Assessment Report on the Nile River Ports Project: “Promoting River Transport in Egypt”

1

ISMED Conference Defining a Way Forward for Infrastructure Investment in the Middle East and North Africa

Paris, 4 December 2014

• The River Transport Authority of Egypt (RTA)

has sought assistance on framework and risk-

sharing issues for a potential public-private

partnership (PPP) covering four river ports.

• Previous attempt failed: 2009-10 tender of the

Qena port by way of BOT.

Concession period too short,

Site location inadequate,

Bad project design: single port in a network of

multiple ports with no transport connections,

Too much risk placed on the private party.

• New plan to tender 4 river pilot ports under

Public-Private Partnerships (PPPs) in Qena,

Sohag, Meet Ghamr, Assiut (Upper Egypt).

2

Investment Security in the Mediterranean:

The ISMED Support Programme in Egypt

3

• Objectives of ISMED Assistance to the RTA

Identify the short and longer term actions required to strengthen the environment of a river ports PPP project ;

Identify investment climate shortcomings, and prioritise the implementation of appropriate policy remedies ;

Assist the RTA in advancing the project onto the Government of Egypt PPP pipeline

• Activities of the ISMED Support Programme in Egypt

Drafting of the Assessment Report on the Nile River Ports project, including a proper delineation of risk sharing between public and private sector actors and a proposal for template tender documents and indicative terms of reference for a feasibility study ;

Advice on other aspects of the PPP and/or sectoral framework that are critical for private investors and may constitute obstacles to private sector participation in river transport infrastructure projects.

• Methodology

Analysis of previous attempt by the RTA to tender a river ports project by PPP in 2009-10 ;

Extensive consultations with public and private sector stakeholders as well as IFIs and experts ;

Review of OECD good practices and guidance.

Investment Security in the Mediterranean:

The ISMED Support Programme in Egypt

4

The Nile River Ports project:

Sector Overview

• Yet plays a small part in Egypt's transportation sector:

AFD study “Nile River Market, Financial and Institutional Transport Study” (2012, Royal

Haskoning): river transport accounts for less than 1% of total cargo volume shipped in Egypt ;

In the past 30 years, river transport as a share of total cargo volume has decreased from 5 to

0.5 percent, while trucks continue to dominate transport

• Despite calls for investment over the past years to upgrade deteriorated infrastructure, cargo

transport on the Nile River remains under-utilized.

• Nile is a central element of Egyptian life and

culture: 95% of population live along its

banks

5

• Previous related studies:

AFD River transport market feasibility study, funded by the French Development

Agency (AFD) and conducted by a Dutch logistics firm (Royal Haskoning), found that customers are looking for reliable, year-round and round-the-clock operations, door-to-door service and the ability to accommodate certain volumes

“Misr National Transport Study” (MiNTS) by JICA: The study predicts that if no policy changes are enacted, river transport volume by 2027 will constitute a mere 1 percent of the predicted 900 million tons of cargo clogging Egypt’s roads.

• Invite all river transport stakeholders to identify obstacles to the sector’s growth and

propose solutions.

The Nile River Ports project:

Sector Overview

6

• Review of the 2009-10 Tender

Qena River Port (BOT)

4 River ports earmarked for development

in order to handle future demand for

passenger service and cargo shipments.

Previous tender (BOOT): site location, risk

allocation (provision of off-site

infrastructure)

The ISMED Assessment Report:

Key Findings (1/3)

• Contract level

Lack of a proper market feasibility/demand study

Improper allocation of risks in previous tender documents:

× Licensing and Permit Risk

× Funding of Off-site Infrastructure

× Force Majeure Risk

× Traffic Risk

Pushed to Private Sector

7

The ISMED Assessment Report:

Key Findings (2/3)

8

The ISMED Assessment Report:

Key Findings (3/3)

• Policy / Regulatory level

Fluctuating water levels

– Ministry of Irrigation and Water Resources: prioritizes agricultural irrigation and drinking

water.

– Minimum water depth at 2.3 meters (1.8 maters draft and 50 cm buffer)

– Bottlenecks from mid-November to mid-February

– Solution: provide companies with daily water level reports

– Requires application of mathematical model to predict such levels

Mapping / absence of electronic charts

– Lack of paper and electronic charts for the dredged navigation channel

– A system of electronic buoys aids in navigation, paid for as part of a Dutch technical

assistance package, but many have been stolen or poorly maintained.

– Shift to electronic navigation systems: necessary to ensure night-time navigation

Time losses

– Limited hours: locks closed at night

– Time losses in lock-crossing

9

The ISMED Assessment Report:

Key Recommendations (1/2)

Key Recommendations resulting from the ISMED Assessment Report

• Need to examine and assess traffic demand

• Objective: identify suitable location based on traffic levels and demand

• Gives an estimation of potential revenue from services provided by the port facility

• Allocation of traffic / volume risk is critical to the financing of the project

• Willingness to face demand risk or devise a mechanism to share demand risk

• Consider possibility of availability payments to the project developer: guarantee minimum revenue be paid to the project company regardless of traffic levels

• Priority to establish a PPP Satellite Unit at the RTA

• Ensure smooth coordination with PPP Central Unit and other involved partners (e.g. MWRI)

• Objective: successfully manage and monitor the procurement process

1) Conduct a thorough feasibility and traffic study

2) Consider a mechanism to share traffic risk

3) Build capacity at the River Transport Authority

10

The ISMED Assessment Report:

Key Recommendations (2/2)

Additional Recommendations

• Conduct hydrographic studies to anticipate water levels and devise dredging programme

• Develop a comprehensive river use Master Plan that addresses navigation, morphology, river engineering and bank erosion

dredging is very expensive

dredging causes bank erosion and long-term changes to the process of sedimentation

dredged spoils have high concentrations of heavy metals, unsuitable for agricultural uses

• Strategy to upgrade deteriorated infrastructure through a comprehensive strategy for intermodal transport, including inland waterways, roads and railways

• Transportation connections related to landside port infrastructure, such as access roads, tunnels and bridges, rail inter-connectors

• Provide local skippers and operators with training and capacity-building programmes to upgrade curricula and modernize the profession

• Functional separation at the RTA: separate operational and regulatory functions to make the RTA a “one-stop shop” for licensing

1) Ensure Navigability of the Nile River

2) Upgrade River Infrastructure

3) Build Local Capacity

rd

• OECD assessment of the RTA suggests there is a need for training and capacity building

assistance on fundamental PPP issues.

• Training session provided:

Project Selection: Should this project be developed? If yes, by way of PPP?

PPP Fundamentals: Based on OECD good practices and instruments, Understand basic PPP and project

finance concepts. How does a PPP work?

Legal Framework: Based on Egypt’s PPP Law and regulations (2010-2011), Provide a comprehensive road

map of steps to be taken to develop a PPP and outline the responsibility of the contracting authority, the PPP

Central Unit and the Supreme Committee for PPPs. Consider broader issues of Egyptian law including

contracts and dispute resolution.

Evaluating Projects: Understand gatekeeper role of PPPCU, to determine if a project proposed by a

procuring authority should be brought forward to the Supreme Committee for PPPs for approval. What

happens at the PPPCU after all materials are received

Case Studies: Examination of PPP deals in Egypt (New Cairo Wastewater PPP project ; Alexandria

University Hospitals project). Bring together partner IFIs to discuss what drives their investment decisions

from a feasibility and financial perspective. Lessons learned from case studies that could be applied to the

River Ports Project.

11

The ISMED Assessment Report:

Training Session on PPPs

Key contacts

Mr Andrew FITZPATRICK

Coordinator

ISMED Support Programme

Andrew.Fitzpatrick@oecd.org

www.oecd.org/investment/psd/ismed.htm

With the financial assistance of the European Commission