May  2002 

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Basking In The Sun And Wind?

Experts say renewable energy is perfect for Egypt's remote areas,
but the government appears less than enthused

They lack water and, since they're far off the electrical grid, they lack the power to get it. But what do remote areas of Egypt have plenty of? Sun and wind. Yet as experts gathered in March to discuss the natural benefits of applying solar and wind power in isolated villages, they said another factor is slowing experimentation: government foot-dragging.

Participants at a recent US-Egypt conference on the use of renewable energy in remote areas said they are frustrated by the Egyptian government's apparent resistance to nontraditional means of generating power. Even a government official in attendance said he doubted the Ebeid government would give sufficient support to self-sustaining alternative energy sources because leaders are fixated on an infrastructure clustered around the Nile.

"Next to the Nile, we have the national power grid. If you ask any man working in the Ministry of Electricity [how to provide power for remote areas], he will say to you, 'We would extend the national grid'," said Abdel Rahman Aly, deputy chairman of the Land Reclamation Authority. "I am completely pessimistic about renewable energy in Egypt, because in order to do that, you have to work in a decentralized way of thinking, which does not exist at all in Egypt."

The four-day workshop on Renewable Energy and Development of Remote Areas was organized by the US National Renewable Energy Laboratory and Egypt's New and Renewable Energy Authority at the Gezirah Sheraton in mid-March in conjunction with a larger environmental conference by the Arab Academy for Science and Technology.

Experts said remote rural areas can tap underground water in a cost-effective way by using a "hybrid" combination of diesel-fueled generators, windmills and some types of solar power. Isolated tourist areas could benefit from using solar-energy collectors to heat water.

Attendees pointed to the East Oweinat "mega-project" in the south of the Western Desert as a perfect opportunity to combine renewable energy and water management. But some said government officials have been slow to take the cue. A subsidiary of DaimlerChrysler is planning an electrical power plant in East Oweinat supplemented by three wind farms and some solar generators. Daimler officials want to reduce reliance on diesel generators for water wells because diesel has seeped into the water table, endangering the local potable water supply.

The market for wind turbines has grown an average of 40% every year for the past seven years, with worldwide generating capacity increasing by over 30% in 2001 compared to the previous year. Farms are essentially clusters of windmills that feed into a power grid. Each modern, 65-meter diameter mill can produce at least 1 megawatt of electricity -- enough to power 800 North American or Western European homes.

Wind currents are steadier and stronger higher in the air, and most of today's mills stand about 90 meters above the earth to catch the best currents. Proponents argue that wind power is clean and endlessly renewable, while critics decry the amount of noise the farms make, adding that they blight landscapes and (for reasons scientists have yet to figure out) seem to lure birds to their deaths like candles lure moths.

In Egypt, wind power is stalled less by environmental activists than by simple government disinterest.

"The bad news is we've been trying to convince the authorities about this integrated approach since April 2000," said Ibrahim Marzouk of the DaimlerChrysler subsidiary DC Services. "Unfortunately, up to now, we have not yet reached the implementation stage." Marzouk asked the conference's directors to help Daimler's case by mentioning it in the event's official recommendations.

Apart from the conservation arguments for generating energy from sources other than petroleum, renewable energy could also be good business for Egypt, attendees said. If Egypt became an exporter of solar cells, it would find a ready market in Europe: Germany, while the world's largest producer of solar cells, is using so many domestically that it has turned to importing cells from Italy, said Moustafa Ghannam, a professor in electrical engineering at Cairo University.

The most modern solar plants now being tested in the US can generate electricity almost 24 hours per day using superheated salts (see sidebar).

But Yehia Bahnas, president of BIC for Electronics, Environment & Energy, said practical problems are discouraging the growth of an Egyptian solar power component industry. Bahnas described several frustrations with the Customs Authority. Enterprises such as Bahnas' Cairo factory must pay 30% customs duties on some of the components they need to import to assemble photovoltaic solar power modules. Yet if the same type of module is assembled in another country and imported whole, the tariff is just 10%. That removes some of the local companies' competitive edge in costs, Bahnas said. "They should give all of it 5%, even, to encourage the renewable energy," said Bahnas, who is also a professor of electronics at Cairo University.

The conference produced advice for the government. David Kline, an energy and environmental researcher from the US National Renewable Energy Laboratory in the state of Colorado, said the government could avoid subsidies by providing other forms of support for renewable energies, such as technical and administrative assistance for pilot programs.

International interest in solar power in Egypt and the Mediterranean region appears to be growing: Italy has earmarked ¤20 million (LE 82 million) to study how to harness the power of the sun throughout the Mediterranean, while the World Bank is spending $50 million (LE 231 million)to build hybrid generator plants in Egypt, India, Morocco and Mexico that use a hybrid technology of solar troughs and natural gas.

And businessman Bahnas was optimistic about the future for solar power. Bahnas noted that both of Egypt's existing mobile phone service providers are pursuing solar power projects. He also sees a possible application in the Smart Village technology business park under construction in Sixth of October. Plans call for erecting a curved metal sheet over a six-story building to keep it from getting overheated by the sun's rays. Bahnas realized the sun-shield would be a perfect spot for solar-collection panels. The panels would cost LE 4.5 million, but Bahnas estimated that the solar power would reduce the building's electrical costs by more than 60% and would last for 25 years.

He pitched the idea to the Ministry of Communication and formation Technology. He's still waiting for an answer. bt

Dan Bernard

Slower And Slower

Privatization is bogged down in a bad climate, but the government gets some good marks for creativity

Egypt's slow-moving privatization train appears stuck in low gear in 2002, thanks to potential investors' reluctance to enter the unsteady economy and the government's hesitance to sell bigger and more desirable properties. The impact of both factors has only been deepened by domestic currency troubles and signs of war in Israel and the Occupied Territories.

Add to that the occasional spate of bad luck or apparent lack of coordination within the government. Either factor could explain why the Nile Hilton in Cairo is still government-owned today.

The state Holding Company for Hotels and Tourism put the Nile Hilton up for bids in March 2001 and attracted at least three interested parties: an Egyptian group, a group from elsewhere in the Middle East and another from abroad, according to a high-ranking government official who spoke on condition of anonymity. Each was serious enough to send a representative to research the property and meet with the holding company, although a second official says the parties were sounding less enthusiastic after 11 September.

Then in January came the unwelcome surprise: After winning a dispute in court, the Ministry of Finance presented the hotel with a whopping bill for overdue taxes -- about LE 180 million. The prospective buyers were not eager to assume the unforeseen liability, and the possibility of a sale is now on hold. The second official minimizes the episode, calling the debt a "legal problem" that the different arms of the government are sure to resolve.

Facing problems within its sphere of control and beyond it, the government is nevertheless getting good grades from analysts for some recent strides in privatization. As well as making progress in bringing private sector involvement to Egypt's airports, privatization overseers in the government are also introducing creative approaches to the sell-off of some state-owned manufacturing concerns.

In one example of flexibility, officials at the Ministry of Public Enterprise (MPE), which oversees privatization, say they're willing to divide properties into multiple, smaller sales if they find serious interest. One instance of "asset unbundling" came together in recent weeks: Officials say they are finalizing deals to sell Al Nasr Glass and Crystal's two factories in Yasin and Mostorod separately. (A leading producer of bottles and medical ampoules, Al Nasr has high revenue capacity but, as is typical of many businesses on the privatization list, high debts. The company's LE 4.4 million in profits on sales of LE 90 million in fiscal 1999-2000 went primarily to servicing the company's interest payments on debt.)

The government says 29 properties, mostly factories, have been split off and privatized in that manner since the fourth quarter of 1999, 16 of them under long-term leases, 13 in outright sales.

At the same time, the MPE appears to be responding to criticisms about the government valuation procedure. Asking prices for government companies are declared by the Central Auditing Authority. While the general assembly of a holding company has the leeway to sell for less, they risk rebuke from the People's Assembly and the press. Critics say the process is too rigid and prevents holding companies from reducing an asking price to meet the realities of what investors are willing to pay.

In response to questioning in the People's Assembly, Public Enterprise Minister Mokhtar Khattab said it would be worth considering a sort of auction for state-owned companies that are financially failing -- that is, accepting the top bid submitted regardless of the valuation. Meanwhile, the privatization of Abou Zaabal Fertilizers at the end of 2001 escaped some of the usual valuation restrictions because it was structured as a "lease-to-own" deal rather than an outright sale. The consortium Semad Misr will lease the company for three years before buying it for a total cost of LE 182.8 million.

"The name of the game is responding to the market -- understanding what the market perception is, which means serious investors," says Mohamed Hassouna of the Public Enterprise Office, which advises the MPE on privatization. "There are steps being taken. The whole thing is not stagnant."

Hassouna adds, however, that complaints about the inflexibility of the valuation system might be overstated. He says his recent search of government records showed that since the end of 1998, holding companies have opted to sell at least 15 properties at below the initial valuation. The average was about 20-25% below, although the holding company for a telephone production manufacturer went under the valuation by 33% in 2000.

Most recently, the Arab Trade and United Trade companies were sold in March at 25% below valuation -- albeit to their own employee shareholder associations, a friendly sort of sale that's usually immune to political fallout. Hassouna declined to name all of the properties, saying he first had to submit his full report to the minister.

"It's case by case. You might find out that the holding company wouldn't accept 10% below the valuation because this company is good, healthy, profitable -- maybe they just need to do more marketing," Hassouna explains. "In other cases, they would accept even 30% below the valuation because of the situation of the company, distress or challenges in the near future." Holding companies might accept lower proceeds from a sale if it averts the potential "opportunity cost of keeping the company under public sector ownership without injecting cash, bringing in new technology and opening up markets," Hassouna says.

Stuck in a rut

Minimizing government ownership of industry is considered a cornerstone step for a country to get in shape to compete in the new global economy, and Egypt's pace of privatization is considered slow by world standards. The government's creative approaches can only do so much in the face of external factors that have impeded Egypt's long-running program to shed the socialist legacy of state ownership.

The Egyptian pound's continual slide against the US dollar makes investors reluctant to buy Egyptian businesses. Once they exchange dollars for pounds in order to buy the property, they will lose value on their investment if the pound continues to dip, not to mention incurring difficulty in importing materials or components. Investors' caution toward the region following the 11 September terror attacks on the United States appears to have worsened with the Israeli military crackdown in the Palestinian territories.

"If you're an investor sitting in Europe or New York and you're seeing on CNN everything that's happening and predictions of the whole Gulf being engulfed in war, you're not even going to be thinking of this as a place to invest," says a privatization analyst who declined to be named.

The chilled climate has hardly encouraged the government to let go of its large properties, those that represent the majority of government ownership in the economy and that would be most tempting to investors: utilities, banks, oil and insurance firms.

The privatization of electricity and distribution companies is still in a holding pattern. Mohamed Elsobki Jr., director of the Egyptian Electric Regulatory Agency, told a US-Egyptian energy conference at the Gezirah Sheraton in March that his regulators are still seeking internal data from state-owned electricity companies to determine their true efficiency, a fact-finding mission that is a prerequisite to future rate restructuring.

The state-owned phone company, Telecom Egypt, will not be offered for sale unless telecom market conditions improve worldwide, Communications and Information Technology Minister Ahmed Nazif has said in several recent public comments. And while international aid bodies at the World Bank's February conference in Sharm El-Sheikh urged Egypt to get moving on selling off at least one state-owned bank and insurance company, that appears to be a recommendation, not a requirement for receiving the $10.3 billion in aid over three years pledged at the conference.

"The significance of the assets that are now being sold is immaterial compared with what needs to happen in privatization," said another privatization analyst who requested anonymity.


The state companies that are for sale include a lot of tough sells. Of 49 properties advertised in January 2001, just 13 have been partially or fully privatized. Two of those were liquidated, meaning all assets were sold off and the company closed.

Since then, 57 properties have been advertised, with several more expected this year. A few of the current offerings are repeats from last year's list, but the largest portion consists of 49 financially "distressed" companies.

The distressed classification means that half or more of a company's equity is eaten up by carried losses. Many of these are aging businesses with bloated payrolls and outdated equipment, although some own valuable plots of land. They include more than a dozen cotton spinning and weaving plants, many export-import and wholesale trading firms, and a variety of manufacturing concerns from concrete to copper.

In other words, the distressed firms are not the typical prizes coveted by investors. Yet since they were first advertised in September, 24 of the distressed firms have attracted letters of interest from possible bidders, according to the Public Enterprise Office.

The interest comes in part because the MPE is offering special incentives with the distressed companies that go far beyond a straight sale. To make the debt-ridden properties more attractive, their holding companies will absorb old debts, shift excess employees, and try to remove undesirable elements of the companies' assets. The inducements have earned praise from analysts.

Fresh air

Another bright spot is the progress of private-sector involvement in airports, the so-called BOT deals in which private firms build and operate the facilities before transferring them to the government. The Marsa Alam facility opened in November, and construction is underway on facilities in Sharm El-Sheikh, Bahareya and Farafra Oasis, while the Luxor Airport project to be undertaken by JV Aeroport de Paris is in the planning stages. BOTs could get more government attention now that airport regulation has been moved into its own agency, the Ministry of Civil Aviation.

Airports will remain government-owned in Egypt as they are in developed countries. But their managers are moving toward a corporate culture in which private-sector-style rules are followed in accounting and administration. After studying modern management trends in early March at a conference organized by USAID contractor Carana Corp., key employees of the Civil Aviation Holding Company were inspired to hold a follow-up summit on the direction of Egyptian aviation policy with representatives of the Ministry of Tourism, Cairo Airport and the military.

The Ministry of Electricity and Energy is making no apparent moves toward selling its electricity distribution companies. But it plans in 2002 to enlist private companies to build four generating plants under BOOT agreements (the extra O is for the period during which the private firm owns the facility so as to qualify for loans). The ministry says it expects to award BOOTs this year for two gas/steam generating plants in Nubaria, a solar/gas plant in El Kuremiat and a windmill farm in Zaafarana.

While Egypt hopes for the economic and political storm clouds to disperse, the government can take active steps such as reforming its exchange-rate structure. Or it can more aggressively promote clusters of businesses in advertising campaigns locally and abroad, suggests securities manager Nevine El-Tahry.

"I don't blame the government for not wanting to offer [its more attractive holdings] right now because everything is so cheap. It may not be the best timing," says El Tahry, who heads ABN Amro Delta. "But maybe they can start focusing. Instead of offering all the companies at the same time so it's just 'we're getting rid of losing companies,' start focusing by industry. Pick up everything in that sector so you can easily target what the client base would be interested in. Road-show what they actually have, then put that bidding process out in public after having made a great effort on the advertising side." bt

Dan Bernard

Skill-link's temporary closure for alleged labor act violations

highlights uncertainty about the regulation of the the dotcom world

A dotcom firm in Cairo closed for business last month -- not for financial reasons, but because the police seized all its employees and computers. When it became clear that the only possible charge against was failure to have a license that it didn't need to have, the firm reopened two days later.

That was after key employees spent the night in lockup at the Dokki police station waiting to be questioned.

The raid on Skill-link, which operates a website matching jobseekers with employers, left its CEO fuming over what he called police ignorance of the internet. "They never bothered to investigate. They just went the easy way," CEO Sherif Samy says. "Nobody bothered to visit us to say, 'I have a few questions,' or to ask someone to come down to the police station to ask questions."

Beyond a possible lapse in due process, the episode highlights how authorities can become confused in applying old laws to new technology. Job-search websites in Egypt currently operate in freedom from some of the red tape that restricts old-fashioned recruiting operations because the internet is simply not mentioned in many existing business regulations.

But after Skill-link's run-in with the law, local website operators noted soberly that if the government ever tried to make the pre-internet rules apply to them, the bureaucratic slowdown would kill them in their competition with rival sites based outside Egypt.

Samy was away from the office when he got the frantic call from one of his employees at around 1100 on 2 April. Six officers from the Ministry of Interior's unit for expatriate workers had entered the office on Musaddaq Street and were rounding up employees and computer equipment. The colonel leading the raid told Samy by phone that his firm was believed to be "exporting labor without a license." Samy headed over. (The Interior Ministry press center was unavailable for comment on Samy's account.)

The license requirement is Egypt's response to a serious problem: unscrupulous recruitment operations that defraud jobseekers with false promises of jobs in other countries. The scams involve taking money from the jobseeker, ostensibly to arrange a work permit or contract. Either the promised job doesn't exist, or the pay and working conditions are not what was promised. Egypt requires recruitment firms that arrange foreign work contracts to register with the government so that they can be inspected and tracked.

But that requirement doesn't apply to Skill-link because the firm does not serve as a middleman inking a contract between employer and employee. Instead, as with most job websites, jobseekers and employers find each other by posting CVs and want ads on the site, free for jobseekers, by fee for employers.

That argument was not persuasive to the police squad. Nor was a letter on the subject that Samy had obtained from his lawyer years earlier as a precaution against this sort of misunderstanding. The officers packed up 16 computers and two unconnected computer monitors as evidence. They rounded up the 17 people in the office, including two visitors who didn't work for Skill-link, and took them to the unit's headquarters near Al Azhar.

According to Samy, the police released the visitors and most of the employees after four hours. But police kept Samy, his accountant and his webmaster, transferring them to the Dokki police station. By that late hour, no prosecutors were available to question the detainees, so the trio spent the night in a basement holding cell. (Samy says he's grateful the Dokki police gave them their own cell separate from other inmates and allowed Samy's driver to fetch blankets to make the concrete floor more comfortable.)

The deputy prosecutors general in Dokki who questioned the trio the next day quickly saw there was nothing to the case, Samy says. The investigating officer could not provide answers when asked to name any jobseeker or business for whom Skill-link had arranged a foreign job, Samy says. The prosecutor released them, and, after renting a truck to transport the computers, they were back in the office at 1700, a day later.

From his own investigating, Samy believes the hassle originated with an employer in Abu Dhabi who, dissatisfied with Skill-link's referrals, complained to the local Egyptian labor attaché. That official forwarded the complaint to the Ministry of Labor, where another official, finding that Skill-link was not licensed to export labor, forwarded the complaint to the police. Samy shudders to think how long he would have been out of business if the prosecutor hadn't grasped how his website is not like a recruiting firm -- just an electronic pass-through.

But in truth, the distinction is not always so clear-cut. For one, Skill-link, like other job site firms, sometimes interviews jobseekers in person when an employer has expressed interest. Samy says such "pre-screening" is for quality control, sniffing out exaggerated CVs and weeding out mismatches. But Skill-link screeners only pass along their impressions; they don't approach the stage of job offer and contract-signing that is envisioned in the license requirement, Samy notes. In that sense, Skill-link is like a newspaper classified ad section, Samy says.

Yet Samy argues that a website is not like a newspaper or magazine when it comes to another government requirement. By law, all ads in print publications for foreign job openings must be registered with the government in advance (the registration number appears in fine print at the bottom of the ad). The law does not mention internet sites; Samy is not going to be the one to invite the government to close that loophole.

"That would mean that, if I have a bank in Dubai who wants a treasurer, instead of posting a job vacancy in 30 seconds, they have to send it to the local embassy, send it to me by courier, then I have to send it to the Ministry of Labor for them to authorize it and be happy -- and then publish it," Samy says. Competing websites like Emirates-based operate free of the Egyptian requirement.

One tech industry leader says he would not dismiss the suspicion at the base of the police raid -- that the internet is a possible medium for deceptive recruiting practices in Egypt. Sayed Ismail, chairman of the Egyptian High-Tech Association, said local tech professionals told him about an Egyptian who was operating an "amateur" website in late 2001 that invited jobseekers to meet him to arrange foreign employment. Smelling fraud, the professionals warned the operator to cease. "The guy was wise enough to stop," Ismail said.

Skill-link's competitors at in Cairo say they've never had a hassle like Samy's. But the raid did inspire some nervous hypotheticals about internet overregulation. "The internet relieves you of many of the laws, and it's not restricted to anyone. If any employer wants to put a job on an Egyptian site, no one could stop him," says Mostafa Hashish, CareerEgypt business development manager. Red tape "just doesn't work with a dot-com," he adds. bt

Dan Bernard

Beyond the inconvenience to Skill-Link, the raid raises questions about how the government is regulating the online world. Existing legislation could see Egyptian firms fall behind their competitors in the Gulf.