ismed ppd: assessment report

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

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Public-Private Dialogue: PPPs in Egypt’s River Transport Sector

River Transport Authority (RTA) Cairo, 18 September 2014

Investment Security in the Mediterranean: The ISMED Support Programme in Egypt

• The ISMED Support Programme was created in October 2012 to advise Governments from the Middle East and North Africa (MENA) on reducing framework risks of specific infrastructure projects.

• In 2013-2014, the Programme has been focusing on developing Sector Policy Recommendations, both national and regional, addressing barriers to private sector investment in infrastructure projects.

• Three targeted sectors:

Transportation: Assistance to the River Transport Authority on the Nile River Ports

PPP project (Egypt);

Logistics Zones: A Benchmarking Study of the Legal Framework for Logistics Zones

Development (Morocco)

Renewable energy: A Study of an Optimal Incentives Framework for Renewable Energy

Infrastructure (Jordan) 2

• 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).

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• 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.


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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

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• Egypt’s river transport in figures: 1,850 km of navigable waterways 39 private ports and 5 public ports 1.3 million tons of cargo shipped by river (less than 1% of all inland transport) Half a dozen private companies operating at some level

• Potential for development is clear Barges’ current capacity of 800,000 tons is fully utilized Demand projected to increase steadily by an annual rate of 4.8% to reach 2.1 million tons in 2026

• RTA owns 3 ports, not up to international commercial standards Aswan (iron and steel port) ; Nahda (in Alexandria) ; Ather El Nabi (near Maadi) Four river ports designed to handle demand for passenger service and cargo shipments.

• Goals for river transport: capture 5% of total volume require new service and storage facilities require major public and private investment, as well as policy reforms

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• A number of factors have motivated the Government of Egypt to promote a greater role for river transport (air quality, traffic congestion, road safety and expenditure on fuel subsidy…).

• Opportunities Efficiency potential : river transport is five times more efficient that trucking, and alleviates

pressure on public expenditure • A barge with a 1,200 ton capacity carries the equivalent cargo of 45 trucks, and requires

significantly less in fuel

Environment: wear and tear to infrastructure, traffic congestion, air quality, pollution and environmental impact

Road safety: road transport significantly more dangerous

• Weaknesses Imperfect navigability of the Nile river (schedule, dredging, water levels…)

Outmoded river infrastructure (infrastructure and connectivity to railways/roads)

Inefficient policies, such as the fuel subsidy, that favour truck transport.


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• 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.


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• 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

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• 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

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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

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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

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• 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.

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The ISMED Assessment Report: Training Session on PPPs

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The Way Forward Next Steps

River Transport Authority • Build capacity to develop business case and rationale for developing River Ports

Project in general and by way of PPP in particular • Ensure coordination with PPP Central Unit and other public stakeholders (e.g.

Ministry of Irrigation), so that each party is informed of its role and responsibilities under Egyptian PPP Law

• Launch Market feasibility/demand study

ISMED Support Programme

• ISMED Final Assessment Report • OECD Investment Committee • Annual ISMED Conference (Paris, 4 December 2014)

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The ISMED Assessment Report: Conclusion

• River transport is one of the most promising opportunities in developing Egypt’s multimodal transport network.

• The desire by the Government of Egypt to increase the share of freight shipped by way of the Nile is a laudable objective.

• Private sector participation in river ports development will require institutional and policy reforms to increase sector efficiency – and ensure a level playing-field with other transportation modes.

• While PPP contracts have a long track record of being used successfully for public infrastructure projects around the world, the viability of the RTA’s project remains to be addressed.

It is hoped that this report and the engagement of the OECD with the RTA assist in achieving this goal.

Key contacts

Mr Andrew FITZPATRICK Coordinator, Project Finance ISMED Support Programme

[email protected]

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

With the financial assistance of the European Commission

mailto:[email protected]

ismed ppd: assessment report

Economy & Finance