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Government considers private water projects

CAIRO: Minister of Housing Ahmed Al-Maghraby says that the government is considering involving the private sector in water projects, following its positive experience with privately-owned power generation plants. A number of private electricity plants have been built since parliament passed a law allowing such concessions in the late 1990s. Sidi Krir Power Plant began operations …


CAIRO: Minister of Housing Ahmed Al-Maghraby says that the government is considering involving the private sector in water projects, following its positive experience with privately-owned power generation plants.

A number of private electricity plants have been built since parliament passed a law allowing such concessions in the late 1990s. Sidi Krir Power Plant began operations in 2002 as the country s first independent power producer.

These independent power projects are based on the build-operate-own-transfer (BOOT) model, in which a private company funds the construction of the plant, then operates and owns the plant for a period of up to 20 years, after which all the plant s assets are transferred to the government.

Such projects are essentially a method of financing the construction of new plants and of reassigning the responsibility of operating the plants from the government to a private party, who is required to provide a certain minimum level of service.

Although Al-Maghraby did not specify any details of the government s plans for independent water projects, the same BOOT model can be applied to water facilities, including desalination units.

Upgrading the nation s utilities is necessary to support the growing need for additional housing. Speaking at a meeting with the Egyptian Junior Business Association (EJB), Al-Maghraby described the government s plan to build 500,000 affordable housing units over the next six years. The units will be funded in part by the government, with approximately LE 1 billion allocated for this purpose, and in part from rents from tenants.

The minister also discussed the challenges of real estate development with members of the association. An estimated 15 million people live in unplanned areas of the country. These areas have developed without the proper infrastructure, and Al-Maghraby explains that erecting appropriate water, power and other infrastructure in unplanned areas is extremely expensive.

Al-Maghraby describes the growth of unplanned areas as cancerous, and believes this growth is due to the fact that the government s residential projects have been located in areas where citizens do not want to live.

Going forward, Al-Maghraby says that the government should develop real estate in areas that are more favorable to citizens and that agricultural land should not be excluded from consideration in this regard.

The shortage in housing, however, cannot be addressed unless small investors regain confidence in the real estate market. This requires a serious and effective implementation of the rent law of 2001, according to Al-Maghraby, which eases restrictions on evictions and rent increases.

Mohammed Aglan, head of EJB s construction committee, adds that the distribution of land in new areas to investors with no genuine interest in developing it is another major obstacle. Aglan cites New Cairo as an example of this, where construction has occurred on only 10 percent of the land.

To resolve the lack of development, Aglan suggests a time limit for construction, whereby the government would have the right to buy back the land from investors at a price tied to a pre-agreed formula if buildings are not completed within a set period.

A number of issues relating to real estate development are expected to be addressed once the unified construction law is implemented. The law was recently passed by legislators and will take affect after Al-Maghraby issues a ministerial decree detailing specific regulations.

The construction law follows the mortgage finance law of 2001, which was intended to stimulate the housing market. However, the mortgage market continues to be undermined by high property taxes and arduous property registration procedures; registration of property can take up to one year according to Aglan.

Minister of Finance Youssef Boutros-Ghali said earlier this year that he plans to reduce property taxes from the current rate of 46 percent to 10 percent. Minister of Investment Mahmoud Mohieddin also said this month that he will work to cap property registration fees, which are currently 3 percent of the value of the property, at LE 2,000.

EJB is an association of business owners and professionals with full-fledged membership restricted to individuals under 45-years-old. The association s meeting with Al-Maghraby was within the framework of its National Business Agenda, which aims to enhance competitiveness in different sectors by identifying obstacles that hinder the activities of those sectors.

Topics: FJP

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