In Egypt several legislative documents dealing with non-concession and concession PPPs are in force:
• Law No. 67 of 2010 “regulating Partnership with the Private Sector in Infrastructure Projects, Services and Public Utilities” (PPP Law);
• Executive Regulation of the Law regulating Partnerships with the Private Sector in Infrastructure Projects, Services and Public Utilities promulgated by Law no. 67 of 2010, issued through Prime Ministerial Decree No. 238 of 2011;
• Law No. 129 of 1947 Concerning Public Utilities Concession as amended by the Laws Nos. 538/1955, 288/1956 and 185/1958;
• Decree-Law of the President of The United Arab Republic No. 61 of 1958 on Granting the Concession which are connected with Investment of Natural Wealth Resources and Public Utilities, and the amendment of concession conditions (as amended by Laws Nos. 152/1960 and 788/1969).
The non-concession PPP legislation (i.e. the PPP Law) is much more comprehensive than the old legislation, thus achieving a higher compliance. However, the PPP Law makes no distinction between non-concession and concession PPPs. Its PPP definition includes user-paid project forms so that it also applies to concessions . Where the PPP Law is applicable, neither the old concession legislation nor – in general – the public procurement rules apply. But it is unclear when a concession falls into the PPP Law's scope of application and when the old laws apply. The awarding authority thus seems to have a choice regarding which regime to follow.
Due to the deficits of the Concession Law, most existing concession PPPs and non-concession PPPs are based on Sector Specific Laws, such as the Decree-Law. For new concessions, however, the PPP Law of 2010 provides for a more modern set of rules. This assessment therefore displays the solutions of both the old Concession Law and the PPP Law, but it only takes the PPP Law into account when determining the compliance and effectiveness score.
The PPP Law
The PPP Law in general achieves a good compliance score. However, one particular deficiency of the PPP Law must be pointed out: the termination regime providing for the grounds for termination and termination compensation. Furthermore, tariff setting and permitting/administrative cooperation are ranked low.
The “competent authority“, whose approval is required, is not clearly defined as it may refer to the Minister, the Chairman of the Authority, or the legal representative of the public juristic entity, meaning that the level of necessary approval is unclear.
Selection of the Private Party
The award process is regulated in a modern and clear way. Under the PPP Law a tender selection process is mandatory.
There is no clear exception allowing unsolicited proposals. Due to exceptional public considerations and urgency, they may be accepted subject to an approval by the Minister of Finance. However, direct awards are permissible. With the lack of a framework and particularly of confidentiality regulations or a clear approval procedure, private parties may fear that their proposals might be disclosed to competitors.
There is certain flexibility in the content of the contract to the extent that contractual provisions do not contradict the law. However, interference from the contracting authority can be expected. The PPP contract must be governed by Egyptian Law; any agreement to the contrary is null and void.
It is not possible to challenge decisions or illegal awards as Law No. 32 of 2014 restricts the challenging of administrative contracts or of the procedures upon which they were concluded to the parties of the contract only. As is the case with certain administrative contracts, the transparency of the awarding procedures of PPP is sometimes questioned by the public.
Remedies for breach of contractual obligations are available under the law, international arbitration is permissible and the awards are enforceable to the extent they do not contradict mandatory provisions under the applicable law.
Securities and Governmental Support
The contracting authority is entitled to conclude direct agreements with the project’s lenders and the project company. Such agreements may include a guarantee by the Ministry of Finance to fulfil the contracting authority’s financial obligations. Furthermore, the agreements shall include a right of the financing institution to step into the project agreement instead of the project company or to appoint a new investor after approval of the competent authority, to cure a default. They also entitle the competent authority to terminate the contract.
What has to be emphasised is the outstanding result for the institutional framework for which Egypt achieves a perfect 100%.
As to the effectiveness of the PPP Law, it must be noted that in 2002, the government’s political vision for PPP changed for the worse, as PPP projects were blamed for currency conflicts. However, in 2005 the government changed and the appetite for PPP returned. While in 2006-08 more projects were implemented under the umbrella of PPP with the right regulatory framework. Since the enactment of the current Law No. 67 of 2010, some sectors still lack the necessary regulatory framework. A stronger push for PPP in Egypt is desirable with four elements needing to be met:
• Political Commitment
• Legislative Framework
• Correct Regulatory Framework
• Contractual Framework
One of the main challenges for PPP is ensuring its meaning is understood. Public entities seem to confuse PPP with IPPP and Joint Ventures, particularly due to the option of a 20% public ownership of the private party under the PPP Law. Public entities interpret this as an option (if not an obligation) to hold 20% of the SPV.
The public tends to regard PPPs as hidden privatisation. Thus, it is essential to enhance the role of the media in promoting PPP. Further, the media need to better understand the meaning of PPP in order to deliver the “correct” message to the public.
Amid the political and financial turmoil resulting from the Arab Spring, the government’s commitment to PPP is increasing. However, the current policies, particularly with regards to awareness, need enhancement. In addition, clear standards and templates need to be set and most importantly, public officials require intense training in the concept of PPP, its financing, and how it differs from “public procurement”.
Specific Role of State Owned Companies and the Army
Often the government does not directly operate infrastructure projects. Instead it is done through state-owned companies holding a concession for the respective sectors: Electricity is the responsibility of the Egyptian Electricity Holding Company that holds several subsidiaries for generation, transmission, and distribution. The Water sector is the responsibility of the HoldingCo for Water and Wastewater. Hence, it is unclear how the government plans to fit in PPP projects, given that they would need to be concluded with the public sector, i.e. the state itself and not with these companies.
The culture of “project finance” needs to be further developed and promoted in Egypt, both within the private and the public sector. There is a local equity/bond capital market and local banks are becoming more involved in infrastructure projects and hence can be expected to act as lenders in PPPs. The local currency is still subject to strict control.
Although the Public Private Partnership Central Unit (PPP unit) is staffed with qualified professionals, it is not yet effective enough to overcome the listed obstacles in promoting PPPs in Egypt.
In summary, the main obstacles to putting more PPPs in place are:
• Lack of PPP awareness within the public and the private sector;
• Lack of strong political commitment;
• Constant changes in government;
• Conflicts appearing in the day-to-day operations of PPP contracts resulting in contractual conflicts;
• Lack of “contract management”; and
• Confusing non-concession PPPs with concession PPPs and JVs (which are subject to a different legal framework).
According to the Ministry of Trade and Industry’s project plan, the number of PPPs is expected to increase in the next 10 years. Several projects are currently in the pipeline, some of which are awaiting financial close. The projects are usually announced on the Ministry of Finance’s website.
No red flag issues were identified and no deal breakers resulting from the Law itself.
Concessions under the 'Old Laws'
Unlike the PPP Law, the concession laws simply do not regulate numerous matters at all. Mainly procedural matters like the following are missing:
• ex-post transparency;
• selection criteria and fair rules for selection committees;
• award criteria;
• building and composition of bidders' consortia;
• rules for exclusive negotiations with the preferred bidder;
• legal remedies and compensation of damages of unsuccessful bidders;
• termination regime;
• arbitration as dispute resolution mechanism; and
• securities / step-in rights.
Tariff setting and permitting also rank low.