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Egypt's energy dilemma

Electricity, fuel, and water problems - Egypt has gone through all; it seems like the government needs to find alternative energy sources.
Forbes | 16.08.2012
Of all the dour headlines out of Cairo these last few weeks, few seem as insurmountable as the country’s electricity problems. That may sound a bit strange when comparing the new government’s ability to keep the lights to escalating attacks in the Sinai or the purging of the upper crust of the military brass but hear me out.

Having suffered in a vacuum of military and police leadership since widespread protests demanded attention elsewhere, the Sinai was bound to require renewed attention at some point. The fact that it took no less than 15 direct attacks on gas pipelines, a number of lost lives and a spike in kidnappings is certainly worth noting, but with additional troops, Cairo has shown that they can put out that fire if they really try. This week saw President Mohamed Morsi announce plans to do just that with a stepped up presence in the region, launching an offensive aimed at curbing militant actions.

Meanwhile, the ousting of the country’s military and intelligence leadership and cancellation of an earlier order limiting his power appears to have been met with far less backlash than one would have thought considering the authority they usually wield. Instead, the move has been met by rumblings of support from younger, lower-tier officers who have grown frustrated with a lack of adequate training and supplies, according to the Christian Science Monitor. It’s still early in the game, but for now, that particular fire seems to been kept under control.

So, that leaves the issue of Egypt’s electricity sector. Since the sweltering summer months began, Cairo and much of the rest of the country have experienced a series of rolling blackouts, blamed on post-revolution confusion and spikes in over-consumption. Additionally, the country’s security situation has allowed a steady increase in transport line siphoning and theft of high-pressure cable from the countryside. Subways have shut during peak hours, stranding commuters. Whole sections of the south have been left to sweat away the August heat with no electricity at all.

While a steady rise in demand has helped cause similar blackouts in years past, the loss of basic services in Egypt’s current political climate could prove especially dangerous to the young government. Building support for the new leadership when the state cannot even keep the lights on could make a hard job that much harder.

So far, the response from the government has been scattered and insufficient, spurring frustrated public protests and the kind of anger and criticism the new political leadership hardly needs at the moment. Why this stands out as a more daunting challenge than Sinai or the military backlash is that there does not seem to be any quick solution except for waiting for temperatures to drop to manageable levels.

Despite statements published on the Muslim Brotherhood’s official web site, promising that shortages would be fixed within days, the official government response has been much more cautious. Recently appointed Prime Minister Hesham Qandil took the airwaves this weekend and urged energy conservation and even suggested wearing cotton and gathering in a single room to minimize the use of air conditioners. He also warned that in coming year, rationing could be made mandatory. Unsurprisingly, Qandil’s comments were met with a healthy bit of online scorn.

To be fair to both Qandil and the government of Mohamed Morsi, were able to announce the opening of a 500-megawatt natural gas-fed West Damietta power plant this week, according to Reuters. Still, while rationing and a new plant may help ease the weight of the summer heat, what about the long term needs for a post-Mubarak Egypt? Where will the energy come from to keep up with a predicted doubling of demand by 2025? According to an Oxford Business Group report from February of this year, Egyptian electricity demand is expected to rise to 50GWh over the next 13 years, “around twice the current level”. To meet such an increase, the new government will be charged with a massive expansion of supply and diversification. The report notes that while a campaign was launched to attract about $110 billion in energy investment by 2027, the effort pre-dates last year’s ousting of the Mubarak government – an event that understandably gave pause to potential investors.

For now, the Morsi government has offered tenders for fifteen on- and offshore blocks for natural gas exploration. As for diversification, that is where Egypt’s renewables come in. Mirroring European goals of 20 percent renewable consumption by 2020, Egypt is betting heavily on wind, with more modest contributions from solar and hydroelectric options. However, getting close to those goals could be especially tough given where they are starting from. Currently, Egypt boasts only 550MW of a desired 7,200MW of installed wind power, according to the OBG report. Tracking down financing for such an expansion in the best of times would be a difficult task. Considering the country’s current political and security landscape – well, it’s going to be a whole lot harder.

Drawn to the country’s energy potential, RES Med Commercial Director William Hopkins told this blog earlier this year that they’d recently opened an office in Cairo but, “we’ve hit the pause button in Egypt due to political situation.”

So, where does that leave Egyptian electricity? In dire need of improvement and expansion but facing a scarcity of willing investors, Egyptian energy needs some friendly production partners and needs them quick. Qatar’s recent $2 billion pledge and the proposed $3.5 billion IMF loan are good starts but do little more then keep the country above water. Until then, Cairo can expect more shortages and a longer path to a possible solution. Fortunately for Morsi and Company, the summer is almost over.
About the author: Forbes