As countries on the southern shore of the Mediterranean look north for assistance in economic development, the European Union is looking south for solutions for its increasing energy needs. In between, the European Investment Bank (EIB) has managed to facilitate such cooperation by financing the energy sector, among other fields, in the south with a recent focus on renewable energy.
“[In Egypt] most of our lending has gone in the public sector to the energy sector, because there’s substantial growth within Egypt, so this creates a lot of needs to produce more and more electricity. And so we’ve had a long partnership with the company in charge of electricity in Egypt, Philippe de Fontaine Vive, European Investment Bank’s vice president in charge of the Facility for the Euro-Mediterranean Investment and Partnership (FEMIP), told Daily News Egypt in Brussels.
“Our analysis is that Egypt has huge potential with regards to solar and wind energies. So each time I go to Egypt, particularly in Cairo, I do say to the minister in charge of energy [Electricity Minister Hassan Younes] that this is a real avenue for Egypt.
In addition to ongoing financing of gas-related projects, de Fontaine Vive said, “it’s also an opportunity to use what is called the Mediterranean Solar Plan to adopt . wind and solar plans.
The Mediterranean Solar Plan aims to reach 20 GW of new renewable energy production by 2020. “It will also develop electricity grid interconnections and foster the transfer of know-how and technology, Benita Ferrero-Waldner, former EU Commissioner for External Relations and European Neighborhood Policy, told the Third European Renewable Energy Policy Conference last November.
“The EU renewable energy directive will offer key incentives for facilitating the implementation of the Mediterranean Solar Plan by providing for the import of ‘green electricity’ from third countries to the EU, she said.
Over the past 30 years, EIB loans to Egypt in the energy sector amounted to about ?2.1 billion (out of ?3.9 billion since 1978), making it the largest beneficiary of EIB loans. These include contributions to major investments in power generation, transmission and distribution, and the development, storage, export and bulk transmission of natural gas.
Renewable energy, particularly wind and solar, are now climbing to the top of the priorities in the sector. In September 2009, the EIB and the government of Egypt signed two loan contracts: ?50 million for a new wind farm in Gabal El-Zait and ?70 million to improve access to safe drinking water and sanitation for 4 million people in the Nile Delta. In 2008, the EU allocated ?2.2 billion for development of renewable energy projects inside and outside the EU.
A key player in the financial partnership between Europe and the Mediterranean, FEMIP has provided almost ?7.3 billion of financing to the region between October 2002 and December 2007. FEMIP has allocated ?8.7 billion to support projects in the nine Mediterranean partner countries, in addition to ?2 billion provided by the Mediterranean Partnership Facility II and by EU budget resources for technical assistance and private equity activities, in the period between 2008 and 2013.
Beyond energy
As a general policy, the FEMIP says it wants to encourage modernization and opening up of the economies of the Mediterranean partner countries. Activities are focused on two priority areas: development of the private sector and the creation of an investment-friendly environment.
“We are very pragmatic, de Fontaine Vive said, “It’s up to the promoter, the country, to come to us and tell us which projects they would think are in agreement with our priorities. Our priorities in a country like Egypt are defined with the government of Egypt and with the governments of the Union for Mediterranean (UfM), so we gather all representatives of governments in what’s called FEMIP Committee. . We look at energy, environment, job creation, transportation, a kind of agenda for competitiveness. And then it’s up to each country to look at what is a priority for itself and what’s a priority for the actors.
FEMIP is looking into diversifying the EIB portfolio in Egypt. Currently, energy tops the bill with ?2.1 billion over the past 30 years. Meanwhile, the environment sector has received ?305 million for wastewater, drinking water and desert irrigation projects among others; transport ?400 million in port, highway and air transport projects among others; and industry ?760 million for a large-scale ceramics factory, and aluminum plant and an integrated flat steel plant among others.
In addition to a “chemical plant project in the pipeline for which details have not been disclosed yet, de Fontaine Vive said the bank is “open-minded to small equity operations and financing small and medium size enterprises.
It has already provided ?260 million worth of credit lines to local banks that were channeled to private sector ventures for capital investment in the industry, health, education, service and high-tech sectors. In addition, ?111 million went to supporting private equity operations of Egyptian enterprises including SMEs undergoing modernization for enhanced competitiveness.
The EIB has already launched its first borrowing linked to the Egyptian pound, to create a benchmark in the Egyptian pound market and respond to demand from international investors. In 2009, the EIB approved a local currency loan under global authorization to a microfinance institution in Daqahliya: The Daqahliya Businessmen’s Association for community Development.
Proceeds from the proposed loan – the equivalent of ?2 million in Egyptian pounds – will be used to extend credit to small and micro-enterprises in the governorate of Daqahliya, both in the form of individual loans and group loans.
With SMEs, de Fontaine Vive stressed the need for financial intermediaries. “The Egyptian banks for the time being are not interested to work with us because there is plenty of liquidity. So those interested are those venture capital funds. And so the government of Egypt is not involved in this activity. It’s purely private activity, he said.
In the meantime, a report on the status of SMEs and their needs in the Mediterranean is in the works. “We have recruited consultants to look [into Mediterranean countries]: are the SMEs financing themselves easily or not? And so, those consultants are going around, particularly in Egypt, to the government, to the officials, to the banks, to the final customers, to tell us if there is something which is satisfactory or if there will be some need to improve the support to SMEs, he explained.
The report, which will be ready in March or April, will be a “substantial element for the UfM’s SMEs initiative: Mediterranean Business Development Initiative (MBDI). This study will be delivered to the UfM co-presidency of Egypt and France, he explained.
For Egypt, the report would decide whether to “compliment what is already done by national Egyptian companies, banks and public schemes with a network of support and which kind. For instance, one of the ideas which is in this draft report is a special program devoted to women entrepreneurship. Because what they think is that the particular need lies with woman entrepreneurs, so we could build specific programs dedicated to them, he explained.
EIB expertise
The EIB doesn’t only aim to bring to the region its role as a powerful, global financial institution; it’s the EU’s long term-financing institution, with the 27 Member States as its shareholders, with a subscribed capital of ?164.8 billion and a AAA credit rating. In 2008, the EIB lent ?57.6 billion, of which ?1.3 billion was for projects in the Mediterranean partner countries.
EIB also brings, through its continuous meticulous appraisal and advising process, its expertise in projects executed inside and outside the EU.
“We made a choice with the bank, which is different from other banks, which is to have the engineers, either technical engineers or social engineers or environmental eng
ineers to be staff members. So what they learn in a project in Egypt could be used in France. Or what they learn in a project in Belgium could be used in Egypt and so on. The fact they are learning by doing and so that’s how they are always on the best practice in this sector, de Fontaine Vive explained.
In the wind farm project for example, the check list preceding EIB’s approval of the project injects the bank’s experience into it. “When the company for electricity within Egypt is coming to us, they do present a case, a location and we do analyze if this investment is the best viable technique, if they adopted the best rules to manage it and if they performed the environmental and social consultation in a right way so that we can approve this project.
“These are the screenings we are doing. Is it a good project economically? Is it sound for the environment? And what does the population have to say about the techniques, the location and the consequences of such project?