unified licensing fees according to whether an industrial activity lies within the high risk or low risk categories;

• Set a system for private sector offices to issue certification attesting that an establishment fulfilled all relevant licensing requirements, with the certificate automatically acceptable at IDA;

• Gave special attention to small and medium enterprises, with longer grace periods for compliance with licensing requirements, and discounted license fees;

• Created inspection committees to trump all public employees with previous authorization to conduct inspections in matters which lie within the scope of the Law;

• Imposed penalties on government employees who do not comply with the provisions of the Law.

The Law is covered in more detail in our May 2017 Week 3 Issue of the ELU.

The Executive Regulations

The Executive Regulations of the Industrial Licenses Law were issued by virtue of Ministry of Trade and Industry Decision No. 1082 of 2017 (the “ER”).[2] They mainly cover issues which the Law had deferred to the ER, as well as provide more details as to applicable procedures and timelines for licensing and compliance with new requirements. They also provide definition and guidance as to the two categories of licensing created under the Law, being high and low risk industrial activities.

• Licensing Requirements Committee

Further to the provisions of the Law, the ER sets out the following additional duties of the Licensing Requirements Committee:

• Reviewing licensing requirements received from relevant governmental authorities;

• Implementing a mechanism for regular updating of licensing requirements according to best international practice; and,

• Laying out the conditions that existing establishments need to comply with.

The Law had provided that the Committee completes its task of streamlining all licensing conditions for different types of approvals within three months from the date of the Law’s coming into effect.

• Licensing by Notice

The Law provides for a simplified licensing process that projects posing low industrial risk can benefit from at a discounted licensing fee. To be licensed under that system, a project provides (paper or electronic) notice to IDA that it has commenced operations. The notice contains an attestation that the project meets all licensing requirements for its activity. In addition, the ER lists the following documentation which must be submitted along with the notice:

• Up to date commercial register extract;

• Proof of payment of license fee, and obtainment of a certified copy of the Guide for Industrial Activity Practice (issued by IDA); and,

• Proof of possession of real estate for the project’s activities.

Once the above is fulfilled, IDA is obliged to accept the submitted notice on the same day, and provide an acknowledgement of receipt in the form of a photocopy of the submitted notice with the authority’s seal. That document in and of itself is considered a license of an indefinite term. Following that, IDA inspects the facility within 90 days from the date of receiving the notice. A project that submits a certificate by one of the authorized private certification offices is exempt from subsequent inspection within the 90-day period. Rather than set out a list of industrial activities that are eligible to benefit from this track, the ER states that activities which do not fall within the scope of high risk activities – as determined by a schedule annexed to the ER – shall be eligible for licensing by notice. The ER further provides that activities undertaken within an industrial zone that is determined by way of a Prime Ministerial decree may benefit from the “licensing by notice” system if in the planning and construction of the industrial zone, the requirements for health and safety as determined by the Licensing Requirements Committee were met.

• Prior Licensing

The ER contains an annexed schedule detailing high risk industrial activities which require prior licensing, as well as a full environmental assessment study (and thus may not benefit from the licensing-by-notice process). Some of the activities contained in the schedule are: meat manufacturing; sugar factories; tobacco; alcohol; spirits; textile; leather; paper; basic chemical material; fertilizers; rubber; pesticides; paint; pharmaceuticals; glass manufacturing; bricks, porcelain, and ceramic; cement; metal; steel; weapons and ammunition; engine and turbine assembly and manufacturing; storage of natural gas, fossil fuels, petrol, or petrochemicals. The schedule contains details of the specific activities within these fields which require prior licensing, as well as exceptions. For prior licensing activities, an application (paper or electronic) must be submitted to IDA, along with an attestation that the project meets all relevant licensing requirements. The same additional documentation required for licensing by notice must also be submitted with the application. IDA then has 14 days to determine whether any further documents are missing, during which it could conduct an inspection of the facility in order to make such determination. Projects which submit certification of meeting all licensing requirements from an authorized certification office are exempt from such inspection. If the application along with required documentation is complete, IDA must issue a decision on licensing within 30 days from the date of submission. Otherwise, IDA is required to notify the applicant of any missing documents within 21 days from the date of submission. Upon submission of the missing documents, IDA has 14 days to reach a decision on licensing. A decision by IDA refusing to grant a license must contain justification for such refusal that is to be delivered within 14 days from the date of the decision. Either the refusal to grant a license, or failure by IDA to respect stated timelines, entitles the applicant to submit a complaint to a committee formed under the Law. In the event that a project fulfils all licensing requirements and a license is granted, the term of that license is indefinite. Alternatively, a temporary license could be issued if immaterial licensing requirements are unmet. The term of the temporary license is one year that may be renewed up to three years, until the requirements are met.

• Licensing Fees

The ER lays out licensing fees according to activity and surface area of the project land. For land with surface area that is greater than 500 m2, and activities eligible for licensing by notice, the fee is EGP 5,000. For land with surface area that is greater than 500 m2, and activities falling within the high risk prior licensing category, the fee is EGP 20,000. For land below or reaching the 500sqm threshold, the fee is EGP 2,500 and EGP 10,000 for licensing by notice, and prior licensing, respectively. Licensing through certification offices is at a unified fee of EGP 20,000.

• Transitional Provisions for Existing Establishments

The ER states that existing establishments with permanent or temporary licenses that do not fulfil licensing requirements at the time of the Law coming into effect (i.e. 4 May 2017), must within two years from the date of the issuance of the ER (16 August 2017), or within two months from the expiry of the license, submit a request for rectification and obtain a certified copy of the Guide to Industrial Activity Practice. In any event, existing projects with activities that fall within the “licensing by notice system” have two years to comply with the provisions of the Law and the ER, while existing projects with activities that fall within the scope of “prior licensing” must comply within three years at most from the date of submitting the request to rectify. IDA is obliged to grant indefinite licenses to existing projects that have permanent or temporary licenses within one week from the date of submission of the request to rectify. IDA is to then inspect the facilities of projects that have been granted said licenses within 90 days from the end of the grace period for compliance. That is unless the project submits a certification from an authorized certification office.

• Change of Activity or Location

The establishment will need to apply for a new license in the event of a change of location. An establishment may not undertake any material change of purpose or expansion in a manner that alters its satisfaction of the licensing requirements if it wishes to retain its current license without further procedures. In addition, if an activity that was eligible for licensing by notice is entered into the prior licensing schedule, or if the establishment changes its activity so that it falls within that scope of activities, it must submit a request for rectification in accordance with the provisions for rectification provided above.

• Inspection

IDA could directly, or through registered certification offices, conduct inspections of the facilities of projects which lie within the scope of the Law. The ER provides the details of procedures required prior to inspection. An establishment must be notified at least two days before an inspection. For periodic inspections, the establishment must be notified at least 30 days beforehand. However, no notification is required for raids. IDA must issue a report following inspection within 7 days from conducting it. The report is sent to the establishment within that time-period, and is kept on file at IDA. IDA may reject licensing or suspend operations in the event that it finds the establishment to be in material violation of licensing requirements in a manner which constitutes a grave danger to security, health, safety, or the environment. The ER also sets out procedures for immaterial violations, and a repeat of inspection.

• License Suspension

In the event that the grace periods provided for rectification lapse without the establishment’s compliance with the provisions of the Law and the ER, IDA may issue a warning to the establishment to refrain from presenting the issued license or face criminal and civil liability, as well as notify all relevant government authorities to suspend utilities being provided to the establishment. The ER provides further details for manners of overcoming a suspension of license, or closure.

• Small and Medium Enterprises

Also in relation to the Law, the Ministry of Trade and Industry issued decision No. 1081 of 2017[3] on 16 August 2017. It contains definitions of micro, small, and medium enterprises for the purposes of the Law, as follows:

• Micro enterprises are any company or establishment undertaking an industrial activity, with an annual business volume not exceeding EGP 1 million. For new establishments with no business volume records, the value of paid capital must not exceed EGP 50,000.

• Small enterprises are those undertaking an industrial activity with annual business volume not less than EGP 1 million, and not exceeding EGP 50 million (or paid capital between EGP 50,000 and 5 million for newly established enterprises).

• Medium enterprises are those undertaking an industrial activity with annual business volume not less than EGP 50 million and not exceeding EGP 200 million (or paid capital between EGP 5 million and 15 million for newly established enterprises).

It is unclear why these definitions were not included in Article (3) of the Executive Regulations which contains a number of other definitions relevant to the application of the provisions of the Law, except that Article (24) of the Law had provided that the definition of small and medium enterprises shall be issued in a decision by the Minister.

Conclusion

The issuing of the new Industrial Licenses Law a few months ago, and its Executive Regulations is undoubtedly the most significant and possibly positive development in the government’s attempts to improve the investment environment in Egypt and provide the necessary boost to business, domestic and foreign alike. It represents a real departure from the past by finally making a distinction between the vast majority of smaller enterprises that pose no risk to the environment and public health, and those that may pose such risks; thus, establishing a faster and simpler licensing track for the former. This, if properly applied, could present a real breakthrough in reducing the heavy bureaucracy that brings Egypt down in business climate lead tables. The devil, however, is in the application. Good laws have, in the past, not led to their desired effects due to a failure to fully implement them as intended, and the resistance from bureaucratic vested interests. This is not to say that the new Law is doomed to meet the same fate. It is, actually, well drafted and well balanced, and its ER provide for specific remedies against bureaucratic encroachment. But it is critical that the Ministry of Trade and Industry invests the necessary resources and employs sufficient communication efforts to ensure that the employees assigned the application of the new rules are well trained, compensated, monitored, disciplined and rewarded. There must also be a public understanding and appreciation within the investment community, media, and House of Representatives as to the benefits posed by the new system and the risks associated therewith. One particular area of potential concern is the idea of granting private sector accreditation offices the power to issue certificates acceptable by the authorities, a noble idea but one which needs monitoring in order to avoid corruption. It is also critical to deal with vested interests by inspection departments in other ministries and authorities which will now be made redundant by virtue of the IDA inspection system introduced by the new Law. This is an important and positive legislative step but one which must be followed by tremendous efforts on the ground.   [1] Law No. 15/2017 on the Facilitation of Procedures for the Granting of Licenses to Industrial Establishments, Official Gazette, Issue No. 17 (bis) (d), 3 May 2017. [2] Ministry of Trade and Industry Decision No. 1082/2017 enacting the Executive Regulations of Law No. 15/2017 on the Facilitation of Procedures for the Granting of Licenses to Industrial Establishments, Egyptian Gazette, Issue No. 186 (cont.) (a), 16 August 2017. [3] Ministry of Trade and Industry Decision No. 1081/2017 on the Definition of Small, Medium, and Micro Enterprises in Law No. 15/2017 on the Facilitation of Procedures for the Granting of Licenses to Industrial Establishments, Egyptian Gazette, Issue No. 186 (cont.), 16 August 2017.