Egypt’s Dollar Crunch Siphoning Steam From Renewable Energy Plan

Egypt’s foreign-currency crunch has solar developers concerned about financing new power plants.

Cairo Solar has lined up a $51 million loan from the International Finance Corp. for a planned 50-megawatt solar farm. Chairman Hisham Tawfik says he’s worried about paying it back because the government has guaranteed payment for the electricity it will produce -- in Egyptian pounds.

It’s been more than four years since the uprising that toppled President Hosni Mubarak. The political upheaval has scared away outside investors and tourists, and Egypt’s foreign reserves have dwindled to $16.6 billion, less than half 2010 levels. The central bank has imposed restrictions that make Tawfik’s pounds difficult to convert to other currencies.

“How can I be happy if I have a lot of Egyptian pounds in the bank and I can’t change them to dollars,” Tawfik, who is also on the board of the Egyptian Renewable Energy Association, said in a phone interview.

More troubling is the possibility of a setback to Egypt’s renewable energy program if the government won’t provide payment in dollars, he said.

Central bank capital controls prevent local banks from lending in dollars for projects that will receive revenue in pounds. That, combined with limited access to international financing and other issues, is hindering Egypt’s $13.5 billion program to boost its share of power generated by renewable sources to 20 percent in 2022, from about 12 percent.

‘Issue of the Country’

Egypt qualified 110 companies in January to produce 4.3 gigawatts of solar and wind energy under its first feed-in tariff system, which guarantees specific power rates. The incentive may help the country avoid having to make the same difficult decisions it faced earlier this year when it cut natural gas supplies to factories and routed the expensive imported fuel to power plants to prevent widespread electricity outages.

“We look very seriously at investors’ requests, but within the limits of what we can do,” Mohamed El Sobki, executive chairman of Egypt’s New and Renewable Energy Authority, said by phone.

Convertibility “is an issue of the country not only energy projects.” The electricity ministry has asked the government to guarantee currency convertibility, he said.

“They were caught off guard,” Hany Genena, chief economist at the Cairo investment bank Pharos Holding, said by phone. “They were expecting recovery in inflows, but what is happening globally, locally and regionally has completely changed the views,”

A giant gas find by Eni SpA offshore Egypt, potentially the largest in the Mediterranean Sea, is unlikely to affect the renewable energy program, because the government has said it would rather direct the fuel to industrial users, like steel and cement factories, than to power plants.

“Worst case scenario, if things are messed up the government can secure energy from other sources until funding enhances,” Genena said.

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