The recent financial close of Orasqualia's New Cairo wastewater treatment PPP is seen as a strong vote of confidence in the pipeline of projects emanating from the Egyptian Ministry of Finance (MoF).

New Cairo is both Egypt's first PPP to close and a pathfinder in another respect – the Egyptian pound-denominated debt features a tenor 50% longer than any before in the country, even for corporate debt. Though the closure of the deal is a successful first, how local-currency deals will have to be structured in a more sophisticated way in order to be bankable in the long term.

The Egyptian PPP project pipeline is estimated to be around $16 billion. According to the MoF's five year plan, which runs to 2013, there are 12 education and health projects valued at $6 billion, six wastewater projects (of which New Cairo was one) valued at $3 billion, and 14 transportation projects adding up to $7 billion.

Orasqualia (a 50/50 Orascom/Aqualia joint venture) reached financial close on New Cairo at the end of January. The project was procured by the Ministry of Housing, Utilities and Urban Development (MHUUD) through the New Urban Communities Authority, with the technical assistance of the PPP Central Unit, which was launched from within the MoF in 2006. The two-year build plus 18-year operation contract is for a 250,000m3 per day wastewater treatment plant.

E£566 million ($102 million) of project debt was provided by National Societe Generale Bank (facility agent), Commercial International Bank Egypt (security agent), Arab African International Bank and Ahli United Bank Egypt. The debt breaks down into a E£550 million senior term loan and a E£16 million performance guarantee loan, both with 15-year tenors. Margin on the debt is undisclosed, but it is a fixed rate that will be adjusted every three years in relation to the interest being offered by banks to individuals making deposits. Baker & McKenzie advised Orasqualia, and Zulficar & Partners advised the lenders.

The next PPP expected to close is the Alexandria Hospitals project. Invitations to tender went out in November 2009, tender documentation will come out in March, and final bids are expected in June. The 20-year contract involves building Smouha Maternity University Hospital and blood bank, as well as the 223-bed New Mowassar University Hospital, which will feature updated neurology and urology/nephrology units. The IFC is financial adviser to the government, with Trowers & Hamlins as legal adviser and Mott MacDonald as technical adviser. The deal is subject to similar debt expectations to New Cairo – that is, it is expected to come in with locally-denominated long-term debt of around 15 years, with a fixed margin adjusted on a three-yearly basis linked to retail bank deposit interest rates.

The next wastewater deal to be done in Egypt will be the October 6th PPP. The 20-year DBFO contract will involve building a 150,000m3 per day facility, as well as an operation and maintenance contract for an adjacent plant that is now under construction. Ten consortiums are bidding for the contract at present – AAW/ Beffessa/Emasesa/SIAC, Acciona, Al-Kharafy, Aktor, GS Engineering, Mitsui/Atlatec, Orascom/Aquila/Aqualia Infrastructure/FCC, Samcrete/OHL/Inima/ICAT, Samsung and Veolia. Ernst & Young is financial adviser, with Trowers & Hamlins as legal adviser, a consortium of Ecroy/DHV/Chemonics Egypt as technical adviser, and Ch2mhill as environmental adviser.

Despite the upcoming deal flow, strong appetite for Egyptian PPP from international lenders is not expected to perk up any time soon. And the fixing of rates on project debt by tying them to deposit interest rates is a clear illustration of how new project financing is to local lenders, and how far the mechanism must be stretched to create comfort for them.

The World Bank has been assisting both the Egyptian government and Egyptian state-owned banks in rethinking how to finance deals going forward. The current method of fixing rates, despite the fact that the loan/deposit ratios at the big local banks reportedly average around 50/50, cannot go on indefinitely, and the three big state-owned banks – National Bank of Egypt, Banque du Caire and Banque Misr – have indicated that they are looking into underwriting deals some time in the future. Whether or not they will look at running dual-currency debt facilities for the big-ticket deals is unknown, but international lenders with a local presence such as SG, BNP Paribas, Credit Agricole and HSBC are all looking at locally-denominated infrastructure deals.

Added to expected developments in terms of how local currency debt will be structured, the new PPP Law, once signed, will help to get Egyptian PPPs closed more smoothly. The Egyptian MoF drafted the law in 2008, with a view to streamlining the procurement process and firming up relationships between project sponsors, lenders and the government. The PPP Law recently received cabinet approval, and the Egyptian president has made a public statement to the effect that it will be put forward for final approval during the current parliamentary session, which ends in June. Should the law be passed this summer, the process of closing Egypt's full pipeline of deals should speed up considerably.