The Main Development Company (MDC) of the Suez Economic (SE) Zone has begun to implement its plan to allocate large tracts of its land to large, highly-developed companies. These companies will develop the land and advertise it to investors. This was undertaken due to its inability to provide energy resources and water supply in light of the financial crisis the government is facing.
In an interview with Daily News Egypt, Adel Al-Ayoub, Chairman of the SEZone Authority, said that the company initially approached contracting with two companies, Carbon Holdings and Egypt-China, regarding a total area of 6.2 km last month.
How will MDC allocate the land in the coming months?
Ayoub: MDC is the executive arm of the SEZone Authority. It owns 20 sq km of land, and will be responsible for managing 14 km after the agreement is finalised with TEDA China on the allocation of 6 km. The land will operate under a usufruct agreement that will end in 45 years. The company is currently in negotiations with a number of other companies to allocate other tracts of land for development. It is also advertising to local and foreign small- and medium-sized companies. The company announced its desire to increase the amount of developers on undeveloped plots of 500,000 sq metres.
What are the most prominent companies with which you’ve enter into talks? Have you neared the finalisation of any agreements with them?
Ayoub: We have reached advanced stages of negotiations with two companies and will be signing initial contracts with them within the month. The first company is Carbon Holdings, which plans to build a petrochemical complex, an investment nearing $5bn, on an area of 5 km. The second is Egypt-China which will be allotted approximately 1.25 km. It has a strong track record in neighbouring regions, where it secured 6 km a decade ago, and has since developed and sold most of it. Other organisations involved include Arab Contractors, Suez Canal Authority, National Investment Bank, and TEDA Chinese.
What do you mean by initial contracts?
Ayoub: Initial contracts serve as a framework agreement that establish the seriousness of both parties to advance beyond discussions over engineering plans and studying environmental impact. It lays out the timetable for implementation, so as not to interfere with the authority’s plans for development of the region.
What is the method and pricing for allocating land?
Ayoub: The authority’s law and what the company has settled upon is allocation under the usufruct system, rather than a model of ownership. It will last for a period of 50 years at a price of EGP 5 per metre per year. This is adjusted for inflation every ten years. This is the state’s approach to allocating land in projects across various industries. Banks have begun to understand this trend and do not withhold financing from companies operating under this system. All lands and factories will return to the company if the factories wish to continue operating, in which case prices and mechanisms will be renegotiated.
Are there other companies with which you’re negotiating?
Ayoub: There is a German solar company with which we are in initial negotiations for 2 km of land. Furthermore, there are other companies willing to bid for small areas on which they would establish their own manufacturing plants, and not operate as developers. A Turkish company is interested in securing a tract between 150 and 200 metres to set up factories for paper and detergents. However the company does not have developed land. That is why it is paying to search for companies that develop land, construct power plants, and desalinate water. This way the Authority will not be under any obligation to supply facilities.
How is the authority meeting the demands of small- and medium-sized companies that wish to secure developed land?
Ayoub: The company is currently considering obtaining a portion of land of a few kilometres or more to develop itself. It is in talks for an agreement with private electricity generation and water desalination companies and to provide facilities in these tracts. These lands would be divided and allocated among companies interested in small- to medium-sized plots of land. The drawback here is the rising price of private sector utilities compared to government subsidised utilities. The government is currently working to phase out subsidies to ease the burden on the national budget. This will reduce the difference between the actual price and the price of subsidised utilities, and will encourage companies to invest in the region.
What are the details of the agreement with the Chinese company TEDA? Why not terminate the contract with it after the delay at the beginning of the project?
Ayoub: The agreement has been finalised once and for all after the authority rejected the company’s demands to delay the implementation of the project until political stability returned to the country and presidential elections were held. The contact has been signed and the down payment paid. It is a 45 year contract, which differs with contacts with other companies, as it secured its tract of land in 2008 and at a special price. However, the global financial crisis and the revolution in Egypt delayed the signing of the contract between the company and the government. It is also the only company that has agreed to receive land after facilities are connected to its outer periphery, which is the opposite of what Carbon Holdings and the Egypt-China agreed to.
When will the land be given to the Chinese company? And is there a timetable for the implementation of the project?
Ayoub: The authority nearly delivered the amount of water needed for the first phase of an area of 2 km of the total 6 km. It contracted with an electricity company to connect the power during the coming period, and the delivery of facilities and delivery of land to the company is expected to be completed within 4 or 6 months. The company is committed to the timetable for implementation. Breaching this timetable is a violation of the terms of the contract and will result in punitive measures or non-delivery of the second phase.
What are the advantages of investing in this land?
Ayoub: The SEZone has many advantageous features that make it an attractive area for investment. It is a free trade zone without customs, and only a 10% tax rate on revenue and a 5% entry tax. However the inability of the authority to deliver facilities led to a decline in investors. Investors do not want to deal with a large number of agencies for licensing factories, construction, etc. Here the investor deals with only one.
Do you find it difficult to promote the region in light of the energy crisis plaguing the country?
Ayoub: The energy crisis has had a significant impact on the company’s ability to promote the territory of the region. Companies must decide to work with the crisis and bear the cost of establishing their own facilities to generate much-needed electricity. The image promoted by the media in Egypt and abroad is of an unsafe and turbulent situation which does not attract foreign companies to work as developers or build factories. Thus most of the companies that are currently interested are from the domestic market.
What is the shareholder structure of the development company?
Ayoub: Ownership is distributed as such: the authority, 51%; Egypt-China, 28%; Gulf of Suez Development Project owned by businessman Ahmed Ezz, 18%; and the rest belongs to the Bank of Egypt.