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Presidential Decree Approves a $25-

Presidential Decree Approves a $25-Billion Russian Loan to Construct a Nuclear Power Plant
On 19 May 2016, the Egyptian Gazette published Presidential Decree No. 484 for the Year 2015 to approve the agreement signed on 19 November 2015 between Egypt and Russia for the provision of a $25 billion sovereign loan to finance the construction of a nuclear power plant in Egypt (the "Decree").[1] According to the said agreement, the loan amount will be disbursed over the course of 13 years (2016-2028). Loan repayment starts in October 2029 for the duration of 22 years and with an annual interest rate of 3%. The Egyptian government is entitled – in case of delayed repayments for more than 10 working days – to pay a compounded interest of 150% of the principal interest rate. The loan will be utilized to finance 85% of the total cost of the nuclear power plan ($29.4 billion), while the Egyptian side is to provide local financing for the remaining 15% ($4.4 billion). The power plant will consist of four nuclear reactors, each with the productivity of 1200 megawatt; hence, total productivity of the plant will be 4800 megawatt. It is planned that the first unit of the plant enters into force in the year 2024. The Decree states that the agreement is "reserved upon ratification" by the Egyptian Parliament. This complies with Article No. 127 of the Egyptian Constitution which states that "the executive power may not obtain a loan or funding or engage in a project that is not listed in the approved State budget which entails expenditure from the State treasury within a subsequent period, except with the approval of the House of Representatives".
Background
The construction of a nuclear power plant in Dabaa is one of the twelve mega projects enlisted in the Government working program approved by the Egyptian Parliament on 20 April 2016.[2] The program states that those mega projects are to be financed either through public-private partnerships (PPP), or under the umbrella of BOT and its derivatives (design, procurement, establishment, and financing), or through concessional foreign financing. This means that government financing for such projects is planned to be limited – through public investment expenditures – and therefore not entail extra financial burdens on the State Budget. The project also confines with the objectives of the electricity and renewable energy strategy – stated in the government working program mentioned above (sectoral development pillar). The strategy aims at diversifying energy sources by 2030 from the current mix (which is 70% from natural gas and mazut, 21% from gas and diesel, 8% from water resources, 1% from wind energy, and 0.05% from solar energy) to a more diversified and new and renewable energy based mix (which is 49% from natural gas and mazut, 16% from solar energy, 15% from coal, 10% from wind energy, 4% from nuclear energy, and 3% from both water sources and diesel).
Conclusion
Construction of a nuclear power plant in Egypt adheres to the strategic goal of the government to diversify sources of energy and rely more on new and renewable energy. The power plant will contribute to decreasing the chronic deficit in energy production Egypt has been suffering from, through production of 4800 megawatt of electricity, thereby providing energy needed to accelerate development. The project will also enhance the transfer of Russian know-how and technology into Egypt, and therefore qualifying Egyptian scientists and engineers who specialize in the field of nuclear station technologies. Moreover, the project will create new jobs for youth – both skilled and unskilled labor – in the field of construction as well as in other complementary industries with direct and indirect linkages to energy production. Job creation is expected to take place throughout construction years of the power plant (2016-2028) and also during the plant operation. However, the project will entail some burdens. The $25 billion loan is considered the largest in Egypt's history, and will definitely load Egypt's external debt for more than three upcoming decades. Looking at the current size of external debt – $47.8 billion in December 2015 up from $21.4 billion in December 2014[3] – it is noted that the size of the loan is equivalent to more than half the current size of Egypt's external debt. It also constitutes around 7.6% of Egypt's GDP, which is $330.8 billion in 2015.[4] Moreover, the total cost to be incurred by the Egyptian side to establish the nuclear power plant is high; represented in loan repayment dues (estimated to be around $32 billion for repayment of loan principal plus interest), plus $4.4 billion for the local component, as well as running costs for the plant operation. This is in addition to bearing the risks of EGP/dollar exchange rate fluctuations (since the loan is in US dollars), besides the risks of the compounded interest to be paid in case of repayment delays (150% of the principal interest rate). In light of the above, it is essential that while the Parliament discusses the loan agreement and prior to ratification, it thoroughly reviews the finances of the project. In particular, the Parliament needs to appraise the project's expected return on investment, the means by which the plant's construction total cost ($30 billion) has been estimated, alternative sources of financing and reasons behind choosing the loan in comparison to those alternatives, and means by which the Egyptian government intends to provide local financing for the plant's construction and operation. It is worth noting that, conventionally, in cases of foreign borrowing for energy projects, repayment of loans is done through expected returns after operating the power plant. That is why the loan agreement states that loan repayment starts five years post operation starts, indicating that repayment is reliant on the expected return on investment.   [1] Presidential Decree No. 484/2015, Egyptian Gazette, issue No. 20 published on 19 May 2016, available through this link. [2] Commentary on the Government Program was provided in the ELU edition of April 2016, week 1. [3] Central Bank of Egypt, Statistical Bulletin, April 2016, available through this link. [4] Ministry of Finance, Monthly Financial Bulletin, March 2016, available through this link.
On 19 May 2016, the Egyptian Gazette published Presidential Decree No. 484 for the Year 2015 to approve the agreement signed on 19 November 2015 between Egypt and Russia for the provision of a $25 billion sovereign loan to finance the construction of a nuclear power plant in Egypt (the "Decree").[1] According to the said agreement, the loan amount will be disbursed over the course of 13 years (2016-2028). Loan repayment starts in October 2029 for the duration of 22 years and with an annual interest rate of 3%. The Egyptian government is entitled – in case of delayed repayments for more than 10 working days – to pay a compounded interest of 150% of the principal interest rate. The loan will be utilized to finance 85% of the total cost of the nuclear power plan ($29.4 billion), while the Egyptian side is to provide local financing for the remaining 15% ($4.4 billion). The power plant will consist of four nuclear reactors, each with the productivity of 1200 megawatt; hence, total productivity of the plant will be 4800 megawatt. It is planned that the first unit of the plant enters into force in the year 2024. The Decree states that the agreement is "reserved upon ratification" by the Egyptian Parliament. This complies with Article No. 127 of the Egyptian Constitution which states that "the executive power may not obtain a loan or funding or engage in a project that is not listed in the approved State budget which entails expenditure from the State treasury within a subsequent period, except with the approval of the House of Representatives".
Background
The construction of a nuclear power plant in Dabaa is one of the twelve mega projects enlisted in the Government working program approved by the Egyptian Parliament on 20 April 2016.[2] The program states that those mega projects are to be financed either through public-private partnerships (PPP), or under the umbrella of BOT and its derivatives (design, procurement, establishment, and financing), or through concessional foreign financing. This means that government financing for such projects is planned to be limited – through public investment expenditures – and therefore not entail extra financial burdens on the State Budget. The project also confines with the objectives of the electricity and renewable energy strategy – stated in the government working program mentioned above (sectoral development pillar). The strategy aims at diversifying energy sources by 2030 from the current mix (which is 70% from natural gas and mazut, 21% from gas and diesel, 8% from water resources, 1% from wind energy, and 0.05% from solar energy) to a more diversified and new and renewable energy based mix (which is 49% from natural gas and mazut, 16% from solar energy, 15% from coal, 10% from wind energy, 4% from nuclear energy, and 3% from both water sources and diesel).
Conclusion
Construction of a nuclear power plant in Egypt adheres to the strategic goal of the government to diversify sources of energy and rely more on new and renewable energy. The power plant will contribute to decreasing the chronic deficit in energy production Egypt has been suffering from, through production of 4800 megawatt of electricity, thereby providing energy needed to accelerate development. The project will also enhance the transfer of Russian know-how and technology into Egypt, and therefore qualifying Egyptian scientists and engineers who specialize in the field of nuclear station technologies. Moreover, the project will create new jobs for youth – both skilled and unskilled labor – in the field of construction as well as in other complementary industries with direct and indirect linkages to energy production. Job creation is expected to take place throughout construction years of the power plant (2016-2028) and also during the plant operation. However, the project will entail some burdens. The $25 billion loan is considered the largest in Egypt's history, and will definitely load Egypt's external debt for more than three upcoming decades. Looking at the current size of external debt – $47.8 billion in December 2015 up from $21.4 billion in December 2014[3] – it is noted that the size of the loan is equivalent to more than half the current size of Egypt's external debt. It also constitutes around 7.6% of Egypt's GDP, which is $330.8 billion in 2015.[4] Moreover, the total cost to be incurred by the Egyptian side to establish the nuclear power plant is high; represented in loan repayment dues (estimated to be around $32 billion for repayment of loan principal plus interest), plus $4.4 billion for the local component, as well as running costs for the plant operation. This is in addition to bearing the risks of EGP/dollar exchange rate fluctuations (since the loan is in US dollars), besides the risks of the compounded interest to be paid in case of repayment delays (150% of the principal interest rate). In light of the above, it is essential that while the Parliament discusses the loan agreement and prior to ratification, it thoroughly reviews the finances of the project. In particular, the Parliament needs to appraise the project's expected return on investment, the means by which the plant's construction total cost ($30 billion) has been estimated, alternative sources of financing and reasons behind choosing the loan in comparison to those alternatives, and means by which the Egyptian government intends to provide local financing for the plant's construction and operation. It is worth noting that, conventionally, in cases of foreign borrowing for energy projects, repayment of loans is done through expected returns after operating the power plant. That is why the loan agreement states that loan repayment starts five years post operation starts, indicating that repayment is reliant on the expected return on investment.   [1] Presidential Decree No. 484/2015, Egyptian Gazette, issue No. 20 published on 19 May 2016, available through this link. [2] Commentary on the Government Program was provided in the ELU edition of April 2016, week 1. [3] Central Bank of Egypt, Statistical Bulletin, April 2016, available through this link. [4] Ministry of Finance, Monthly Financial Bulletin, March 2016, available through this link.