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					P rivatization in Egypt - Quarterly R eview

January—March 2002

PRIVATIZATION C OORDINATION SUPPORT UNIT

Privatization in Egypt
Quarterly Review
January - March 2002
Provided to the United States Agency for International Development by

CARANA Corporation
under the USAID Monitoring Services Project Contract # PCE-1-800-97-00014-00, Task Order 800
Unless otherwise stated, opinions expressed in this document are those of the PCSU. They do not necessarily reflect those of USAID, the Government of the United States, or the Government of Egypt.

CARANA Corporation
20 Aisha El Taymouriya Street, 1st Floor, Suite 2, Garden City, Cairo Tel: (202) 792-5466/5477
PCSU—Privatization Coordination Support Unit WWW.CARANA.COM/PCSU

Fax: (202) 792-5488

CARANA Corporation

P rivatization in Egypt - Quarterly R eview

January—March 2002

Managing Director’s Note
I am honored to dedicate this last full edition of the Privatization in Egypt, Quarterly Review to our cherished readers’ community. The development and success of this publication has depended entirely upon the constant feed-back and constructive critique from our readers. We have strived to provide you with up-to-date information on the events and opportunities in the area of privatization. As our project comes to a close in August this year, the final Quarterly Review covering the period from April through end-June will only contain an update of the statistical section and the principal findings of the special study on the Impact of Egypt’s Privatization Program since its inception. This issue of the Quarterly Review presents three special features on diverse topics of current interest. The first feature, Civil Aviation—Looking Forward, provides a glimpse of the global experiences as they relate to the Egyptian case. It is a synopsis of the workshop on the same subject that was organized by PCSU in December, 2001 to launch a diagnostic study for the corporatization of the Egyptian Aviation Holding Company. The second feature, Corporate Governance in Egypt, comments on the current and past progress on governance issues in Egypt. It also provides a list of key features of good governance as discussed in a recent World Bank report. The third feature, Review of the ESA Program, is a summary of one of the most informative and balanced studies of the Egyptian experience on the subject. In addition to the special features, this issue presents a highly unusual case study of an NGO’s experience in meeting its members’ needs. The unintended result of which could be termed as one of the most creative examples of public/private partnerships for mutual benefit. A non-profit NGO proposed and executed a BOOT plan to build a refrigeration facility at Cairo Airport for export and import of perishables. In closing, we would like to take this opportunity to solicit your opinion regarding whether you would like to continue receiving a periodical similar to our Quarterly Review in the future. Also, we would greatly appreciate knowing how well this publication has met your informational needs. Please send your comments and views on this subject to Tom Thompson at CARANA/PCSU: tthompson@carana.com. Tejinder S. Minhas Managing Director CARANA – PCSU

PCSU—Privatization Coordination Support Unit

CARANA Corporation

P rivatization in Egypt - Quarterly R eview

January—March 2002

Privatization and Coordination Support Unit
Project Description
ARANA Corporation is implementing USAID’s three-year (1999 – 2002) Monitoring and Coordination Services Project under the “Partnership for Competitiveness” agreement between the GOE and the United States. CARANA formed a Privatization Coordination Support Unit (PCSU) that is providing privatization coordination support and monitoring services to nine key government ministries. PCSU also is mandated to monitor the Development Support Program I (DSP-I) and track privatization progress against DSP-I benchmarks, gather privatization benchmark-related information, and analyze shortfalls and successes.

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Project Purpose
The PCSU’s goal is to provide transparency and clarity to the privatization process in Egypt in order to assist the GOE, corporations with total or partial state ownership, and investors in evaluating and implementing the privatization of the public sector in Egypt.

PCSU Core Functions
Support Overall Privatization Process Management & Coordination • • • • Introduce additional privatization methods Support changes to privatization policy and procedures/regulations Facilitate coordination of activities among donors, within USAID, & among contractors, particularly the Privatization Implementation Project (PIP) Facilitate sharing of privatization information and experiences among ministries

Coordinate and Provide Privatization Support to Individual Ministries • • • • Complete development and analysis of MPE and MOEFT database for privatization management Complete installation, testing, and website management training for PEO Provide ad-hoc capacity building for use of alternate privatization methods Help define and obtain training and other capacity building support

Improve Understanding of Privatization & Economic Reform • • • • • Develop special studies/initiatives Prepare the Privatization in Egypt Quarterly Review Prepare translations of privatization-related articles from the Egyptian press Develop & maintain a website about Egyptian privatization Track privatization progress against USAID/GOE cash transfer benchmarks

PCSU—Privatization Coordination Support Unit

CARANA Corporation

P rivatization in Egypt - Quarterly R eview Acknowledgements

January—March 2002

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he PCSU wishes to thank the Ministers and many staff members of the following ministries for providing important information upon which this report is partially based.

Ministry of Public Enterprise Ministry of Foreign Trade Ministry of Electricity & Energy Ministry of Telecommunications & Information Technology Ministry of Transportation Ministry of Civil Aviation Ministry of Housing, Utilities and Urban Communities Ministry of Industry & Technology Development Ministry of Supply and Internal Trade Ministry of Petroleum Ministry of International Cooperation
The following PCSU staff members are directly responsible for the design, writing, and production of this edition of Privatization in Egypt Quarterly Review:

Mr. Tejinder Minhas, Managing Director & Acting Chief of Party Mr. Tom L. Thompson, Deputy Chief of Party Ms. Ola Attia, Director & Monitoring Specialist Mr. Paul Smith, Director & Privatization Specialist Mr. Jim Sorenson, Quarterly Review Editor and Webmaster Ms. Shahira Hamza, Senior Privatization Analyst Ms. Amal Nawar, Special Studies Manager Ms. Maie El Tabbakh, Privatization Analyst Ms. Ola Abdel Wahab, Privatization Analyst Ms. Noha Medhat, Research Analyst Ms. Dina El Ahwal, Office and Administrative Manager

PCSU—Privatization Coordination Support Unit

CARANA Corporation

P rivatization in Egypt - Quarterly R eview

January—March 2002

Table of Contents

Executive Summary .............................................................................. 1 Features and Special Case Studies Feature Article: Civil Aviation—Looking Forward ............................. 5 Corporate Governance in Egypt ...................................................... 11 Review of the ESA Program ............................................................. 15 Case Study: HEIA—Refrigerated Perishables Terminal................ 20 Ministerial Privatization Activities Ministry of Public Enterprise .......................................................... 24 Ministry of Foreign Trade ............................................................... 37 Financial Institution Privatization................................................... 40 Ministry of Electricity and Energy .................................................. 43 Ministry of Telecommunications and Information Technology ... 46 Ministry of Transportation .............................................................. 49 Ministry of Civil Aviation................................................................. 54 Ministry of Petroleum ..................................................................... 57 Ministry of Housing, Utilities and Urban Communities ................ 60 Ministry of Industry and Technology Development ..................... 61 Ministry of Supply and Internal Trade ........................................... 65 Financial Markets and Privatization ................................................. 66 Donor-Funded Activities .................................................................... 70 Appendix I - Reports and Studies Delivered to USAID ...................... 82 Appendix II - Law 203 Portfolio ............................................................. 85 Appendix III - List of Acronyms ............................................................. 90

PCSU—Privatization Coordination Support Unit

CARANA Corporation

P rivatization in Egypt - Quarterly R eview

January—March 2002

Table of Figures
Figure 1: Figure 2: Figure 3: Figure 4: Figure 5: Figure 6: Figure 7: Figure 8: Figure 9: Figure 10: Figure 11: Figure 12: Figure 13: Figure 14: Figure 15: Figure 16: Figure 17: Figure 18: Figure 19: Figure 20: Figure 21: Figure 22: Figure 23: Figure 24: Figure 25: Figure 26: Figure 27: Figure 28: Figure 29: Figure 30: Figure 31: Figure 32: Figure 33: Figure 34: Figure 35: Figure 36: Figure 37: Figure 38: Figure 39: Figure 40: Figure 41: Figure 42: Figure 43: Current Status of BOT and BOOT Projects in Egypt.................................................... 4 ESA Performance Chart ............................................................................................... 17 Premium Exports to Key Markets ................................................................................ 21 HEIA Membership Growth ............................................................................................ 22 HEIA Membership Distribution ..................................................................................... 22 International Trade in 2001 .......................................................................................... 23 Privatization Achievements: Transactions Summary to 31 March 2002 ................... 24 Law 203 Privatization Announcements, Tender Dates, and Results ......................... 25 Newspaper Advertisements Appearing During 1st Quarter ....................................... 26 Privatization Achievements: Sales to Anchor Investors ............................................. 28 Privatization Achievements: Majority Public Offering ................................................. 29 Privatization Achievements: Majority Sales to ESAs .................................................. 30 Privatization Achievements: Liquidations .................................................................... 31 Privatization Achievements: Multiyear Leases ............................................................ 32 Privatization Achievements: Minority Public Offerings ............................................... 33 Privatization Achievements: Production Assets Sold ................................................ 34 Privatization Achievements: Collected Proceeds and their Utilization....................... 34 Breakdown of Sales Proceeds Values ........................................................................ 35 Total Sales Values by Privatization Method ................................................................ 35 Majority Privatization - Anchor Investor....................................................................... 36 Majority Privatization - ESA .......................................................................................... 36 Majority Privatization - Majority IPO............................................................................. 36 Minority Privatization - Minority IPO............................................................................ 36 Minority Privatization - Production Assets ................................................................... 36 Joint Venture Portfolio by Public Stake ....................................................................... 37 Joint Venture Portfolio Status 1997 to Present ........................................................... 38 Breakdown of Joint Venture Companies by Sector .................................................... 39 Recent Joint Venture Privatization Transactions ........................................................ 39 Ownership of Joint Venture Banks ............................................................................... 42 Private and State-Owned Insurance Companies ....................................................... 42 EEC Generation Expansion Plan ................................................................................. 45 Status of Road BOOT Projects ................................................................................... 50 Status of Maritime BOT Projects................................................................................. 51 Status of Railway BOOT Projects ................................................................................ 53 Status of Aviation BOT Projects.................................................................................. 56 Egypt Oil and Gas Production 1995—2010 ................................................................ 58 Ten Top Performers During the 1st Quarter 2002 ...................................................... 66 Stock Market Performance in Egypt vs. all Emerging Markets—as of 03/31/02...... 66 Ten Top Privatized Company Dividend Yields During 1st Quarter 2001 .................. 67 Ten Top Performers Since Privatization ...................................................................... 67 Stock Market Performance for Privatized Companies............................................... 68 Option Year Two Special Studies ................................................................................ 72 Option Year Three Special Studies ............................................................................. 73

PCSU—Privatization Coordination Support Unit

CARANA Corporation

P rivatization in Egypt - Q uarterly R eview

January—March 2002

EXECUTIVE SUMMARY
Introduction
resident Hosni Mubarak recently issued three State decrees for a limited Cabinet reorganization which include the appointment of Ahmed Shafik as Minister of Civil Aviation and Hamdi Al Shayeb as Minister of Transportation. The President has also issued a new Presidential Decree for developing the organizational structure of the Ministry of Civil Aviation. This move is expected to enhance the importance of aviation as one of the principle contributors to the growth of the national economy. In early February donor countries met in Sharm El Sheik under the chairmanship of the World Bank. The members of the Consultative Group pledged to make available $10.3 billion to Egypt over the next three years, with about $2.1 billion for disbursement this year. Donors urged Egypt to move ahead with long-term reforms, including allowing more flexiblity to the exchange rate and reviving the privatization program, which has slowed over the last couple of years. At the conference the Prime Minister said that the Government had drawn up a five point development program that needed support and finance from the donor community. This program includes:
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sold to their employees for LE4.9 million and LE5.77 million respectively. The syringe factory of El Nasr Glass and Crystal was sold for LE20 million. The remaining 10% of Misr for Telephone Equipment was sold to the existing private sector majority owner for LE11 million. Several transactions await MPC approval. The Metallurgy Holding Company approved the asset sale of the Sabi company (also known as Precision Industry). In December 2001 the General Assembly of the Holding Company for Metallurgical Industries approved the sale of two production lines from El Nasr Glass & Crystal Company to United Glass Company, one of which was sold in the first quarter.

Ministry of Foreign Trade
According to the most recent Ministry of Foreign Trade figures, the Ministry’s portfolio of public sector holdings include a majority stake in 172 joint venture companies and a minority stake in 335 companies. The paid in capital of companies and banks in this portfolio is approximately LE65 billion. Tender announcements this quarter include Egyptian Glass Company by the National Bank of Egypt, which will open on April 17; and Ismailia Misr Cooling, by Bank Misr, of which 70% is expected to be offered to an anchor investor.

Increasing rate of growth, upgrading services in poor areas, promoting women's projects, decreasing the rate of mortality and building 1,000 health units in rural areas Creating new job opportunities Supporting new graduates by giving them loans from the social fund for development for small business start-ups Upgrading 500 vocational training centers Special programs to protect the environment

Ministry of Electricity and Energy
The sale of Electricity Distribution Company shares is expected to take place soon.
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Ministry of Public Enterprise
The Ministerial Privatization Committee approved 4 new transactions worth LE41.6 million. Ninety eight percent of both United for Trade and Arab Textile were
PCSU—Privatization Coordination Support Unit CARANA Corporation

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USAID is financing the regional control center for the Greater Cairo area. A Japanese consortium is executing North Cairo Power Plant. A German Company will modernize and upgrade High Dam electricity generators with a German grant of DM170 million. Electricity Distribution Companies have been paid debts owed by various government entities and authorities. The People’s Assembly has advised the government against making electricity contracts in dollars.

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P rivatization in Egypt - Q uarterly R eview
Ministry of Transportation
The Roads and Bridges Authority investment plan for 2002—2007 shows an investment requirement of LE3 billion. Roads will absorb LE2 billion for the completion of existing road projects and the construction of new ones. The Aswan Bridge, an LE180 million project to serve tourism in Upper Egypt, will be inaugurated shortly. Mr. Eid Abdel Kader Mettwalli was appointed by the Prime Minister as Head of the Egyptian Railway Authority following in the wake of Egypt’s worst railway accident. The Council of Ministers is in the process of completing a plan for the restructuring of the Egyptian Railway Authority which will reorganize its financial, technical and administrative functions.

January—March 2002

Aviation Workshop - Airport Infrastructure: Public-Private Partnership To launch a special study for diagnosing the issues involved in the corporatization of the Egyptian Aviation Holding Company, a two-day workshop was organized by the PCSU (CARANA) on March 6th & 7th entitled Airport Infrastructure: Public-Private Partnership. The workshop was hosted jointly by the Egyptian Aviation Holding Company and the Privatization Coordination and Support Unit (PCSU), CARANA in association with USAID, Egypt. Mr. Rob W. Merrigan, First Secretary, United States Embassy, was the workshop’s principle guest speaker. Mr, Merrigan highlighted the importance of the avaition sector to the growth of Egypt’s economy linking the sector to sustaining the tourism industry. The workshop was attended by the senior managers and staff of the EAHC, representatives of other relevant ministries, officials of USAID, Egypt and members of private and public sector organizations related to the sector. Aviation experts from around the world provided a global perspective to the assembled group and related experiences and lessons learned in various developing countries regarding airport operations, planning and development. The proceedings from this workshop are summarized on page 5 in this issue and also can be downloaded from the PCSU website at www.carana.com/pcsu.

Ministry of Civil Aviation
The President issued three State decrees which include the appointment of Ahmed Shafik as Minister of Civil Aviation. The President also has issued a new Presidential decree for developing the organizational structure of the Ministry of Civil Aviation. Some of the stated ministry objectives and responsibilities are:
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Develop a general strategy for the Ministry to bring the sector up to international standards Institute systems and issue guidelines to ensure aircraft and passenger safety and security in accordance with international standards Upgrade air traffic control facilities and navigational aids Develop training programs Develop a price structure for aviation related fees Issue licenses to civil aviation companies Modernize and upgrade Egyptian airports Enhance and maintain EgyptAir’s performance standards and service capability

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Ministry of Telecommunications and Information Technology
The Ministry estimates the annual growth of the sector at close to 35% and projects that it will grow to US$2 billion by year 2005. To help fulfill these growth projections, the Ministry has embarked upon a LE1 billion five-year program to modernize services. However, the launching of a Telecom Egypt IPO seems ever more remote. After a number of false starts and a series of global economic shocks, it appears that this IPO has been put off indefinitely, or at least until market conditions improve. The new draft telecommunications law has

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PCSU—Privatization Coordination Support Unit CARANA Corporation

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P rivatization in Egypt - Q uarterly R eview
reached the People’s Assembly and is currently under review. The law seeks to encourage private investment in the sector while protecting the interests of the state and the consumer.
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January—March 2002

Increasing exports through attaining international quality standards

Ministry of Supply and Internal Trade
The Ministry is overseeing a major project to increase the capacity and quality of grain silos in Egypt. It plans to build 50 silos in different locations all over Egypt and is currently involved in negotiations with the Islamic Development Bank to obtain financing for forty silos. Current Status of BOT and BOOT Projects in Egypt Figure 1, which appears on the following page, presents a list of BOT and BOOT projects overseen by the Ministries monitored by the PCSU.
Note: Figure 1 on the following page includes all BOOT and BOT projects that have progressed to the pre-feasibility stage. Column 1: TYPE refers to the type of public/ private partnership: BOOT (Build-Own-Operate– transfer) or BOT (Build-Operate-Transfer) Columns 2 through 7 identify the stage of each project:
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Ministry of Petroleum
The drilling success rate in the offshore deepwater Mediterranean could soon thrust Egypt into the top ranks of worldwide gas producers. Egypt’s oil and gas reserves have risen to nearly US$30 billion and the offshore Med still contains substantial exploration potential. With a large current account shortfall, exacerbated by the events of September 11, Egypt has sought to postpone payments to foreign companies producing gas for local consumption. The recent LE devaluation vis-à-vis the US$ has put additional financial strain on the government’s obligations to these producers. Because the local consumer pays in local currency and the government buys gas from the foreign companies in hard currency, the government is operating at a loss in this area.

Ministry of Housing and New Urban Communities
Potable water and sanitation projects over the next five years are expected to cost approximately LE2 billion annually. LE6 billion will be needed for 39 new potable water projects, and LE2.6 billion for completion of projects under construction.

PLANNED projects are undergoing feasibility or pre-feasibility study, or are being actively discussed and supported in each Ministry / Authority. ANNOUNCED projects have been publicly announced by the concerned Ministry but the formal offering process has not yet started. OFFERED projects have been formally advertised and offered to bidders. BIDDING UNDERWAY projects are in an active state of bidding or post-bid negotiations AWARDED / UNDER CONSTRUCTION projects have been awarded to a winning bidder, and most are already under construction. A year value indicates the year that the project was awarded. An "x" indicates that the exact year of award is not available. (If the year is in italics, the award is planned to take place in that year.) OPERATING projects are completed and operating. A year value indicates the year that the project was put in service.

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Ministry of Industry & Technology Development
The Committee for Promotion of National Industries in the Federation of Industries has developed a plan for promoting and strengthening Egypt’s industries. The industrial sector contributes approximately 20% to the country’s gross national income. According to this plan, strengthening the industrial sector and improving its performance will require:
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Renovating factories’ infrastructures Updating machinery and production techniques • Improving production quality to meet local demand

Column 8: PERIOD refers to the expected or actual concession period of each project Column 9: ESTIMATED INVESTMENT COST

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P rivatization in Egypt - Q uarterly R eview
Awarded - Under Construction Announced

January—March 2002

Operating

Current Status of BOT and BOOT Projects in Egypt
MINISTRY OF ELECTRICITY AND ENERGY Sidi Krir 3&4 Suez Gulf Port Said East El Kureimat Nubaria (1) Nubaria (2) Zafarana (6) Zafarana (7) Borg El Arab (1) El Kureimat (3) MINISTRY OF TRANSPORTATION Airport Sector Sharm El Sheikh (expansion) Hurghada Terminal Marsa Allam Borg El Arab Luxor Airport Assuit Airport El Alamein Airport Bahariya and Farafra East Oweinat Airport

BOOT BOOT BOOT BOOT BOOT BOOT BOOT BOOT BOOT BOOT

Planned

Bidding Underway

Type

1998 1999 1999 2002 2002 2002 2002 2003 2003 2004

2002 2003 2003

20 20 20

BOT BOT BOT BOT BOT BOT BOT BOT BOT

x

2001 25 1998 1999 10 1998 2001 40 Offers accepted up to May 9, 2002 25 x 1998 2002 50 x 50

x x 1998 1999 1999 2001 x x x x x x x x x x x x x x x x x x x x x x x x x 75 230 400 520 170 185 30 11 174 268 2001 2004 2002 2003 30 30 25 25 45 481 176 1,600

Ras Sidr BOT Maritime Sector Petroleum Quay (Alexandria/Dakahlia) BOT East Port Said Port BOT North Sukhna Port BOT Damietta for Liquid Gas Export BOT Road Sector Alexandria – Fayoum + Exits BOT Development of Cairo – Alex—Matrouh BOT Development of Cairo – Ismailia – Port Said BOT Sohag – Hurghada BOT Luxor – Hurghada Desert Road BOT Fayoum – Assiut BOT Dayrout – Farafra BOT Cairo – Center of Alexandria BOT Ein Sukhna – Marsa Allam BOT Cairo-Aswan (west of Nile) BOT Railway Sector Boulaq El Dakrour – Alexandria BOT Ismailia – Rafah BOT Giza – Sidi Gaber BOT Marsa Matrouh – El Saloum BOT Alexandria – Marsa Matrouh BOT Sidi Gaber/Borg Al Arab BOT Alexandria/Aswan (Supertrain) BOT Cairo – Tebbeen BOT Sinai – Saloum BOT Dayrout – Rafah BOT Saloum – Natrun BOT Saloum – Morocco BOT Borg El Arab – Alexandria BOT MINISTRY OF HOUSING—Water and Wastewater Sector North West Gulf of Suez BOT Beheira Water Company BOT 6th of October City BOT

X Source: Ministry and PCSU Data Note: Italicized years represent planned award dates

PCSU—Privatization Coordination Support Unit CARANA Corporation

Estimated Investment Cost (US$) Millions 480 340 340 170 15 40 70 43 182 152 196 109 109 98 109 109 269 326

Figure 1:

Period/Yrs

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January—March 2002

CIVIL AVIATION—LOOKING FORWARD
Airport Infrastructure: Public-Private Partnership
By: Ola Attia—Director & Monitoring Specialist Paul Smith—Director & Privatization Specialist

To launch a special study for diagnosing the issues involved in the corporatization of the Egyptian Aviation Holding Company, a two-day workshop was organized by the PCSU (CARANA) on March 6th & 7th entitled Airport Infrastructure: Public-Private Partnership. The workshop was hosted jointly by the Egyptian Aviation Holding Company and the Privatization Coordination and Support Unit (PCSU/CARANA), in association with USAID, Egypt. Mr. Rob W. Merrigan, First Secretary, United States Embassy, was the workshop’s principle guest speaker. Mr, Merrigan highlighted the importance of the avaition sector to the growth of Egypt’s economy, linking the sector to sustaining the tourism industry. The workshop was attended by the senior managers and staff of the EAHC, representatives of other relevant ministries, officials of USAID and members of private and public sector organizations related to the sector.

he keynote speaker opened the session by expressing their thanks to the Egyptian Civil Aviation Authority and others in the government for the opportunity to share with the assembled group the experiences and lessons learned in their respective countries regarding airport operations, planning and development. It was also expressed that through the sharing of global experiences, the government was taking an important step to assure that Egypt’s airports would achieve and maintain high international standards over the coming years so as to best serve the economy. Invited aviation experts gave nine presentations over the two days which resulted in discussions on important airport and aviation issues raised by keynote speakers and other attendees. Some of the key topics discussed in the workshop are summarized below. AVIATION INFRASTRUCTURE: CREATING BANKABLE PROJECTS Background: Massive investment will be required for infrastructure in the emerging markets over the next decade in order to overcome bottlenecks, sustain growth rates, support increasing urbanization and promote higher levels of trade. Investment must increase from 5% to at least 7% of GDP (in developing countries) even to begin to meet these infrastructure needs. East Asia alone will need US$1.2 - US$1.5 trillion in new investment over the next ten years.
PCSU—Privatization Coordination Support Unit CARANA Corporation

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Summary

Aviation Investment: Much of this investment will be directed toward the transportation sector - for aviation development. Governments will be unable to meet this demand alone, and a significant amount of private sector investment will be required. To attract this magnitude of new investment, airports and airport complexes will have to be run more like businesses – and less like public utilities as previously. Methods: Various commercially oriented methods, such as management contracts, BOOTs (Build-Own-Operate-Transfer), and leases have been applied to airports around the world. Compared to other methods, however, BOOTs tend to remain in the study phase for longer periods of time. In any case, any effective agenda or plan for aviation reform must utilize proven methods that will create competitive markets, establish regulatory networks, and provide for transparent contracting of technically qualified firms (retail sales, security, baggage handling, airport maintenance and janitorial services). This agenda for reform also must incorporate all the necessary technical, environmental, safety, and economic components. MANAGING AIRPORTS IN A CORPORATIZED FRAMEWORK: The role that government plays in airports is changing on a worldwide basis. Governments will need to learn to guide the boat, not steer it. Governments are moving from the role of airport operators to that of par-

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P rivatization in Egypt - Q uarterly R eview
ticipants in public-private partnerships through airport corporatization, the process of moving from an airport authority to an airport company. This transition will involve the creation of airport companies, the application of corporate law to an airport company’s plans and activities; and the appointment of professional managers who practice good corporate governance. This will result in airports being more efficiently managed, being more customer-focused, and will mean that airports can gain direct access to financial markets for their expansion and development programs. However, significant cultural changes will need to take place within airport organizations. Through corporatization airports can become profit-focused and succeed in developing aeronautical revenues and nonaeronautical revenues alike. New revenue streams should result from retail sales, advertising, car parks and commercial consultancies. A case in point: the Austrian Government decreased its share in the Vienna airport from 50% to 0% in four share offerings from 1992 - 2001. This privatization, or divestiture program, has allowed the airport to become a business enterprise in its own right. Increased revenues have derived from higher passenger volume, increased non-aeronautical sales and the airport now has greater access to private financial markets that were previously unavailable to it. OPTIMIZING NON-AIRSIDE REVENUES: Passenger traffic through Airport Council International (ACI) airports will increase from 3.6 to 4.8 billion by 2020. From a commercial point of view this represents a huge customer base. The role of airports is changing. Instead of focusing entirely on moving passengers and freight from the terminal door to the aircraft and vice versa, airports are increasingly taking advantage of the time in between by offering goods and services to waiting passengers. This concept is also being extended to the surrounding community, members of which become repeat customers by frequenting airport shops, outlets, service centers, and entertainment facilities located therein. Retail sales and customer services are at the top of the list when potential investors consider where to place their aviation in-

January—March 2002

dustry directed investments. As an example, the British Airport Authority derives 50% of its income from retail operations. This is 10% above the industry suggested split of about 40/60, with the 40% going to retail sales. As a result the BAA does not lack for investors. Passengers using Egyptian airports now spend on average $4 there per visit. At other Middle East airports spending runs $12 to $16 per visit. Clearly there is a real opportunity here for upgrading and improving existing facilities to increase airport revenues. Airport retailing is most effective between immigration and boarding as this is the period when passengers are de-stressing. The design of new airports, or the expansion of existing airports should take advantage of this fact and plan for customer friendly outlets in these areas. Airport retailers should be world-class, as travelers having experience with other airports are likely to avoid poor quality and badly run shops and restaurants. Also, airports need to offer competitive commercial contracts to attract the best retail operators – ones who can consistently maintain high standards of management and customer support; and who will offer a wide range of local and international quality products and services. AVIATION POLICY & STIMULATE GROWTH REGULATION TO

Aviation is a prime catalyst for a country’s economic growth and development. It is clear that there must exist a sound well thought out country aviation policy that encompasses as best as possible all national interests, including those of the tourist industry, airports, and the national airline. Aviation policy must promote open aviation in a manner that makes the greatest contribution to the national interest, and particularly to the economy. An ‘open skies’ policy has served well in many other countries to promote increased growth in tourism and can do so here as long as ways are found to resolve the natural conflicts that would inevitably arise in the wake of such competition. Naturally, the regulations and enforcement measures of any new aviation policy should be clearly voiced and uniformly applied in the aviation sector.

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Aviation drives tourism growth, facilitates non-tourist related business, brings in hard currency, creates jobs, and creates global visibility for the country. A sound forward-thinking national aviation policy is essential to make these aims a reality. THE EGYPT EXPERIENCE: Background: The Egyptian Aviation Holding Company (EAHC) was transformed from a governmental authority to a public business sector entity with two subsidiary companies: Egyptian Company for Airports and the National Company for Air Navigation Services. EAHC engages in the same activities and has similar responsibilities as the former Egyptian Civil Aviation Authority. The EAHC works in accordance with the applicable laws that govern joint–stock companies, holding companies, limited liability companies, and labor, in addition to laws that regulate civil aviation activities. The new organization has substantially transformed civil aviation through changes in organizational and management structure; overall objectives, operational rules, revenues; and accounting and investment systems. The EAHC functions in accordance with principles adopted by the public enterprise sector. There was a critical need to make changes in the aviation sector in order to contribute toward relieving the state’s budgetary burden and to ensure future success in sector management, operations, maintenance and future development. Egypt is proceeding on the right track toward the eventual earning of ISO ratings in all fields related to aviation. In terms of private sector involvement in aviation, Egypt strongly prefers commercialization rather than outright privatization. One example of the new Egyptian approach is Marsa Al Alam Airport, an airport which is operating successfully and which was executed under a BOT scheme and inaugurated in November 2001. Marsa Al Alam Airport is currently hosting six flights a week, a pace that is expected to increase. This airport has greatly improved the potential return for additional large investments in regional tourism facilities that should now develop over the coming years.

January—March 2002

In addition, three contracts were concluded, and a fourth contract is currently under negotiations. EAHC is bearing the maintenance cost of thirteen airports that do not generate profit. Only six airports currently realize a profit. This concept of private sector participation in Egyptian airports was initiated four years ago after a law was promulgated in 1997 in support of it. Strategic investors (BOT operators) are carefully selected and closely monitored. Egypt has looked to private sector concession contracts for upgrading and management of its airports and ensuring the transfer of technology and know-how from existing airports, such as Sharm El Sheikh and Luxor. Furthermore, private sector airlines were given licenses for operation during the last seven years. The industry is a big moneymaker and an important revenue earner for the country. All passengers presently using Egyptian Airports, and transit passengers, are potential return customers and should be catered to. Airports should seek to attract tourists through modern, attractive and efficient airport facilities. Other airport features to attract passengers should include entertainment offerings, world-class dutyfree shops, clean well-run restaurants and coffee shops to serve passengers when they are in transit or waiting to depart. The first impression of the country received by visiting passenger/tourist is vitally important, and that first impression is, indeed, received at the airport. The airport complex is not only where the visitor receives his/her first impression, but it’s where the visitor’s last impression is received as well. Repeat tourism is also essential for longterm growth. By making travel on airlines and through airports as simple, hassle free and enjoyable as possible, the country creates good will ambassadors who will go home and encourage others to come. These promoters of the Egypt experience will also want to return and will bring friends and members of their family. Naturally it is also important that this policy of creating a pleasant and supportive atmosphere for visiting tourists in the airports is extended to the visitor’s entire stay in the country. This is where ministries must cooperate in order to achieve mutual goals and promote national interests.

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P rivatization in Egypt - Q uarterly R eview
THE U.S. EXPERIENCE: U.S. airports were primarily funded by cities from 1950-1970 after which the U.S., for the most part, turned to private financing through bonds which were repaid through funds obtained from passenger facility charges. US airports, whether government or privately owned, now generally seek to have a mixture of sources of financing. The U.S. has taken a broader approach to airport facilities, now seeing them not just as a public space for entering and leaving aircraft, but more as airport villages or cities, hosting a variety of activities. Some larger regional airports have been transformed into centers for economic activity serving the communities around the airports. They have shopping centers, convention centers, restaurants, stores and entertainment. They also benefit from local businesses set up within airport perimeters that serve the local community as well as the airport’s airline passengers. This arrangement creates greater profits, a portion of which goes to the airport in the form of revenue from concessions. Advertising space at airports also can be an important source of revenue and this source is often overlooked or underutilized. The fact is that airport financing and airport revenues should not be dealt with in isolation, as in the former public utility mode. Airports should be part of a broader service facility approach, only one part of which involves moving people on and off aircraft. Airline delays were up by 50% between 1996 and 2000. Traffic is forecasted to grow by 60% over the next 10 years, but surprisingly little investment had been made in new air traffic control facilities that would help to decrease these delays and make air travel in the U.S. more enjoyable and safer. Infrastructure development that had been planned at most airports has been delayed or temporarily cancelled in the wake of 11 September. For example, over $15 billion in investment had been planned in total for the airports of Atlanta, New York and Miami. The rating agencies that evaluate local government and airport debt have been extremely concerned with the large initial
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January—March 2002

drop in traffic following the 11th of September disaster which has severely affected carrier revenues. There have also been new additional costs that have been incurred by both airports and airlines due to the demand for upgraded security facilities and services. Airlines and airports are slowly beginning to recover, but it is still imperative that airports themselves begin seriously to look towards new sources of revenue in order to maintain their financial health and stability, if not even their very viability. New funds also will be needed for future growth and expansion, the access of which will depend to a large degree on how financial markets will perceive them as potential earners. Clearly, maximizing and further developing in-house retail and service capacity to take commercial advantage of the already captive customer base is the best way to ensure short term financial survival and guarantee long term commercial viability. This is a relatively low capital-intensive endeavor that all airports can take advantage of and hopefully profit by. THE CHINA EXPERIENCE: Airports in China traditionally have used central government funding as financing for their construction and development. To date, they have not used bank loans, international bonds, or foreign investment to build or upgrade airport facilities. With 122 million passengers, China ranks 6th among ICAO members. China has 141 shared airports, 22 international gateways, and 23 airlines operating in the country. The government plans to increase the number of airports to 173. Approximately 80% of China’s air traffic is concentrated in the eastern portion of the country, with Beijing, Shanghai, and Guangzhou receiving 50% of the total. China has improved its international tourism figures from almost nothing to over 30 million per year in less than 15 years, which most certainly is a notable achievement. However, because of a decision to decentralize government activities, airports must now primarily rely on a joint venture approach using private sector funding combined with local and central government participation. Local government participa-

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P rivatization in Egypt - Q uarterly R eview
tion now plays only a minor role in financing new airport construction and mainly focuses on the use of BOT or BOOT financing vehicles. However, most of the BOT participation is from the Chinese private sector. Several of China’s large airports are relatively profitable, whereas smaller airports generally make small profits, or are not profitable. This has led to a tendency to affiliate smaller facilities with larger regional or international airports that use the smaller airports for congestion relief, as is commonly done in the U.S. In China, small airports are usually interested in becoming part of an aviation facilities group that has at least one large airport as its prime economic base. It will take a number of years to transition from the way airports have traditionally been financed in China to new ways. In effect, the Chinese are testing new methods to see what works best. Passenger facility charges, usually termed airport construction fees in China, have been instituted and are becoming a very important source of funds to the country for funding airport construction or repaying loans taken out to build and upgrade airports and other related facilities. Approximately US$6 per passenger domestically, or US$12 per passenger per trip internationally, has to be paid, regardless of the destination, carrier or airport. THE INDIA EXPERIENCE: India has 122 airports. Sixty-two are operational for civil aviation, twelve are international, and nine are considered to be profitable. In 2001 twenty-five million passengers were handled by the system with thirteen million of those being domestic. Last year 2.4 million tourist visited India, a figure slightly higher than for the year 1990. Reform has concentrated principally on the privatization of Air India, the dominant carrier in the country. Two bids for the airline were received, however negotiations failed to produce a deal. There is little current private sector penetration of the airline industry. A few airports are struggling with new ownership models and the government has made claims about the desire to attract private investment, but relatively little has been accomplished to date.
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January—March 2002

SECURITY ISSUES: Recently, in the U.S., airlines have had to focus on how to encourage passengers to come back. Airports also are concerned with how to adjust to a new federal bureau for transportation security. This new bureau for airport security will require that up to 50,000 new employees will have to be employed and trained. It is an evolving process, but security is currently a major issue that needs to be dealt with. At the same time, airports should be as efficient, well run, and as passenger-friendly as possible. On the other hand, what is happening in the U.S. from a security standpoint doesn’t necessarily make logical sense. What took place on 9/11 may not have been prevented, even by expensive new technology or well-trained personnel. It is interesting to note that the level of security at US airports is, or at least appears to be, much higher than in Europe or other parts of the world where operating standards and approaches are different. Security measures are indispensable and effective security should be a vitally important component of any tourism or general travel promotional program. Enhanced security can help tourism in particular, because tourists are much more aware of and concerned about the safety and security of the airports they visit. In fact, security has now become a customer service issue. Instead of treating security as something that can be lessened or dispensed with when a particular current threat or problem subsides, airports are going to have to integrate security into their master plans for the long term. For Egypt, these points have been discussed and appropriate measures agreed upon in the Montreal meetings that took place in late February 2002, as well as in the Council of Ministers meeting on security issues. To not make these changes would have been unwise, and would have only presented greater opportunities for terrorists and greater anxiety for the traveling public.

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P rivatization in Egypt - Q uarterly R eview
RECOMMENDATIONS: • The Egyptian aviation sector needs to undergo major change through the initiation of a well thought out and thoroughly comprehensive modernization program in order to improve its ability to cope with the latest developments in the world airline industry. • The government should play a major role in support of the aviation sector in Egypt, including reasonable regulation and systematic policies that encourage private sector participation in aviation facilities and systems, airline companies, and other related businesses. • In order to attract private sector investment to assist in the financing and development of Egypt’s airports, the government must have a clear and rational aviation policy nationwide, appropriate regulatory regime, and a growing well functioning air travel system.

January—March 2002

• The hub system appears to be the best way to encourage and assist the development of small and remote airports. • The Luxor Airport can be profitable and can compete in foreign markets if upgraded and marketed appropriately. • Egypt must think creatively and broadly (but also practically) when marketing its destinations and airports. It is not enough to simply believe that a new or upgraded airport will attract sufficient new visitors to pay back a private sector investor. • Any new overall plan to upgrade and improve Egypt’s air transportation system, should be based on sound and tested concepts customized for implementation in Egypt.

These preliminary findings are now under discussion with the staff and senior management of the EAHC, the officials of the Ministry of Aviation and other interested parties. Additional information is also being collected to further refine and substantiate these findings. The PCSU expects to complete this Special Study within the coming two months.

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January—March 2002

CORPORATE GOVERNANCE IN EGYPT
By: Nermine Abulata Economist—Assistant to the Minister of Foreign Trade

Currently, the principles of Corporate Governance are gaining much acceptance and are receiving support in Egypt. The Ministry of Foreign Trade has stated its intention to develop a Corporate Governance best practices culture in the context of public institutions. In collaboration with MOFT, a number of steps have already been taken. The first Corporate Governance Country Assessment was conducted by World Bank, and a Corporate Governance conference was held last October in Cairo.

Steps Taken in Line with OECD Principles
Protecting Shareholders Rights: The Egyptian system for Corporate Governance provides for a fair system for protecting shareholder rights through consecutive stages; safe and secured settlement process, insurance system for the transactions in the market, compensation in case of bankruptcy, the Settlement Guarantee Fund, a system for filing complaints, and the appeal committee.
•

•

Compensations Mechanism - which is stipulated by the Capital Market Law (Article 23) through the Compensation Fund that compensates shareholders in case the intermediary goes bankrupt. The Appeal Committee - to oversee problems arising between investors or corporations and government agencies [MOFT & CMA]. On the Corporate Level - the shareholders’ rights are being protected through the Companies Law that provides for securing their basic rights, their right to participate in decisions on fundamental corporate changes, and disclosure of capital structures and arrangements enabling control and ownership.

•

•

Filing Complaints - the CMA has created a mechanism for the shareholders to file their complaints. The total number of complaints to CMA and their value (as of December 2000) against some companies working at the Capital Market - regarding disclosure and other aspectswere 2,136 complaints, of which 1,677 were resolved. Settlement Process - through the central depository system that is done by Misr Clearing, Settlement and Depository company (MCSD), where all transactions are cleared through a computer-based system linked to the Stock Exchange and the two clearing banks. Settlement Guarantee Fund - to cover potential settlement losses arising from default by financial institutions. Insurance System - which was introduced through the “Insurance Policy for Professional indemnity”, requiring securities intermediaries to subscribe to a group insurance policy compensating investors for faulty actions of intermediaries.

Stakeholders’ Rights: The current Corporate Governance system in Egypt provides respect for:
•

•

Stakeholder rights that are protected by contract or specific laws, such as the labor act, and the environmental law. Employees that have the right to be represented in the Board meetings through the Employees Shareholders Association (ESA). Mechanisms that increase stakeholder access to information and allow them more participation, and redress for the violations of their rights.

•

•

•

•

Disclosure and Transparency:
•

Issuance of Executive Regulations of the Depository Law 93/2000.

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P rivatization in Egypt - Q uarterly R eview
•

January—March 2002

Both CMA and CASE are undertaking procedures to enhance the electronic surveillance system in the market on on-line and off-line basis. In October 1997, the government published corporate guidelines on International Accounting Standards (IAS), and required joint stock companies to prepare financials based on IAS. Disclosing financial statements of the listed companies to the concerned regulatory agencies every quarter, and operational performance to them on a quarterly, semi-annual/annual basis. Disclosing company information on an annual basis through the balance sheet, income and cash flow statements, directors’ reports, changes in stockholder equity and board composition, as well as the external auditor report. Introducing a strong penalty system for violators of the transparency and disclosure rules. Preparing financial statements in compliance with Egyptian accounting standards. These are in line with international accounting standards. Six of the Egyptian Auditing Standards were issued.

an updated register of shareholders; they must make available such list at the AGM.
•

•

The issuance of the Central Clearing and Depository law was a major achievement as a method of enhancing the efficiency of the capital market, and facilitating the dealings and transactions. Mergers and acquisitions are strongly controlled by the Corporate Law 159 which stipulates that any person intending to launch an acquisition resulting in ownership of at least ten percent of capital must give the company two weeks’ notice via registered mail.

•

•

•

Although many steps have been taken, yet a number of strides need to be fulfilled to continue development of Corporate Governance structure in Egypt.

•

The World Bank Report: “Egypt - Corporate Governance Country Assessment Report”
In collaboration with MOFT, CMA and CASE, the report has examined main areas of strong effect and influence on the corporate sector in Egypt in matters related to Corporate Governance, which highlighted the main areas of Corporate Governance framework in Egypt, as follows: Shareholders Protection with regard to the basic rights, shareholders meetings and disclosure of capital structures, equitable treatment and statutory remedies, participation in fundamental corporate decisions, insider trading and self dealing and related party transactions. Role of Stakeholders in Corporate Governance regarding respect of legal rights, redress for violation of rights, performance enhancing mechanisms for stakeholder participation and access to relevant information. Financial and Non-Financial Disclosure, with regard to disclosure of material information, external audit, major share ownership, disclosure relating to directors, key executives, and their remunerations.

•

•

Management and the Corporate Governing Bodies:
•

The Egyptian system for Corporate Governance ensures the accountability of the board of directors vis-à-vis shareholders, in the sense that the AGM is the supreme power. Penalizing directors who commit bribery, forgery, provide misleading information, distribute fictitious dividends or engage in self-dealing with prison terms and/or fines depending on the seriousness of the violation. Upon request of shareholders, CMA and COOR exert oversight of management by inspecting the company.

•

•

Ownership and Control Structures:
•

By virtue of law, companies maintain

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P rivatization in Egypt - Q uarterly R eview
Governing Body with regard to the structure and legal duties, nomination, key functions and independent oversight of management. The report has evaluated the Corporate Governance framework according to a ranking of; observed, largely observed, materially not observed and not observed, in which the Egyptian Corporate Governance structure has scored Observed in the following areas: Shareholders Rights regarding share transfer, share in the profit, amendments to the statutes, authorization of additional shares, extraordinary transactions (resulting in sale of the company), sufficient and timely information about AGM and non use of anti-takeover devices to shield management from accountability. • Equitable Treatment of Shareholders concerning same voting rights for shareholders within each class, ability to obtain information about voting rights attached to all classes before share acquisition, changes in voting rights subject to shareholder vote, AGM processes and procedures allow for equitable treatment, avoidance of undue difficulties and expenses in relation to voting. • Respect of Stakeholder legal rights and performance-enhancing mechanisms for stakeholder participation. • Responsibilities of the Board regarding Compliance with law and taking into account stakeholders’ interests and access to accurate, relevant, and timely information. On the other hand, the report has identified six points of weaknesses in the Corporate Governance framework in Egypt which need further improvement regarding disclosure of ownership and control structures; disclosure of financial and non-financial information; training and capacity building for regulators and the private sector; effectiveness of shareholders’ meetings; limitations in business practices of board of directors and lack of a formal system monitoring professional conduct of the auditing profession. The following are policy recommendations to overcome those weaknesses:

January—March 2002

Disclosure of Ownership and Control Structures: Bearer Shares: Bearer shares should be allowed to vote and that shares be fully paid-up in order to have voting privileges. Disclosure of Financial and Non-Financial Information:
A. Strengthening disclosure of financial

and non-financial information: Requiring market disclosure of all ownership holdings in excess of five percent share capital for listed companies and introducing measures whereby shareholders have access to beneficial ownership positions (at the AGM or through MCSD/COOR).
B. Strengthening disclosure of informa-

tion: Disclosure should include all kinds of foreseeable risks. Training and Capacity building for Regulators and the Private Sector: Organizing a conference and consecutive seminars. Develop training programs for COOR to instruct companies. Strengthening the Role and Effectiveness of Shareholders’ Meetings
A. Minority shareholders rights: which is

expected to change after the introduction of the new Capital Market Law that includes a chapter for the minorities shareholders’ rights. It can also be strengthened through the introduction of cumulative voting, promotion of an organization to represent minority shareholders, the possibility of shareholders holding a specified percentage of shares to propose candidates to the board, or a rule to mandate equitable treatment.
B. Voting on any transfer of assets by im-

proving shareholders voting on any transfer of assets. Improving Business Practices of Boards of Directors: Encouraging corporate governance awareness; establishing an Institute of Directors. increasing awareness about

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P rivatization in Egypt - Q uarterly R eview
Insider Trading cases; strengthening the administrative penalties; using listing requirements to create incentives for companies; strengthening the concept of independent directors Introducing Formal System to Monitor Professional Conduct of the Auditing Profession: Actions could include supporting the creation of an independent professional body with the authority to impose standards of excellence and of professional conduct based on a code of ethics.

January—March 2002

related to Corporate Governance codes • Presenting the Auditing and Accounting law to the Parliament • Presenting the Anti Trust Law to the Parliament and Finalizing the revision of Unified Corporate Law. Institutional and Capacity Building • Strengthening the Companies Organization (COOR), and further strengthening Capital Market Authority (CMA). • Stressing and encouraging Self Regulatory Organizations (SROs) Market Operations and Corporate Sector Awareness • Establishing a regional Institute of Directors located in Cairo for training and awareness • Establishing a Corporate Governance mechanism for listed companies • Having periodic Corporate Governance publication and Updating scores assigned by World Bank ROSC team on an annual basis • Finding a sound terminology in Arabic equivalent to the term CG to help in planting the Corporate Governance into the Egyptian culture

Corporate Governance Practices in Egypt—The Road Ahead
Under the auspices of the Ministry of Foreign Trade, in collaboration with Capital Market Authority (CMA), Egyptian Capital Market Association (ECMA), Egyptian Center for Economic Studies (ECES), Center for International Private Enterprise (CIPE), and the World Bank, a Corporate Governance conference was held in Cairo, in October 2001, which discussed Egyptian Corporate Governance framework and further steps ought to be taken to improve it. Policy recommendations stemming from the conference, as follows: Legislative and Legal Framework • Presenting the new Capital Market Law to the Parliament, with possible incorporation of a chapter or annex

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January—March 2002

REVIEW

OF THE

ESA PROGRAM

At the request of the Public Enterprise Office, the PCSU conducted an exhaustive study on the performance of companies sold to their Employee Share Associations. It makes several important findings concerning the appropriateness and effectiveness of the ESA sale program. Below is the executive summary of the study. The entire study can be downloaded from our website at www.carana.com/PCSU.

Introduction
mployee ownership has been one of the features of the Egyptian privatization experience. The prominent role that ESA transactions have played in the program implies that the ESA experience should be carefully reviewed on an on-going basis in order to gather as many lessons as possible. This study will focus on company performance: how well have the ESA-privatized companies performed since privatization? Specifically, the study will:
• • • •

E

Provide a background and update on ESA privatization in Egypt; Review the performance of majority-ESA privatized companies; Present an update on the experience of the minority ESAs; Develop some conclusions and some recommendations that can be made to improve ESA privatization in the future.

Background
A brief review of the ESA privatization transactions reveals three general observations about the ESA privatizations and their role in the overall privatization program: 1) ESA Privatizations have played a large role in the Egyptian Privatization Program. The ESA/ESOP sale technique has played a major role in Egypt. 32 majority ESA sales have taken place through the end of 2001. These sales represent almost one-third of the 99 non-liquidation transactions that have taken place to date. 2) ESA Privatizations have been clustered in two distinct phases of the program. In FY 1994/1995, during a period of international pressure on the Ministry of Public Enterprise to speed up the pace of divestiture, ESAs were energetically pursued by one holding company. Ten transactions were ultimately carried out by the Holding Company for Agriculture and Irrigation. From mid-1997 into early 1999, ESAs again gained momentum, for several reasons:
•

• •

The ten early Public Works ESA companies were booming, and seen as highly successful. This experience encouraged decision makers to carry out similar transactions; In many sectors, public sector employees (as represented by their company ESA) made requests to the Ministry to participate in an ESA privatization program; Share flotations (IPOs) became more and more difficult, as the stock exchange began to decline.

Starting in November 1997 with three finalized ESA transactions in the inland transportation sector, this stage continued for nearly 15 months, with of a total of 15 companies sold to their ESAs.

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January—March 2002

3) ESA Privatizations have been concentrated in several specific sectors. This concentration is no coincidence, but reflects the different emphasis placed on ESA privatization by different holding companies. Several holding companies have been particularly active, including the Holding Company for Agriculture and Irrigation (since merged into the Holding Company for Trade), and the Mills Holding Company (since merged into the Food Industries Holding Company), and the Maritime and Inland Transport Holding Company. Each of these holding companies has essentially divested entire sectors through ESA privatization. Since only two ESAs have been reported since 1999, ESAs appear to be somewhat out of favor among privatization policy-makers. Reasons for this include:
• • • •

The consensus on the benefits of anchor investor privatization Poor performance at many of the potential candidates in the remaining Law 203 portfolio, making them difficult candidates for ESA privatization Uncertain or poor performance of many privatized companies (as will be detailed below) The completion of privatization in the “ESA sectors” (e.g. rice mills)

Privatization Impact
To examine the impact of ESA privatization and the performance of ESA companies since privatization, this study reviews ten factors to get a general understanding of how the companies have changed since privatization. The ten factors are reviewed on a sectoral basis, to capture the commonalities of the privatizations that have taken place. Three sectorspecific sections include:
• • •

Public Works and Land Reclamation ESA privatizations Rice Mill ESA Privatizations Maritime and Inland Transportation ESA Privatizations

In each section we will review:
• • •

Background Information on each sector; A review of the details of the ESA transactions in each sector; A review of privatization impact, organized around the 10 factors identified below.

Figure 2 on the following page presents a summary of the evaluation of the ten factors in each sector.

The Situation in the “Minority ESAs”
Like their majority-ESA cousins, the minority ESAs face a number of problems. Like all ESA companies, they must repay the Holding Company through installment payments. These installment payments are funded out of dividends. Therefore, if the anchor or controlling investor does not wish to pay dividends, the minority ESA will almost immediately run out of liquidity. As a related problem, when the traded price of a share falls considerably, ESA members may find it intolerable to make installment payments that are tied to the original offering price. As a result, at least ten company ESAs have sold off their stakes to anchor investors, or simply liquidated themselves and returned their shares to the Holding Company.

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Figure 2:

January—March 2002

ESA Performance Chart Maritime / Inland Transport
Poor /Fair

Factor
Financial Performance

Public Works
Excellent

Rice Mills
Fair

Success in making installment payments

Excellent

Poor

Poor /Poor

Sector Competitiveness

Good

Excellent

Excellent /Excellent

Privatized Company Competitiveness Changes in Corporate Governance New investments since privatization Post-Privatization Restructuring

Good

Fair

Poor /Fair

Modest

None yet

None yet

Few

N/A

None/Few

Limited Increased / stable employment Increased wages Good/increasing

N/A

Limited / Limited

Impact on Labor

N/A

N/A

Independence from the State

Very limited

Limited / Limited

ESA Governance

No problems reported

N/A

N/A

Conclusions and Recommendations for the Future
The public works companies have performed well, but it is difficult to generalize their experience or relate it to ESA governance. There is no question that many of the public works companies are performing well, and have grown quickly. There is also no question that many other companies have performed poorly, and are in difficult situations. However, it is difficult to tie this experience to the ESA governance of the companies. The successes and failures of these companies are generally related to their sector. Land reclamation services were in great demand by the government; maritime services companies were faced with overwhelming competition from higher-quality new entrants. Of all 34 majority-ESA privatizations reviewed in this study, only the public works companies have been privatized for a long enough period to get majority control on the Board of Directors. The other companies have received “grace periods”, and a large majority have not made any installment payments. The Holding Company thus remains firmly in control.
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January—March 2002

ESA privatization is superior to no privatization. Many Holding Company Chairmen quietly view ESA privatization as a palatable alternative to keeping companies in the public sector, or even as an alternative to liquidation. The data shows that ESA privatization is considerably superior to no privatization at all:
• • •

Privatization allows the overall sector to prosper. Privatization provides harder budget constraints. The companies are slowly restructuring and moving towards a private sector mentality and mode of operation.

“Contracting out” of government services appears to work. The most successful privatized ESA companies are the public works, land reclamation, and trucking companies. These companies share the characteristics of selling most of their services back to the government. Because of contacts and tradition, they will be more difficult to dislodge from this role than companies that sell directly to the private sector, as privatized companies. Even within the public works companies, the ESA appears to have played a relatively small role in governance. Majority ESA companies have two significant shareholders: the State and the ESA. Because the ESAs only gradually acquire control rights, the Holding Company (in the person of the Chairman of each ESA company, appointed by the Holding Company) has had decisive power and authority. Therefore the real test of ESAs as managers will come in 2-3 years time. The Chairman of Beheira Company expressed some concern over the current and future state of ESA governance in his company. In particular, he noted that the board members appointed by the ESA tended to be those who made the largest promises to workers, in terms of increased benefits, salary, etc. He thus hoped that the ESA would in the future appoint “professional” members, who could understand and interpret financial statements and annual reports, and make real contributions to corporate decision-making. Given the relative small change in corporate governance, it is perhaps not surprising that there has been relatively little change in management or management structure.
•

Most ESA companies appear to be shedding labor, like other privatized companies. Except for the public works companies, ESA companies are reducing employment towards “optimal levels”. The public works companies appear to have undertaken only limited labor restructuring since privatization. This stable employment is a positive, but unusual situation, because most former public-sector companies shed workers before and after privatization. Allowing the failure of an ESA company will be crucial. An important test for the privatization program and the Holding Companies will come when a privatized ESA is about to fail. Should the Holding Company be forced to intervene, it will set an major precedent. It will have crossed a line that divides “public sector” from “private sector”.

•

Recommendations for Future ESAs
•

Lower valuations or give them away for close to free. Selling shares at a lower price to ESAs would privatize the companies, and solve the social goal of giving the workers a stake. In exchange, the privatization contract could require that dividends be minimized, and that net income be reinvested back into the company in the form of new plant and equipment, training, consultancy fees and strategic advice, etc. As a result, future ESAs would see significantly more investment into the privatized firm. Focus ESA efforts on companies that provide services to the government. The experience of the public works companies (and to a lesser extent, the trucking companies) suggests that the idea ESA candidate sells services back to the government.

•

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January—March 2002

As a result, government can “shelter” the ESA in its early years, and provide a base from which it can diversify. The privatized companies will also have a natural advantage in selling back to the government, because of their culture and old affiliations. The classic candidates would be other construction companies with particular specializations. It is not clear how many of these would remain in the portfolio.
•

Avoid services companies that compete with the international private sector. The maritime service company experience suggests that it is a failing strategy to sell companies that will immediately compete with experienced private sector candidates. The cultural shift that is required is probably too much for an ESA company to carry off. A better strategy would be to force competitors to acquire public sector companies in a given sector (at a low price, and perhaps with a large ESA share) in order to enter the sector. This would require coordination from many different levels of government. Ensure that all possible Early Retirement is carried out before privatization. With limited capital and employee-owners, new ESA companies are particularly badly placed to put their own early retirement programs in place. In addition, repurchase liability may require the ESA to buy back the shares of workers as they leave the company after privatization. As a result, it is crucial for each Holding Company to carry out an early retirement program at each ESA with the goal of reducing excess labor to zero, and employment to an “optimal” level.

•

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January—March 2002

CASE STUDY: HEIA REFRIGERATED PERISHABLES TERMINAL
Private Sector Initiative for a BOT Project: An unconventional approach to a conventional problem
The perishables agribusiness sector in Egypt faces a major problem in exporting its products. Due to lack of a refrigerated Perishable Terminal at Cairo International Airport, perishable products are exposed to ambient temperatures while being prepared for air transport that significantly damage them, reducing their shelf life by 2 to 5 days. This results in reduced prices and acceptability in the market place and creates a serious impediment to exporting horticultural products. Private sector growers and exporters in Egypt have recognized the critical importance of producing and transporting products that meet international standards and through their trade association, HEIA, have found a practical solution to the problem of lack of a refrigerated Perishable Terminal at Cairo International Airport. This not-for-profit NGO proposed a BOT plan to assist its members, and in the process is establishing a new precedent of the private sector taking the lead in contributing to the national economy through exports.

Agricultural and Horticultural Sectors at a Glance…..
• • • •

Agricultural sector represents 20% of the Egyptian GDP Related industries and services represent an additional 20% of GDP 36% of labor force works in the agricultural sector 50% of the Egyptian population live in rural areas where agricultural activities predominate 22% of the commodity exports are from this sector

•

he Egyptian horticultural sub sector is large and diverse, producing over 40 different types of fruits and vegetables and over 20 million metric tons of produce a year. Newly reclaimed desert lands have provided the conditions and incentives for growers to concentrate efforts on new horticultural crops demanded in world markets. The Horticultural Export Improvement Association (HEIA) was created in 1997 as a

T

member-driven non-profit association under Law 43 for the benefit of growers, exporters, and processors in the horticultural industry. Key participants in the horticultural industry, recognizing the importance of producing export crops with international quality standards, joined forces to bring together the necessary elements to achieve this through their trade association, HEIA.

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Figure 3:

January—March 2002

Premium Exports to Key Markets
(in Millions of Dollars)

Products / Markets Cotton Wheat Corn Rice Peanuts Lentil Oils Soya Beans Other Grains Onion Garlic Potatoes Tomatoes Green Beans Citrus Grapes Melon Water Melon Mango Apple Meat Poultry Milk Dairy Products Fish Other Sea Products Totals Total Horticultural Exports Percentage of Total

Arab Countries*
Oct-01 Jan - Oct 2001

European Union
Oct-01 Jan - Oct 2001

United States
Oct-01 Jan - Oct 2001

0.01 1.73 0.03 0.29 0

1.02 0.01 0.24 53.75 0.12 1.63 414.64 0.02 10.12 0.26 6.05 0.21 1.54 3.62 0.14 0.13 0.23 0.17 0 1.14 0.32 2.12 0.99 0.07 0.37 498.91

0.95

0.2 0.27 0

56.14 0.01 0.01 6.26 0.64 0.003 1035.7 0.01 10.51 0.95 19.68 0.16 1 2.7 0.976 0.13 0.02 0.006 0.05

1.15

4.79

0

0.02 0 274.43

0.58 0.02 0.04 0.31 0 0 0.02 0.08 0.09 0.03 0.29 0.19 0.02 0.04 3.77

0.21 0.01

0.01 0.01 0.001 0.04 0.001 0.002

0.03 0.01 0.17 0.01 0.001

0

0 0.009 1.87

0 0.03 0.03 1135.02

0.01

0.001 0.04 0.01

1.16

279.36

1.05 27.85%

22.47 4.50%

0.44 23.58%

36.13 3.18%

0 0.00%

0.06 0.02%

Source: Ministry of Foreign Trade, Monthly Economic Digest, March 2002

Overview of HEIA HEIA, the Horticultural Export Improvement Association, was created in 1997 to assure access to modern production technology, state of the art post harvest handling practices, and to connect the industry to market information. The organization supports the industry in achieving its production, quality and marketing goals. HEIA is a private sector, member-driven association supporting the Egyptian horticultural

industry (growers, processors, exporters and suppliers) to increase exports of fresh and processed produce through continuous improvement of quality production, marketing, policy advocacy, training and management. HEIA’s membership has grown to 180 in the five years since its inception. It’s members include growers, exporters, consultants, input suppliers and service providers.

PCSU—Privatization Coordination Support Unit CARANA Corporation

21

P rivatization in Egypt - Q uarterly R eview

January—March 2002

Figure 4: HEIA Membership Growth
178 Exporters 10% 120 92

Figure 5: HEIA Membership Distribution
Suppliers 11% Services 13%

50 25 Growers/ Exporters 30% 1997 1998 1999 2000 2001 Growers 36%

The Need for a BOT In order to meet its export marketing goals it was necessary for the Egyptian perishables horticultural industry to address the issue of refrigeration from the point of harvest to the point of loading produce on transport aircraft. With 40 pre-cooling facilities in place at strategic producing locations and availability of refrigerated trucks, all that remained to complete the refrigerated chain was the installation of a refrigerated Perishables Terminal at Cairo International Airport. Financing the Project After convincing Cairo International Airport officials of the needs and benefits of adding a refrigerated Perishables Terminal at the transit cargo village at the airport, HEIA tried unsuccessfully to find donor and other sources of traditional financing for the project. In the end, utilizing the BOT (Build, Operate, Transfer) method of financing provided the solution. Contract Details The contract calls for HEIA to build the facility and operate it for 15 years before transferring it to Cairo International Airport. The BOT contract was signed on 7 October 2000. HEIA will rent land (24,000 m2) for the facility from the airport for LE12,000 per

month plus a fixed annual fee of LE250,000. HEIA will charge exporters LE165 per ton per day for processing their produce and importers LE205. Projections indicate that running costs and debt service will be possible with the utilization of 50% of the facility’s capacity. The facility is being financed by a LE12 million loan from the Egyptian Export Development Bank carrying an annual interest rate of 8.5% . HEIA was granted a two-year grace period after which the loan will be repaid over a period of three years. Description and Construction The tender process for the build phase lasted three months. Ginza for Construction and Development Company was selected from five bidders for the civil works contract while Miracco Carrier won the tender for the cold storage works. The main building of the refrigerated terminal will be located on 7,670 square meters out of the 24,000 meters rented from Cairo Airport. HEIA plans for a second phase in the future to extend the refrigerated terminal on the remaining land. This depends on the market needs and the success of the first phase. The refrigerated facility is designed with a capacity of 150 tons per day of export produce and 30 tons per day of import or transit produce.

PCSU—Privatization Coordination Support Unit CARANA Corporation

22

P rivatization in Egypt - Q uarterly R eview
Construction of the cold storage terminal facility is scheduled to be completed by the end of 2002 with operations commencing immediately thereafter. Employment The refrigerated terminal will provide service on a 24 hour basis seven days a week. Three shifts of workers will be hired with each shift consisting of about twenty workers plus management. Benefits to the Egyptian Economy • Increase perishable vegetable and fruit exports by at least 40%, which is the percentage now lost due to lack of a refrigerated terminal • Enhance market share and improve the presence of Egyptian horticultural products in the international market due to increased quality of products • Widen and diversify Egypt’s export base of horticultural products such as fresh cut flowers
Figure 6:

January—March 2002

• Stimulate foreign investment in Egypt in the field of horticultural exports • Allow members of Egypt’s horticultural sub-sector to expand their business through exports by making long-term commitments • Create new jobs during construction and the operation of the facility As evidenced by the graph below, Egypt is faced with a serious trade deficit. In this regard, it is encouraging to see private sector initiatives such as the HEIA BOT Perishables Terminal as a positive step towards increasing export trade. In addition to increasing exports and profits for members of the horticultural industry, the HEIA project will create a significant number of new jobs.

International Trade in 2001 3500 3000 2500 2000 1500 1000 500 0 Q1 Non-Oil Exports Q2 Non-Oil Imports Q3

PCSU—Privatization Coordination Support Unit CARANA Corporation

23

P rivatization in Egypt - Q uarterly R eview

January—March 2002

MINISTRY OF PUBLIC ENTERPRISE
INTRODUCTION
uring the First Quarter the Ministerial Privatization Committee approved 4 transactions worth LE41.6 million. Ninety eight percent of both United for Trade and Arab Textile sold to their employees for LE4.9 million and LE5.77 million. The syringe factory of El Nasr Glass and Crystal was sold for LE20 million. The remaining 10% of the Misr for Telephone Equipment was sold to the existing private sector majority owner for LE11 million. Several transactions await MPC approval. The Metallurgy Holding Company approved the asset sale of the Sabi Company (also known as Precison Industry) factory in Mostorod. On December 10, 2001, the General Assembly of the Holding Company for Metallurgical Industries approved the sale of two production lines from El Nasr Glass & Crystal Company to United Glass Company, one of which was approved in the first quarter. The sale of a third production unit that manufactures glass bottles is still under ne-

D

gotiation. International investors have expressed interest in Misr Hotels, which owns the Nile Hilton and the Dahab Hilton. The MPC was to consider ways to resolve a tax-related issue that has delayed the sale of the Company. The Chemicals Holding Company conducted a successful tender of Delta Fertilizers that generated expressions of interest from eight anchor investors from which two bids were received. A panel of valuation experts met on March 4, 2002, to discuss a range of issues related to the valuation of public enterprises. The panel, whose members included representatives from the MPE, Central Audit Agency, CIIC, Banque Misr, and the private accounting profession, recommended that there be no ceiling for calculating discount rates in discounted cash flow valuations. A number of assets were advertised for sale during the quarter. Additionally, an advertisement was placed in local and several international papers asking for expressions of interest in 8 companies.

Figure 7:

Privatization Achievements: Transactions Summary to 31 March 2002
Majority Privatization(>51% sold) Partial Privatization/ Leases

Year 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 Total
Source: PEO

Anchor Investor

Majority IPO

ESA

Liquidation 1 3 1 1

Majority Minority Asset Leases Total IPO Sales 1 3 1 1 12 6 18 23 28 21 9 8 2 1 6 6 2 1 1 1 3 4 6 3 1 16 19 20 2 8 8 2

Yearly Total 1 3 1 1 13 12 25 28 32 33 23 13 3 188

3 1 3 3 2 9 5 4 14 14 8

7 3 3 12 5

2 2 1 3 6 7 3 2

1
2 2

29

38

34

32

133

Majority Privatization Total 133

Partial Privatization/ Leases total 55

PCSU—Privatization Coordination Support Unit CARANA Corporation

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P rivatization in Egypt - Q uarterly R eview
Figure 8:

January—March 2002

Law 203 Privatization Announcements, Tender Dates, and Results
Tender Opened Tender Closes Transaction Status
To be re-packaged and re-offered

Company Name

For Sale

Bidding Results
One offer submitted - under negotiation 6 bid documents, only one bidder. Negotiating with bidder.

HC Chemical

Plastic Factory Assets -- Victoria

19-03-01

15-04-01

Al Nasr Steel Pipes

100% of shares

26-02-01

9-05-01

Bid declined—to be re-offered Lease and deferred sale contracts to be signed-still awaiting MPC approval Resolving tax dispute Three bids received and under evaluation—no change in status Under evaluation One asset awaiting MPC approval. One sold Awaiting MPC Approval In negotiations

Abou Zabal Fertilizers

95% (19.8 million) of shares

20-03-01

30-06-01 ext.

One bid submitted

Misr Hotels

70.54% (Nile Hilton and Dahab Hilton)

29-03-01

Open Tender*

Omar Effendi Transport & Engineering Al Nasr Glass and Crystal Alexandria Cooling Delta Fertilizer

90% of shares

27-01-01

3-Sep-01 ext. 1-07-01 ext. 02-09-01 ext. 29-03-01 N/A

At least 11 bid documents sold

90% of shares 90-100% (3 production lines) 90% of shares 90% of shares

12-10-00

One offer received

1-04-01

11 bid documents Negotiations concluded. Sale value LE 33 million Received two bids

03-02-01 N/A

Source: PEO * Since the previous quarter the status has changed of those marked as cancelled and sold. They will not be included in the next tracking chart.

PCSU—Privatization Coordination Support Unit CARANA Corporation

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P rivatization in Egypt - Q uarterly R eview

January—March 2002

Figure 9:

Newspaper Advertisements Appearing During the 1st Quarter 2002
Company Name HC spinning & Weaving Delta Fertilizers & Chemicals HC Metallurgical Marriout Agriculture Sornaga* General for Metals* Porcelain & Ceramics* Delta Steel* Engineering Industries EGOTH HC Trade National Plastic Company Egyptian Copper Works* NARUBIN* NIAZA* Industrial Design Dev. IDDC* SIEGWART* Egyptian Leather Industries HC for Trade HC for Spinning & Weaving For Sale Stores Shares Land Land Land w/ buildings Land w/ buildings Land w/ buildings Land w/ buildings Land w/ buildings Land w/ buildings Assets Assets Assets Assets Assets Assets Assets Assets Assets Land Factory Factory Factory Factory Quantity 2,000m2 90% 219,631 m2 Method of Sale Auction Sealed Envelopes Sealed Envelopes Auction Sealed Envelopes Sealed Envelopes Sealed Envelopes Sealed Envelopes SORECO & FINCORP SORECO & FINCORP SORECO & FINCORP SORECO & FINCORP Shoukry Michael Name of Agent Omar Tousson Date of Ad 4-Jan-02 5-Jan-02 7-Jan-02 10-Jan-02 15-Feb-02 15-Feb-02 15-Feb-02 15-Feb-02 24-Jan-01 25-Jan-02 23-Feb-02 5-Feb-02 6-Mar-02 6-Mar-02 6-Mar-02 6-Mar-02 6-Mar-02 7-Mar-02 24-Mar-02 Hisham Eissa 29-Mar-02 Description of Ad Initial Offer Initial Offer Initial Offer Initial Offer Initial Offer Initial Offer Initial Offer Initial Offer Initial Offer Initial Offer Initial Offer Initial Offer Initial Offer Initial Offer Initial Offer Initial Offer Initial Offer Initial Offer Initial Offer Initial Offer 11-Apr-02 1-Apr-02 16-Mar-02 14-Mar-02 5-Mar-02 Bids Due Date 30-Jan-02 9-Mar-02 15-Jan-02

Shobra Sealed Factory Envelopes (Armenian) Elephantine Sealed Hotel Envelopes Different assets Batteries Factory Factory Factory Factory Factory Factory All Factory Var. Assets 65,360 m2 Sealed Envelopes Auction Not Given Not Given Not Given Not Given Not Given Auction Sealed Envelopes Auction

*Call for expression of Interest Source: PCSU Data— compiled from Holding Company advertisements

PCSU—Privatization Coordination Support Unit CARANA Corporation

26

P rivatization in Egypt - Q uarterly R eview

January—March 2002

he following tables and charts provide details on the achievements of the Egyptian privatization program to date. The information is based on the most recent data available from the PEO. The tables are preceded by notes 1 through 11 below which explain counting methodologies for companies sold in groups and/or using multiple sales mechanisms, or sold to non-MPE government entities. Other sources may interpret this data differently, leading to slightly different total counts by year and privatization method.

T

Results of Law 203 Privatization Since the Beginning of the Program
133 M AJORITY PRIVATIZATIONS AND 55 PARTIAL PRIVATIZATIONS 38 COMPANIES SOLD 29 COMPANIES SOLD
THROUGH MAJORITY OFFERINGS ON THE STOCK MARKET FOR

LE 6.3 BILLION

TO ANCHOR INVESTORS

LE 7 BILLION ESAS FOR
A TOTAL OF

34 COMPANIES PRIVATIZED THROUGH

SALES TO

LE 950 M ILLION

32 UNVIABLE ENTERPRISES LIQUIDATED AND THEIR ASSETS RELEASED TO THE PRIVATE SECTOR 16 COMPANIES PARTIALLY PRIVATIZED VIA MINORITY PUBLIC 20 LEASES IMPLEMENTED 19 ASSETS HAVE BEEN SOLD LE 14.4 BILLION 185 LAW 203
FOR A VALUE OF OFFERINGS FOR A TOTAL OF

LE 1.75 BILLION

LE 862 M ILLION

COLLECTED AS OF

SEPTEMBER 30, 2001 APPENDIX II.

COMPANIES REMAINING IN PORTFOLIO—SEE

Notes to Privatization Activity Tables
1. During the fourth quarter 2001, the PEO updated their review of transactions through December 31. These tables are constructed from this PEO data. Companies whose shares were sold in tranches are reported in the year of the largest or most significant sale. The year in which the sale is recorded is given and tranche sales are shown with parentheses. A company whose initial sale was for minority interest is reported as a minority IPO and is then moved to Majority IPO for subsequent sales over 50% in the year of initial sale. Ameriya Cement is an example of this reporting method and is why it is not counted as an anchor transaction as reported by PEO in March 2000. United for Housing and Construction, Abou Kir Fertilizers, and El Nasr Casting are reported as majority IPOs, however less than 51% is in private sector hands. 51% or more of the company is held by non-MPE government entities. Essentially these companies were ‘sold’ to other government entities by their holding companies. Arabia United Stevedoring, and Bisco Misr are also reported as Majority IPOs however less than 51% of the company is in private sector hands. The ownership of the ESA and the private sector total to more than 51%. Amoun Shipping Agencies, Abou Simbel Shipping Agencies, Memphis Shipping Agencies and Egyptian Irrigation are reported as privatized through ESAs, while less than 50% is held by the ESA yet over 51% is held by both the ESA and the private sector. Ramsis Agriculture was sold to a religious fund and liquidated. The PEO records this as an anchor sale. Likewise, a production line of Arab Carpets was sold to a religious fund after the general assembly had elected to liquidate the company. The PEO records this as an anchor sale. Values are rounded to the nearest million. The date given in the approval column identifies when a company’s general assembly approved the change to Law 159. When percentages do not add to 100%, the information has not been provided. The buyer of Abu Zaabal for Fertilizers will lease the company for a period of three years before buying. The PEO records this transaction as an anchor sale with a value of LE182.8 million.

2.

3.

4. 5.

6. 7. 8. 9. 10. 11.

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27

P rivatization in Egypt - Q uarterly R eview
Figure 10:

January—March 2002

Privatization Achievements: Sales to Anchor Investors
Date of Contract 11-04-94 20-04-94 27-09-94 25-02-96 10-11-96 (4-08-99) 6 7 Al Ahram Beverages Misr Mechanical and Electrical Projects (Kahromica) Modern Textiles (Bolivara) Delta Industries (Ideal) 13-11-96 19-06-97 (26-08-97) 8 9 30-06-97 Dec-97 Aug-98 17-11-98 24-02-99 4-03-99 5-07-99 (2-02-00) 15 Delta Sand Bricks 16 Arabia Foreign Trade 17 Assiut Cement 18 Alexandria Cement 19 Industrial Gases 20 Telephone Equipment 5-07-99 Aug-99 Nov-99 (Jun-00) 30-11-99 22-12-99 Dec-99 14-02-02 (9-12-94) (5-05-95) 26-01-00 3-02-00 Mar-00 30-01-00 Jun-00 Aug-00 8-02-01 5-07-01 30-07-01 23-11-01 N/A 90.00% 90.00% 68.00% 100.00% N/A 76.00% 19.00% 90.00% 90.00% 77.00% 13.00% 90.00% 90.00% 80.00% 10.00% 76.40% 10.00% 10.00% 10.00% 10.00% 5.00% 18.60% 0.00% 0.00% 10.00% 10.00% 10.00% 10.00% 0.00% 13.00% 62 15 1,197 183 670 60 100 11.4 1,226 Mar-00 1-02-00 Feb-00 12-02-00 25-09-99 27-04-00 1-11-99 N/A 10.00% 10.00% 27.00% 0.00% N/A 5.00% N/A 0.00% 0.00% 5.00% 0.00% 0.00% 19.00% 33 311 154 122 103 32 527 N/A 5-01-98 Feb-01 18-12-98 20-04-99 Underway 29-08-99 Private Sector 90.00% 90.00% 100.00% 90.00% 90.00% 10.00% 90.00% 61.00% 10.00% 10.00% 0.00% 29.00% 298 103 18-02-97 18-09-97 Remaining HC Share 0.00% 0.00% 0.00% 10.00% 0.00% Total Sale Value (LE millions) 131 286 16 115 40 Approval to Law 159 16-12-94 16-12-94 6-12-94 13-07-96 30-06-97

Name of Company 1 2 3 4 5 Pepsi Cola CocaCola El Nasr Boilers El Nasr Transformers (Elmaco) Al Nasr Utilities

ESA 10.00% 10.00% 0.00% 0.00% 0.00%

10 Kaha for Preserved foods El Wadi for Exporting Agricultural 11 Products Nobarieya for Seeds Produc12 tion - Nobaseed 13 Gianaclis 14 Beni Suef Cement

21 Torah Portland Cement

22 Plastic & Electricity Industry * Ameriyah Cement 23 Ramsis Agriculture Egyptian Engineering 24 & Equipment (MICAR) 25 Alexandria Confectionary 26 27 28 29 Egyptian Gypsum Arab for Carpets Alex for Cooling** Abou Zaabal Fertilizer**

90.00% 29.00% 100% 90.00% 90.00% 90.00% 100% 90%
See Notes

0.00% 0.00% 10.00% 0.00% 0.00% 0.00%

10.00% 0.00% 0.00% 10.00% 10.00% 10.00%

94 527 161 25 28 83 50.1 33 182.8

Feb-00 1-10-98 Underway 15-07-00 Underway Underway Underway Underway Underway

Total
Source: Public Enterprise Office

6,978

*The 29% sale of Ameriyah Cement is recorded in sale value total for anchor sales, however it is not counted as an anchor sale. The sale is recorded as a majority IPO. **Reported as sales by MPE, but awaiting final approvals Sales to Anchor Investors lists the companies sold in which over 51% of shares have been sold to a strategic investor. The table gives the date(s) of sale, amount held by the private sector, the company’s ESA, the residual stakes still held by the holding company and the total value of the sale.

PCSU—Privatization Coordination Support Unit CARANA Corporation

28

P rivatization in Egypt - Q uarterly R eview
Figure 11:

January—March 2002

Privatization Achievements: Majority Public Offering
Name of Company 1 2 3 4 5 6 7 8 9 United Arab for Spinning & Weaving Ameriyah Cement Alex. For Spinning & Weaving Egyptian Electrical Cables Extracted Oils Paints & Chemicals (Pachin) Helwan Portland Cement United Housing (& Construction) Abou Kir Fertilizers Date of Sales (1994) 1998 (1994) 1998 (1995) 1998 (1995) 1997 30-03-95 (1995) 1997 (6-09-01) (9-11-95) 3-12-96 12-02-96 May-96 13-05-96 26-05-96 18-06-96 30-06-96 Sep-96 (Feb-01) (Sep-96) 7-08-96 Sep-96 09-1996 (03-1999) 4-11-96 18-11-96 Jan-97 2-02-97 24-03-97 30-04-97 14-05-97 11-06-97 22-06-97 5-06-97 (4-07-98) 11-08-97 15-09-97 29-10-97 Dec-97 17-01-98 Oct-98 24-05-98 16-05-98 08-11-98 (Jun-00) 26-05-98 Jul-00 Private Sector 60.40% 61.00% 94.60% 95.00% 42.53% 53.75% 95.00% 3.11% 2.80% 64.94% 64.70% 51.03% 51.00% 55.67% 85.00% 50.92% 90.00% 90.00% 51.00% 51.00% 90.00% 87.40% 69.38% 88.00% 79.38% 63.00% 75.00% 75.00% 90.00% 70.00% 80.00% 0.00% 69.75% 50.46% 70.67% 29.50% 45.69% 61% ESA 6.9% 10.00% 5.40% 5.00% 8.54% 8.00% 5.00% 7.00% 0.00% 10.00% 10.00% 10.00% 10.00% 8.90% 5.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 20.00% 0.00% 0.00% 10.00% 10.00% 10.00% 10.00% 32.50% 10.00% 5.00% 10.00% 21.95% 9.3% 8% 0.00% 2.60% 0.00% 0.00% 0.62% 7.00% 25.00% 0.00% 0.00% 20.00% 10.00% 0.00% 20.25% 44.54% 19.33% 49.00% 45.01% 37.01% 39.00% 0.00% 39.00% 39.00% Remaining HC Share 32.70% 0.00% 0.00% 0.00% 48.93% 38.25% 0.00% 0.00% 0.00% 25.06% 25.30% 38.97% 39.00% 35.43% 10.00% 39.08% Total Sale Value (LE Millions) 226 768 82 321 85 836 1202 5 20 190 70 68 177 34 60 73 87 59 165 110 295 133 118 104 27 197 55 15 24 33 299 48 54 31 105 17 89 33 6,315 Approval to Law 159 5-05-97 1-10-98 5-03-98 8-12-97 26-04-98 3-10-97 4-01-97 21-05-96 Completed 30-06-96 30-06-96 10-09-96 30-10-96 28-09-96 28-09-96 17-09-96 21-12-96 25-11-96 04-11-96 18-11-96 27-07-97 21-05-97 29-04-97 21-05-97 21-06-97 18-05-96 19-08-97 29-06-97 14-12-96 16-11-97 30-12-97 24-11-97 15-02-98 13-10-98 30-06-98 11-01-99 Oct-98 Underway

10 Medinet Nasr Housing / Construction 11 Egyptian Financial & Industrial Co 12 Egyptian Starch & Glucose 13 Middle & West Delta Mills Nile Matches (and Prefabricated 14 Houses) 15 Kafr El Zayat for Insecticides 16 Misr Oil & Soap 17 Arabia Cotton Ginning 18 Telemisr 19 Upper Egypt Flour Mills 20 East Delta Mills 21 Nile Cotton Ginning 22 Misr for Free Shops 23 Cairo Housing (& Construction) Development & Engineering 24 Consulting 25 Nobareya Agricultural Engineering 26 KABO 27 Middle East Co. for Paper SIMO 28 Upper Egypt Contracting 29 Nasr Dehydrated Agricultural Products

30 El Giza Contracting 31 Industrial & Engineering Projects 32 El Nasr Casting 33 Mahmoudia Contracting 34 El Shams Housing 35 El Nasr Civil Works 36 Arabia & United Stevedoring Bisco Misr 37 (Second Tranch for ESA ) 38 Cairo Co. for Oil & Soap Total Source: Public Enterprise Office

Majority Public Offerings provides details on the sale of companies through the stock market. The table gives the name of the company, date(s) of sale, the amounts sold to the private sector, the company’s ESA and the remaining HC share. PCSU—Privatization Coordination Support Unit CARANA Corporation

29

P rivatization in Egypt - Q uarterly R eview
Figure 12:

January—March 2002

Privatization Achievements: Majority Sales to ESAs
Total Sale Value (LE Millions) 1 70 60 46 23 19 8 28 61 49 27 24 27 49 39 13 12 22 37 27 16 26 26 43 43 18 5 12 18 22 51 17 4.9 5.8

Name of Company 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 Consulting Office for Irrigation Kom Ombo Valley General for Land Reclamation Egyptian Real Estate General Mechanical Excavation Egyptian Dredging Upper Egypt Dredging Regwa Arabia for Land Reclamation El Beheira Company El Nile for Heavy Transport El Nile for Goods Transport El Nile for Inland Transport Damietta & Bilkas Mills Sharkeya Mills Kafr El Sheikh Mills Rasheed Mills El Beheira Mills Dakahleya Mills Alexandria Mills Marine Supplies & Contracting Amoun Shipping Agencies Abu Simbel Shipping Agencies Memphis Shipping Agencies Martrans San El Hagar Agricultural Egyptian for Irrigation Transport Works Direct Transport Suez Shipment & Auto. Stevedoring Gharbeya Mills Misr for Import Export United for Trade Arab Textiles

Date of Contract 25-06-94 15-09-94 10-11-94 16-11-94 16-11-94 6-12-94 7-12-94 3-01-95 7-01-95 16-02-95 15-11-97 15-11-97 15-11-97 1-01-98 1-07-98 27-07-98 26-09-98 26-09-98 3-10-98 10-10-98 19-10-98 4-11-98 30-01-99 4-11-98 (30-01-99) 4-11-98 30-01-99 10-11-98 1-03-99 Jan-99 1-07-99 1-07-99 24-10-99 Jul-01 30-07-01 19-02-02 19-02-02

Private Sector 4.00% 4.73% 4.86% 4.70% 4.76% 4.17% 4.80% 4.77% 4.77% 3.20% 0.10% 0.10% 0.10% 0.10% 0.10% 0.10% 0.10% 44.00% 44.00% 44.00% 44.00% 0.00% 60.00% 0.13% 0.08% 0.1875% 00.0% 00.0% 00.0% 00.0%

ESA 95% 95% 95% 95% 95% 95% 95% 95% 95% 95% 95% 95% 95% 90% 90% 90% 90% 90% 90% 90% 51% 44% 44% 44% 51% 95% 30% 95.00% 95.00% 61.88% 90% 100% 98% 98%

Remaining HC Share 1.00% 0.27% 0.14% 0.30% 0.24% 0.83% 0.20% 0.23% 0.23% 1.80% 5.00% 5.00% 5.00% 9.90% 9.90% 9.90% 9.90% 9.90% 9.90% 9.90% 49.00% 5.00% 5.00% 5.00% 5.00% 5.00% 10.00% 4.87% 4.92% 6.69% 10% 00.0% 2% 2%

Approval to Law 159 27-04-94 27-04-94 27-04-94 27-04-94 27-04-94 27-04-94 27-04-94 27-04-94 27-04-94 27-04-94 18-10-98 24-10-98 18-10-98 27-06-99 4-03-99 19-09-99 30-10-99 8-08-99 27-06-99 10-07-99 5-11-98 11-03-99 11-03-99 11-03-99 11-03-99 14-03-99 14-03-99 25-12-99 25-12-99 1-02-00 Underway Underway Underway Underway

Total
Source: Public Enterprise Office

950

Majority sales to Employee Shareholding Associations lists the companies in which over 51% of the shares were sold to the company’s ESA. (See note 6 on page 18) The table gives the date, value and percentage of sale. The ESA usually has between 5 and 10 years to pay the HC for the company and accumulate board directorships as they pay.

PCSU—Privatization Coordination Support Unit CARANA Corporation

30

P rivatization in Egypt - Q uarterly R eview
Figure 13:

January—March 2002

Privatization Achievements: Liquidations

Name of Company
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 Upper Egypt Agricultural* West Nobareya Agricultural* Middle Delta Agricultural* Al Nahda Agricultural* El Nile for Corps Import* Cairo for Building & Prefab Houses South Tahrir Agricultural* Faraskor for Wood General for Foundations General for Contracting & Sanitary Works High Dam for Civil Works* Canaltex Pre-Fabricated Houses General for Batteries Cairo for Silk Textiles Industrial Fittings & Services Graphite & Stationary Co. General for Metallurgical Wealth Maryout Agriculture Egyptian for Leather Tanning Sand Bricks Egyptian General Agriculture Co. General Co. for Production & Agricultural Services Egyptian Co. for Meat Production and Dairy North Tahrir Agricultural Co. Egyptian Gypsum Quarry & Marble - Gemco Sornaga Rerfractories General Co. for Engineering Works Egyptian Refractories United Poultry Production Egyptian Electrical Equipment (Shaher) Egyptian Company for Metal Trade (Segal)

Date
17-04-90 10-11-91 10-11-91 26-11-91 7-01-92 15-06-93 28-02-94 7-05-94 23-02-95 23-02-95 18-03-96 26-08-97 5-11-97 1997 1-07-98 13-07-98 15-09-98 28-09-98 17-10-98 25-11-98 6-02-99 11-09-99 11-09-99 23-09-99 25-09-99 14-10-99 29-12-99 8-05-00 13-02-00 24-06-00 Jan-01 Jan-01

Liquidator
Ahmed Serrafy Ahmed Abu Hadab Farouk Omar Mahfouz Boutros Youssef Al Hayatmi Mohamed Shoukri Mahfouz Boutros Mohamed Mounir - Abdel Aziz Hareedi Abdel Halim Abdel Fattah Abdel Moneim Akl Moustafa Nour Badr El Dakar Saad Salem Mohamed Rashid Wageeh Rady Yousry Yousry Ali Waly Mohamed Shalakany Abdel Bary Abdel Bary Hosny Mowafy Fekry Fashara Hamed Abu Ghaleb Essam Zerd Fardous Badran Mohamed Borhan Sarwat Abdullah Mr. Ali El Din Mohamed Badra Samir Kenaway Osama Mahmoud Hamed Abu Ghaleb Eng. Nagwa Fakher Mr. Maher Abdullah

Source: Public Enterprise Office * Liquidation complete Company Liquidations lists the name and date for companies liquidated. Values are not available.

PCSU—Privatization Coordination Support Unit CARANA Corporation

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P rivatization in Egypt - Q uarterly R eview
Figure 14:

January—March 2002

Privatization Achievements: Multiyear Leases
Name of Leased Assets Company Name El-Dakahlia for Spinning & Weaving Date of Contract 08-05-97 Annual Lease LE/$ 1, 560,000 $750,000 +3% net FOB for raw material 2,200,000 Duration Total LE/$ Million 7.8 Management Company N/A

1 Aga Factory New Weaving Factory Mostorod-Kaluobia

5

2

First Group: Miami(Cairo)-Al 3 Chark (Cairo)-Radio(Alex)-El Horeya(Alex)-Misr(Port-Said) Second Group: Segal (Cairo)Roxy (Cairo)-Winter Rio (Alex)4 Summer Rio (Alex)-Opera (Sohag) Third Group: Diana (Cairo)5 Winter Normandy (Cairo)-Ferial (Alex)- Rashid (Rashid)

Industrial Shops for Silk 15-10-97 & Cotton (Esco) Misr Company for Dist. & 20-03-99 Show Rooms 20-03-99

10

N/A

20

44

N/A

2,600,000

20

52

N/A

20-03-99

2,500,000

20

50

N/A

6 Menia El Kamh Factory

El Sharkeya for Spinning & 01-07-99 Weaving Cairo Dying & Preparation Sep-99

9,000,000

5

45

Islamic Company for Plastic & Weaving** Mr. Said Ramzy Hanna** Mr. Sabry Ishak Missiha and Mr. Emad Sabry Ishak** Studio 13 Company for Artistic Production & Distribution** Egyptian Company for Media Production City** El-Exeer for Technical Services** Egyptian Company for Media Production City**

7 String Dye Factory

336,000

5

1.68

8 Fibers Factory

Oct-99

1,600,000

5

8

9 Galal Studios

Misr Studios and Cinema production

02-01-00

379,000

20

7.58

10 El Ahram Studios

Feb-00

2,100,000

20

42

11 Misr Studios

Feb-00

2,250,000

20

45

12 Cinema City Studios 13
to

Feb-00 Egyptian For Tourism & Hotels

5,400,000

20

108

2 Floating Hotels Anni & Hotob

9-03-00 19-04-00

$1.200.000 $672.000

5 5

$6M $3.3M

N/A N/A

14 15
to 2 Floating Hotels Isis & Osiris

16 17
to 2 Floating Hotels Tut & Aton*

3-05-99 Misr Aluminum GYMCO 19-02-01 19-02-01

$1,000,000 $14,400,000 2,000,000

5 25 4

$5M $360M $8M

N/A N/A N/A

18 19 Darphala Factory 20 Gypsum Factory—Sadat Source: PEO
* Reported in 2000 ** HC reported data

Note: This is an increasingly popular mechanism used by the GOE to transfer management of difficult/troubled companies or assets to the private sector. The table provides the duration, annual amount, total value (when given) and the management company (when available).

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Figure 15:

January—March 2002

Privatization Achievements: Minority Public Offerings
Name of Company 1 2 3 4 5 Arab Bureau for Design Misr for Chemicals North Egypt Mills Eastern Tobacco Heliopolis Housing Alexandria Pharmaceuticals & Chemicals Nile Pharmaceuticals Middle Egypt Mills South Egypt Mills Memphis Pharmaceuticals Arab Pharmaceuticals General for Silos Cairo Pharmaceuticals Alexandria Mills Misr Aluminum Mokhtar Ibrahim Date of Contract 24-07-94 Jan-95 29-05-95 22-06-95 (6-03-97) 15-08-95 14-12-96 6 7 8 9 10 11 12 13 14 15 16 1995 (1996) 1995 (1998) 10-04-96 26-05-96 Sep-96 Sep-96 28-10-96 Nov-96 29-06-97 1997 24-06-98 Private Sector 5.00% 51.10% 33.42% 28.70% 10.47% 7.14% 30.00% 23.30% 30.07% 30.00% 30.00% 30.00% 30.00% 30.00% 30.00% 8.00% 3.45% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 0.0% 10.00% 60.00% 66.70% 59.93% 60.00% 60.00% 60.00% 60.00% 60.00% 60.00% 92.00% 86.55% 52 55 32 30 48 18 148 62 125 221 76 ESA 40.00% 0.00% 8.25% 5.00% 9.53% Remaining HC Share 55.00% 48.90% 58.32% 66.30% 72.86% Total Sale Value (LE Millions) 4 65 136 549 135

Total
Source: Public Enterprise Office

1,755

Minority Public Offerings provides the list of companies in which less than 51% has been sold on the stock market. Companies which were initially minority public offerings but then sold sufficient subsequent tranches to raise the private sector ownership above 51% have been moved to the Majority Public Offering table.

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Figure 16:

January—March 2002

Privatization Achievements: Production Assets Sold
Sold Assets Statement Owner Date of Selling/ Contracting Value/LE millions

1 2 3 4 5 6 7 8 9

Cairo Sheraton Al Borg Hotel San Stepheno Hotel: Lands and Premises Siklam Factory Distillation Factory Plastic Factory in Kabari Kowar Grinding Balls Factory Production Line for Yoghurt & Ice Cream Basatin Factory

N/A Egyptian Hotels Egyptian Hotels N/A Egyptian Koroum National Plastics Delta for Steel N/A Sabi Company Cairo Metal Products N/A Gianaclis Gianaclis Alex Metal Products Niaza Company Alex Metal Products Alex Metal Products Alex Confectionary El Nasr Glass and Crystal

14-11-96 6-11-97 Aug-98 27-08-98 8-10-98 22-06-99 Aug-99 24-11-99 30-11-99 22-01-00 Feb-00 Jun-00 Jun-00 Jul-00 Dec-00 Jan-01 Jan-01 30-01-01 2002
Total

350 6 271 20 26 3 28 .6 14 .6 49 4 .5 11 19 25 3 11 20
862

10 Tinning Factory in Ghamara 11 Nile Hotel 12 Agriculture Dehydration factory 13 Oil and Olive Production 14 Barrel Factory 15 Apparatus Factory 16 Nozha Factory 17 Minya Factory for Iron Sheets 18 Nadler Factory 19 Syringe Factory

Source: Public Enterprise Office Note: Total of 862 differs with PEO total of 859 due to rounding.

Figure 17:

Privatization Achievements: Collected Proceeds and their Utilization (LE Millions)
Item
Total Collected Sales Proceeds: Proceeds Utilization: Banks Debts Settlement Early Retirement, Pensions and Salaries Amount Transferred to the Ministry of Finance Restructuring Other Total Proceeds Utilization 4,198 2,440 5,822 1,214 12,811 Balance of Restructuring Fund on 30 June 2001 Source: Public Enterprise Office 290 243 806 -660 4,488 2,683 6,628 554 8 13,585 307 December 31, 2000 13,100 Activity Between 31 Dec 00—30 Sep 01 1,569 Sept. 30, 2001 14,669

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January—March 2002

Figure 18:

Breakdown of Sales Proceeds Values

Sales Values by Year
4000

3396
3000
LE Millions

2791 2361

2784 2566

2000

1215 664
69
0

1088
688 352 392 45 84 39

1000

926

23 20 2002-Q1

1994
Source: PEO

1995

1996

1997

1998 Year

1999

2000

2001

Privatizations above 50%

Partial Privatizations

Figure 19: Total Sales Values by Privatization Method
(LE Millions)

Anchor Investor

Production Assets

7000 6000 5000 LE Millions 4000 3000 2000 1000 0
Anchor Investor

6978

6315

1755 950 862

ESA

Minority IPO

Production Assets

Majority IPO

Privatization Method

Source: Public Enterprise Office

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P rivatization in Egypt - Q uarterly R eview
Majority Privatization
Directly Below

January—March 2002
Minority Privatization
Directly Below

Figure 20: Anchor Investor
2002Q1 2001 2000 1999

Figure 23: Minority IPO
2001

11 349 2435 Yaer 2665 276 447 453

2000 1999 1998 1997 1996 1995 1994

76 346 338 926 200 400 600 800 1000

Year

1998 1997 1996 1995

64 0

1994

443

0

1000
LE Millions

2000

3000

LE Millions

Figure 21: ESA

Figure 24: Production Assets
2002Q1

2002Q1 2001 2000 1999

11 69 75

20 39 84 45 316 6 350 0 100 200 LE Millions 300 400

2001 2000

Year

1998 1997 1996 1995 1994

351 79 139 433 0 100 200
LE Millions

Year

1999 1998 1997 1996

300

400

Figure 22: Majority IPO
2001 2000 1999

670 47

Notes: Sales Values refers to the reported value of transactions method and year. Years with not data are zero values. 1342 2519 1650 Based on Figure 29 totals by year for Majority IPOs would be 2,503 million LE for 1997, 1,372 million LE for 1998 and 33 million LE for 2000. The different year totals above provided by the PEO are a result of the allocations of tranche sales. The total value for Majority IPOs remain the same. Source: Public Enterprise Office

Year

1998 1997 1996 1995

85 0 1000 2000 3000

LE Millions

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January—March 2002

MINISTRY OF FOREIGN TRADE
Introduction
Figure 25: Joint Venture Portfolio by Public Stake
Public Stake Number of Companies

O

n November 21, 2001 President Hosni Mubarak signed a decree ratifying some significant changes in the cabinet, and in particular at the Ministry of Economy and Foreign Trade. The Ministry of Economy and Foreign Trade’s portfolio has been refocused on boosting exports and the ministry will now be known as: The Ministry of Foreign Trade. These changes have resulted in a re-distribution of authority as follows: • Authority over banks (and presumably over their privatization) has been transferred to the Central Bank of Egypt Authority over insurance companies has been transferred to the Ministry of Planning

Percentage Unknown Sold 0% - 10% 10% - 20% 20% - 50% 50% - 75% 75% - 100% Total
Source: Ministry of Foreign Trade

4 7 84 85 166 79 93 518

•

Tender Announcements
•

Because of these changes in oversight, the Quarterly Review will now monitor financial institution privatization in a separate section, “Financial Institution Privatization”, which is located on page 40. The Ministry of Foreign Trade has assembled a portfolio of public sector holdings in a number of joint venture banks and companies. The paid in capital of those entities has been approximated at about LE65 billion. According to the MOFT, the public sector has a majority stake in 172 joint venture companies and a minority stake in 335 JVs. Seven companies have been sold and the ownership structure of four companies remains uncertain. The joint venture portfolio has had a long history under different ministries. Figure 31 on the following page reviews the status of the portfolio over the past four years.

Egyptian Glass Company. On March 1, 2002, the National Bank of Egypt announced a tender for the Egyptian Glass Company. Several international anchor investors have indicated serious interest in purchasing the company and have already conducted due diligence. The tender will be conducted publicly using the “open tender” procedures established by the Capital Markets Authority. Beginning April 17, potential buyers will have the opportunity to publish offers in two Arabic newspapers in Egypt. Rival bidders will then have up to two weeks to make higher offers. Ismailia Misr Cooling and Storage Company. On February 6, 2002, Banque Misr announced a tender for the sale of 70% of Ismailia Misr Cooling and Storage Company to an anchor investor.

•

Other Important Events Relating to Potential Transactions
•

Joint Venture Privatization Activity
The Privatization Implementation Project continues to assist the joint-venture privatization representatives with on-going privatization transactions

Cairo Far East Bank—there have been discussions with a potential investor.

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January—March 2002

Figure 26: Joint Venture Portfolio Status 1997 to Present Presidential Decree #341 of 1996 mandates the reform and restructuring of joint venture companies through privatization, and states the government's intention to sell its outstanding stakes in joint venture enterprises. IBTCI reports that 134 joint venture companies were transferred from the Ministry of Public Enterprise to the Ministry of Trade and Supply (MOTS) in 1997. The control of these companies is combined with an existing 142, with equity already under the control of the Ministry of Trade and Supply, resulting in the first joint venture portfolio of 276 companies. In early 1998, the MOTS established a unit under the direction of Ayman Abd El Ghaffer to value and privatize these companies. By the summer the Ministry announces the sale of 22 of these companies (later clarified to be 20 companies). In the 3rd quarter, the Ministry of Trade and Supply identifies a further 87 companies, creating a portfolio of 363. Data was provided to IBTCI breaking the portfolio down into 13 sectors. Newspaper reports in October quote HE Minister Gowaily as saying that the JV portfolio consists of 403 companies.

1996

1997

1998

1999

2000

In October, with the change in the cabinet, the MOTS became the Ministry of Supply and Internal Trade and the Ministry of Economy became the Ministry of Economy and Foreign Trade, with responsibility for the privatization of the joint venture portfolio. Mr. Abd El Ghaffer was transferred to Japan as a trade representative. Considerable confusion surrounded the joint-venture privatization process. In the 1st quarter, the MOEFT sets up a Joint Venture Privatization Unit with responsibility for creating and managing the database of companies, preparing appropriate documentation and tracking sales. This unit requested data from all government institutions (banks, governorates etc.) to list their joint ventures. Three companies were reported by the unit to be in the process of being sold. By August 2000, 474 companies (now inclusive of the JV banks and insurance companies) had been identified as part of the MOEFT portfolio. The public sector held 51% or more in 149 companies. The information collected by the MOEFT privatization unit showed that most of the companies were profitable. One company was sold in the 3rd quarter. In the 4th quarter, the MOEFT received approval to begin the privatization process for 30 companies and banks having a public stake equal to or exceeding 50%. In December the Privatization Implementation Project (PIP) was assigned the advisory role for these companies. By March 2001, 511 companies had been identified within the JV portfolio with a total paid in capital of LE50 Billion. The MOEFT reported that the government stake in 6 of these companies had been sold since September of 2000. By the end of the 3rd quarter, PIP had worked on the promotion and valuation of 13 companies in the portfolio. The government has announced its intention to offer over 30 JVs for sale during 2002. After almost two years since negotiations started, substantial progress was achieved in this quarter for the sale of Misr Amereya Spinning and Weaving Company. The sale is expected to be completed within the next few weeks.

2001

2002

Three JV privatizations are also in different phases of implementation: A tender document is expected to be issued shortly for the Egyptian Glass Company. Several potential international investors have already completed due diligence. A tender for the sale of 70% of the shares of Ismailia Misr Cooling and Storage Company was announced in early February 2002. Preliminary discussions have also been started with a potential buyer for the Cairo Far-East Bank.
Source: Previous PCSU Quarterly Reviews

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January—March 2002

Figure 27:

Breakdown of Joint Venture Companies by Sector
Sector Number of Joint Ventures 62 44 115 153 9 62 10 12 7 44 518 Total Paid Capital (LE Million) 3,450 3,543 14,628 15,564 830 4,349 215 1,529 1,906 21,582 67,596

Construction Agriculture Services Industrial Power Tourism Trade & Commerce Transportation Insurance Banking
Total
Source: Ministry of Foreign Trade

Figure 28:

Recent Joint Venture Privatization Transactions
Date of Sale Q1-2001 Q1-2001 Feb. 2001 Oct. 2000 Aug. 2000 Sep. 2000 Shares Sold % 10.00 25.00 10.00 14.15 98.00 6.23 SONID Individual Global F Hospitality PICO for Investment ACE HSBC Remaining State Share % 0.00 0.00 10.00 9.42 0.00 5.08

Company SONAT Arabeyya for Exchange Fast Flying Ambulances Industrial Company for Developing Upper Egypt Egyptian American Insurance Company Egyptian British Bank

Buyer

Source: Ministry of Foreign Trade

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January—March 2002

FINANCIAL INSTITUTION PRIVATIZATION
he Privatization Unit at the Ministry of Foreign Trade was previously responsible for all privatization transactions related to the insurance sector, banks and joint ventures (JVs). After the November 2001 ministerial reorganization, they are now only responsible for the JVs. The unit is currently addressing two major issues: • Revising the procedures for the sale of public sector banks and insurance companies’ stake in JVs. Issuing the second group of JVs for privatization

T

transferable into shares, at a value of LE200 million. The nominal value of the bonds is LE1000, with a variable return every six months. The bank had opened the door to subscription on February 10, 2002. The bonds were fully subscribed within ten days. Encouraged by the outcome, the Bank’s general assembly had agreed to offer new bonds at a value of LE 200 million to finance new bank projects. Developing the Insurance Sector in 2002 The four state owned insurance companies, Misr, Ahlia, El Shark and Misr Reinsurance realized total net profits in 2001 of LE386 million. The Egyptian Authority for Supervision over the Insurance Sector expects to take all necessary steps during the year 2002 to develop the insurance sector and to increase its contribution to the GDP to a target of 4%. Profit distributions reached LE168 million in the year 2001 compared to LE146 million in the previous year. LE 75 Million Financial Support from Government Banks to Togareyoun The Togareyoun Bank witnessed a number of important developments with the objective of reducing its losses. Amongst these developments is the agreement by its main shareholding banks to inject LE75 million into the bank in order to restore activities which had been suspended during the past. This list of banks includes the bank of Alexandria, Misr, Cairo and the National Investment Bank. This amount represents the first installment of the overall LE200 million promised by shareholding banks. On the other hand, negotiations have been renewed between the board of directors of the Togareyoun bank and main shareholders in the bank regarding a plan to increase the bank’s capitalization and to restructure the bank financially. The negotiations seek to reach a mid-ground solution regarding the continued contribution of syndicates to the bank. Labor syndicates, at the head of which was the law-

•

The Ministry of Foreign Trade has recommended a list of 34 JVs for privatization. These are now awaiting the approval of the Privatization Committee. Criteria for selection are that the companies should be profitable, should be from diverse sectors, and should have public stake ownership of over 50% . Note: The following information is based on the local press and is unconfirmed Government has Initiated the Process of Consensus Building for Privatization of Public Sector Banks The government has once again reopened the discussions on privatizating the four state-owned commercial banks, the National Bank of Egypt, Bank Misr, Bank du Caire and the Bank of Alexandria. The government has started the process to offer 5% to 10% stock in these banks. Experts have been retained for the preparation of comprehensive evaluations and to determine the price at which they can be offered to the private sector. Moodys and Standard and Poors have both started preparing credit ratings and studies on these banks. 45.5% Allocation for Misr Iran Bonds Subscription to Misr Iran Development Bank bonds has closed, with a 45.55% allocation to subscribers. Misr Iran Development Bank had offered bonds, non-

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P rivatization in Egypt - Q uarterly R eview
yers syndicate, had objected to plans to save the bank which included a capitalization increase and the reduction of the share’s nominal value. Kuwaiti Offers for the Purchase of Seven Egyptian Banks Kuwaiti banks and financial corporations have made an offer for the purchase of seven Egyptian joint venture banks; Egyptian American Bank, Misr Iran Bank, Misr America International Bank, Cairo Far East Bank, Togareyoun, and the International Islamic Bank for Investment and Development. Amongst the Kuwaiti banks, which have expressed interest, is the Kuwaiti Financing House which has offered to buy the International Islamic Bank which is owned by the four state owned commercial banks, and has an authorized capitalization of US$100 million and a paid in capital of US$60 million. The problem, according to Central Bank of Egypt officials, is that the Kuwaiti Financing House is not registered with the Cen-

January—March 2002

tral Bank of Kuwait. Therefore, its offer has been met with reservations from Egyptian officials because the regulations require that the purchasing of financial corporations must be subject to the supervision of central banks in their home countries. Comprehensive Development of Misr Iran Development Bank Ismail Hassan, the newly appointed chairman of Misr Iran Development Bank, has begun the execution of an ambitious plan for the restructuring of Misr Iran Development Bank in order to put the bank at the forefront of joint venture banks competing in the local market. Mr. Hassan has conducted successful negotiations with the Iranian Investment Company, the foreign partner, to increase its share in the bank’s capitalization from 20% to 40%. This will increase the bank’s capitalization from US $109 million to US $150 million. The bank has also dedicated LE 100 million for the retail banking business, with priority being given to real estate project financing.

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Figure 29:—Ownership Figure 47:—Ownership

January—March 2002

of Joint Venture Banks1 of Joint Venture Banks1
Total Other State State Bank Interests Interests 5.0 52.1 59.2 27.2 44.5 40.0 * 62.5 80.0 32.8 39.7 22.0 40.0 19.2 35.3 – 23.6 20.0 33.0 9.8 19.6 0 – 20.0 – 19.3 4.3 – 67.2 37.5 – – 20.0 – 24.4 12.7 4.0 – 0.1 – – 0.7 – 11.9 – 11.8

JV Banks Alexandria Commercial & Maritime Bank El Togarioun Bank Export Development Bank Housing & Development Bank Islamic Bank for Investment & Development Misr America International Bank Misr Iran Development Bank Banque du Caire et de Paris Cairo Barclays International Bank Cairo Far East Bank Egyptian American Bank (EAB) Egyptian Gulf Bank Egyptian Saudi Finance Bank MIBank Misr Romanian Bank ** Egyptian Commercial Bank (Alex Kuwait Int. Bk) Commercial International Bank (CIB) Credit Internationale d’Egypte Egypt Arab African Bank Misr Exterior Bank National Bank for Development National Societe Generale Bank Suez Canal Bank

NBE * 17.0 11.5 * 20.0 – – – – – – – 7.7 – – – 19.6 0 – – – 19.3 4.3

Banque Banque Bank of Misr du Caire Alex. 16.0 11.5 – 20.0 – – – – – – – – 20.0 33.0 – – – – 20.0 – – * 5.0 16.5 11.5 – 20.0 32.8 – 22.0 40.0 19.2 – – 8.5 – – – – – – – – – 0 – 9.7 10.1 * 20.0 – 39.7 – – – 35.3 – 7.4 – – 9.8 – – – – * – *

Total State Interest 57.1 86.5 84.5 62.5 80.0 99.9 77.2 22.0 40.0 39.2 35.3 24.4 36.3 24.0 33.0 9.8 19.6 0 0.7 20.0 11.9 19.3 16.1

Others Interests 43.0 13.5 15.5 37.5 20.0 0.1 22.8 78.0 60.0 60.8 64.7 75.6 62.7 76.0 67.0 90.2 80.4 100.0 99.3 80.0 88.1 80.7 83.9

Figure 30: Private

and State-Owned Insurance Companies1

Egyptian Insurance Authority

State Companies

Private and JV Companies (8)

Free Zone Companies (2)

Misr Al Chark Al Ahlia

Egypt Reinsurance

JVCs (3) Suez Canal El Mohandes El Delta

Private (5) General (2) Allied Investors Pharonia Specialized (3) Alico (life) EMIC (med) CILIC (life) Arab International Insurance Egyptian American Insurance*

No info has been recorded since 30 September 2001. * Company sold to ACE and Commercial International Investment Company. Status as a Free Zone company may be updated.

1

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January—March 2002

MINISTRY OF ELECTRICITY AND ENERGY
Introduction

T

he electricity sector is committed to standards and guidelines set out by the Council of Ministers as regards investment projects executed under the BOT system in order to ensure the highest possible benefit to the country. Future programs in the sector will seek to expand the export of locally produced electricity and establish projects outside Egyptian borders in order to create new sources of foreign exchange for the country. Some Highlights:
•

breakdowns over the grid and help facilitate their repair. The cost of establishing the control center is approximately $50 million and will be funded by USAID. An additional LE100 million will be provided by the Egyptian Company for Transmission of Electricity. Japanese Bank to Finance Electricity Projects The Japanese Bank for International Cooperation has agreed to finance a number of new electricity projects at a minimum financing level of $80 million per project. The bank has expressed its willingness to finance the 500 kilovolt line connecting the Sidi Krir Electricity stations to the unified electricity grid. The aim is to support the grid’s capabilities and to increase the supply of electricity available to development projects.

The Electricity Distribution Companies to offer shares for sale over the next few months. USAID is financing the regional control center for the Greater Cairo area. A Japanese Consortium is executing North Cairo Power Plant. A German Company will modernize and upgrade high dam electricity generators with a German grant of DM170 million. The People’s Assembly has warned the government against selling electricity in dollars. Electricity Distribution Companies have been paid debts owed by various government entities and authorities.

• • •

Developments in the BOOT Sector
A Japanese Consortium will Supply Gas Turbines for the North Cairo Power Plant An agreement was signed between a Japanese consortium and the Egyptian Electricity Holding Company for the design, supply and installation of gas turbines for the North Cairo Electricity Plant project. This plant will operate a combined cycle system with a total capacity of 750 megawatts and will cost US$375 million. The first phase is expected to be operational by 2004. Establishment of Three New Electricity Stations The Chairman of the Canal Electricity Distribution Company announced that three new electricity companies would be established under the BOT system at a total cost of LE4.5 billion. The companies will be established in the following industrial areas: South Attaka, East Port Said, and North West Gulf of Suez. The cost of each plant will be approximately LE1.5 billion. Infrastructure for each of these plants is estimated to cost LE60 million.

•

•

Developments in Privatization in the Electricity Holding Company
Offering Electricity Distribution Company Shares for Sale within Months The Electricity Distribution Companies will be offering their shares for sale in the coming months when the market improves. The decision to freeze the sale of shares was taken as a result of the global recession. A Cairo Electricity Grid Control Center The regional control center for the Greater Cairo area should be complete by next June. It’s up-to-date systems should allow for the early identification of potential

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Modernization of High Dam Generators A contract has been signed with a German Company to modernize and upgrade 12 high dam electricity generators. The project seeks to modernize the high dam turbines, which are at the end of their productive lives. The project will extend for six years and be completed in 2007. It will be financed through a German grant of DM170 million, in addition to DM64 million from the Egyptian side, bringing the total project cost to DM234 million. Kuwaiti Development Fund Finances the New Nobariya Station The Kuwaiti Development Fund has given its preliminary approval for participation in the necessary financing for the establishment of the giant Nobariya station. The Nobariya plant has a capacity of 1,500 megawatts, and will be established in two stages at a cost of $400 million.

January—March 2002

collected LE4.1 billion in dues owed by various government entities and authorities. The ministry is seeking to complete the settlement of remaining debts in order to give more strength to electricity distribution company shares before offering them for subscription to anchor investors and employee shareholder associations. Adding 60,000 Kilowatts to the Electricity Network An additional 60,000 kilowatts will be added to the capacity of the national electricity grid. This additional electricity is to be generated by wind farms being established at Ras Zaafarana, which will bring the total amount of wind generated electricity in Egypt to 120,000 kilowatts. This will make Egypt a leader in the generation of wind-powered electricity worldwide. Electricity Line Connecting Sinai to West Canal An agreement has been signed for a 100 kilometer overhead electricity line between East Port Said and Sharkiya electricity stations. This line will cost LE21 million and the General Company for Electricity Projects (Eleject) will carry out the project. This 220 kilovolt line will connect Sinai to the area west of the canal and will allow for the provision of power for the establishment of development projects in the area. Continuation of Network Renewal Operations in South Valley Governorates The Upper Egypt Electricity Distribution Company is currently completing replacement and renewal of its equipment. It also is carrying out global maintenance of electricity networks in the three South Valley governorates of Sohag, Kena and Aswan. This is part of the program underway for the renewal of networks in the South Valley governorates. First Dual Power Electricity Station A study is underway for the establishment of the first ever electricity station operating on solar power in the day and by natural gas at night. This plant will operate with a capacity of 130 megawatts. A high priority has been given to the manufacture of renewable energy equipment locally, hoping

Developments in the Sector
People’s Assembly Advises Against Purchase of Electricity in Dollars The People’s Assembly Industry and Energy Committee has advised the government against approving of the private sector electricity producers selling electricity to the government in dollars. The committee indicated that the price of electricity produced by private sector stations had increased 35% over the past four months because of the devaluation of the Egyptian pound against the dollar. At the same time, public sector electricity producers have not increased their prices since 1992. Restructuring the Electricity Sector and Periodic Bonuses for Workers The Ministry of Electricity stated that sector workers would be harmed by the restructuring taking place in the electricity sector, and that this restructuring is, for the most part, being undertaken for the benefit of workers. The minister agreed to the payment of a monthly periodic bonus to workers in addition to their basic wages. They will also be offered work incentives. Settling Dues to Electricity Companies Electricity Distribution Companies have

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P rivatization in Egypt - Q uarterly R eview
thereby to increase value added and generate new employment opportunities. The electricity sector seeks to provide 3% of the country’s power needs using renewable energy sources by the year 2010. Scientific and Technological Capabilities Available for the Use of Other State Sectors The electricity sector, with all its scientific, research and technological capabilities, is to be made available in the service of other
Figure 31: ECC Generation Expansion Plan

January—March 2002

state sectors, in particular research centers, universities, and industrial and production units. Cooperation between the electricity sector and other sectors seeks to improve industrial production and the improve the quality of research and technical studies.

Estimated Award (x) and Operation Dates with Plant Size, MW Location Type Steam Turbines Steam Turbines Steam Turbines Wind Farm Solar/ Gas Combined Cycle Combined Cycle Combined Cycle Wind Farm Hydro Financing Concept 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Awarded Tariff Cent/ kwh 2.54 InterGen 2x325 2.37 EDF

SidiKrir 3&4

BOOT

X

2x325

Suez Gulf

BOOT

X

Port Said East Zafarana (5) El Kureimat Nubaria (1)

BOOT EEHC Financed BOOT w/ Grant BOOT

X X X X

2x325 30 150 700

2.37 EDF

Nubaria (2)

BOOT EEHC Financed BOOT w/ Grant EEHC Financed EEHC Financed BOOT w/ Grant BOOT w/ Grant BOOT

X

700

Cairo North (1) Zafarana (6) Nagaa Hamady Cairo West 7&8

X X X X X X X

700 200 64 2x325 100 300 650

Steam Turbines Wind Zafarana (7) Farm Solar/ Borg El Arab (1) Gas Steam El Kureimat (3) Turbines

Source: Ministry of Electricity and Energy

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January—March 2002

MINISTRY OF TELECOMMUNICATIONS AND INFORMATION TECHNOLOGY
Introduction
hmed El Nazeef, Minister of Telecommunications and Information Technology, has reaffirmed that Egypt offers expanding opportunities for investment in its telecommunications and software sectors. The Minister further stated that the Egyptian telecommunications infrastructure is developing rapidly and that the Egyptian market is looked upon as one of the fastest growing telecommunications markets worldwide. The present annual growth rate of the market is close to 35% and is expected to reach $2 billion by the year 2005. El Nazeef stated that a five-year plan had been developed with a budget of LE 1 billion to modernize the Egyptian telecommunications market and to create an appropriate legislative environment. He also said that the free internet initiative announced by the Ministry could serve as a model for companies operating in the information technology sector. Despite substantial enhancement of Telecom Egypt’s services and its improved revenues, the launching of an IPO still seems remote. In early 2000 the company announced its intention to publicly offer 20% of the its shares for IPOs. That offer was later deferred due to unsuitable international market conditions. In May 2001 TE announced that the company planned to partner with an anchor investor, offering 20-34% of the company’s shares. However, Telecom Egypt’s privatization plans have again been delayed due to the continuing global economic slowdown, particularly in the telecommunications sector. The Third Mobile Phone Network Uncertainties continue to affect plans for Egypt’s third mobile phone network. Apparently TE is still debating whether or not to partner with an international company for this network. The Minister confirmed that operation of the network would commence as planned by the end of this year, and that this would not be contingent upon an agreement with a foreign investor.

A

In addition to a license fee amounting to LE1.9 billion that TE had agreed to pay TRA, TE is also expected to pay an annual license fee for the assigned frequencies. The company recently opened the door for international companies to submit their bids to supply and install equipment for the 1,800-GHz GSM system. A number of international companies have expressed their interest in the project. Among those companies are Sweden’s Ericsson, France’s Alcatel, China’s Huawei Technologies, Canada’s Nortel, US’s Lucent Technologies and Germany’s Siemens. However it has been reported that the most likely candidates were Spain’s Telefonica and Turkey’s Turkcell. New Telecommunications Laws The People’s Assembly Transport and Transportation Committee is currently discussing the draft telecommunications organization law that was handed over by the government to the Peoples Assembly by the Minister. The draft law, which is the first of its kind in Egypt, seeks to encourage investment in the telecommunications sector on a nonmonopolistic basis in an environment free of competition. The law strives to be congruent with national security interests and goals, upholds State sovereignty and guarantees the optimal use of telecommunications spectrum. The draft law calls for the establishment of a national corporation to organize and oversea the industry so that services will be of the highest possible standard based on the latest technology and will meet the needs of users at the most equitable prices. The corporation’s board of directors, headed by the Minister of Telecommunications shall include:
• • •

Selected executive directors from the corporation A counselor from the State Council Three public figures representing service users

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•

January—March 2002

Representatives from the Ministries of Defense, Finance, National Security, and the Radio and Television Union Six highly experienced telecommunications personnel

Offer for Improved Railway Communications In the wake of numerous accidents in the Egyptian railway system, Egypt Telecomm has submitted a technical offer to the National Railways Authority providing a communications link among railway carriages, train drivers, control towers and the central control room. Egypt Telecomm presented the offer to the Railway Authority chairman on February 28th. Information Industrial Training Center The Minister of Telecommunications and the Minister of Planning together inaugurated the first stage of a main training center on the premises of the Central Authority for Public Mobilization and Statistics. This center includes 16 fully equipped training rooms and represents the first stage of the information network project. The center also will gather, hold and disseminate information on all Egyptian industrial products. El Nazeef stated that the launching of this center is part of a campaign of cooperation between the Ministry of Telecommunications and various other ministries to introduce new information and telecommunications technology and to upgrade the performance of government entities. 20,000 New Telephone Lines The Minister has announced that all central telephone stations in the Red Sea area are now open for signing contracts with customers wanting new telephone lines. He said that the current number of operating lines in the governorate is 43,000, and that the Ministry plans to install 20,000 new lines during the current year at a cost of LE48 million. Free Internet Service January 2002 Free access to the Internet is now available. This allows users to access the Internet at the cost of the normal phone call, which is PT10 for every six minutes, without paying in advance. The free Internet service is considered the first of its kind in Africa and the Middle East. This service is currently being implemented in Cairo, but soon will be offered in all other Egyptian cities.

•

The membership of the board is for a twoyear tenure and is open for renewal. The draft law includes the necessary guidelines to organize the granting of licenses and authorizations needed for the establishment and operation of telecommunications networks, or the provision of telecommunications services. It bans the import or assembly of any telecommunications equipment without first receiving authorization from the telecommunications organization based on the standards and specifications sanctioned by the organization.

Developments in the Sector During the Quarter
Private Sector Establishes Call Center Okeil Beshier, Chairman of Egypt Telecomm, announced that during the second quarter of this year an advanced call center affiliated to the private sector is to be launched. The first stage of the project will cost LE3 million. The center will receive customers’ complaints regarding services and will have the ability to resolve problems on the spot. Applications for new phone line can also be made there. The center will provide its services to the greater Cairo area, while other areas will be served in later stages. Telecommunications Free Zone A decision has been made to establish a telecommunications ‘free zone’. This free zone will be able to export telecommunications services internationally and earn foreign exchange revenue. 300 New Technology and Information Clubs This year would witness the establishment of 300 more technology and information clubs across the country, bringing the total number to 600 by the end of 2002.

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The Minister said that the purpose behind offering free service was to encourage the use of Internet among Egyptians, particularly those of school age. Five-year Plan to Increase Telephone Service Subscribers The Ministry has earmarked a sum of LE4.0 billion over a five-years in a plan to increase telephone service subscribers. The plan aims at increasing the number of subscribers to 12 million by the year 2005, which would thus cover 90% of Egyptian families. The Ministry said that those new home phones would not be based on the old-cable based system, but rather on modern wireless technology. The Ministry also announced that the wireless phone project will be offered in a general tender for foreign bidders. It is hoped that this project will attract as much as $500 million in foreign investment and create approximately 5,000 new job opportunities. Locally Manufactured Computers and Phone Sets In order to meet growing local demand for PC hardware, a project will soon be launched to locally assemble and manufacture computers. Production will be offered to the public at relatively low prices and on the installment basis. The Ministry plans to locally manufacture phone sets and related components. After serving local demand, export markets will be sought for this locally manufactured equipment. The project is expected to save approximately US$450 million while at the same time increasing Egypt’s hard currency income. Software Industry Egypt’s software industry continues to grow impressively and has been targeted by the government for future heavy promotion and support. Dr. Nazeef has stated that the Ministry plans to increase software export to a value of as much as US$15 billion by 2010. He added that the ministry hopes that software export revenues will match those of the Suez Canal or tourism.

January—March 2002

The Software Technological Information and Telecommunications Chamber, affiliated to the Egyptian Federation of Industries, has called for the need to grant Egyptian software production a preferential advantage of no less than 35% over any competing product in any agreement reached, whether in the government or in the private sector. The chamber has also called for setting a condition that at least 40% of any software service contract should be rendered by Egyptian companies. Preparations are currently underway for a joint project between the Ministry of Telecommunications and a major US electronic circuit design company. This project involves the establishment of a center specialized in producing software for designing electronic circuits and systems. Experts from both sides are currently examining the details of this project from a financial, technical and administrative aspect in order to accelerate its implementation. Human Resources Training The Ministry of Telecommunications and Information Technology continues to emphasize the need to train the next generation of Egyptian IT professionals. A training program has started for 4,400 university graduates and diploma holders in the information technology field under the supervision of the Ministry. Trainees have been nominated by the council of ministers under the national program for employment and rehabilitation of graduates. The training program will be executed over a period of two months in 93 sites affiliated to universities and research centers on a nationwide level. During the training period, a university graduate will receive LE150 per month while a diploma holder will receive LE100.

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January—March 2002

MINISTRY
Introduction
Road Sector Highlights:
•

OF

TRANSPORTATION
Japanese officials are taking place to finance the third metro line extending from Imbaba to Cairo Airport. The European Development Bank is drafting an agreement to provide 50 million Euros to finance the second metro line.

The Aswan Bridge, one of the megaprojects executed to serve tourism in Upper Egypt, will be inaugurated shortly. Progress on investment routes projects has been delayed awaiting new guidelines for BOT projects. The four affiliated companies to the General Roads Authority experienced a decline of 5% due to international economic conditions following the events of September 11. The international coastal route extending more than 1000 kilometers tying eight governorates is under construction with a total cost of LE2.5 billion.

Road Sector
Surplus in Roads and Bridges Companies The general assembly of the roads, bridges and inland transportation companies affiliated to the General Roads Authority discussed the new budget for affiliated companies during the fiscal year 2001/2002. The four affiliated companies had realized profits of LE53 million, a 5% decline compared to the previous year. The decline in the surplus was due to international economic conditions following the events of September 11. Execution of Plan for Roads and Bridges Required investments for the Roads and Bridges Authority are estimated at LE3 billion in order to execute the upcoming investment plan 2002/2007 and the completion of the previous plan in Upper Egypt, the New Valley and Sinai. Required investments for roads in the plan stand at LE2 billion for completion of existing projects as well as the establishment of new projects. Aswan Bridge to be Completed by April at a Cost of LE 180 Million Work on the Aswan Bridge will be inaugurated next April during the Sinai liberation day. The bridge will extend for 4.5 kilometers and will cost LE180 million. The bridge is one of the giant projects executed to serve tourism and development in Southern Upper Egypt. Establishment of the International Coastal Route Within the framework of efforts to improve and develop utilities services and the promotion of investments in infrastructure, the Prime Minister inspected work progress on the construction of new sections of the

•

•

•

Maritime Sector: The Maritime sector plays a critical role to the economic development of the country. The events of September 11 have exacerbated and aggravated crucial problems facing the industry, which is already restricted by routine legal and legislative obstacles. The sector is seeking to increase private sector participation, issuing the appropriate legislation and decrees which conform to the maritime sector. The sector should merge small and large entities to face strong competition worldwide, promote and implement IT mechanisms and upgrade the labor force to meet international standards. Railway Sector: The Prime Minister issued a decision appointing Eid Abdel Kader Metwalli as head of the Egyptian Railways Authority replacing Ahmed Sherief who resigned following the Upper Egypt railway accident. Reforming the Egyptian Railway Authority requires development of management and establishment of private sector companies for maintaining railway lines and carriages. Financial and technical reform requires privatization in the station and cargo sector. Metro Sector: Negotiations with French and

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Figure 32:

January—March 2002

Status of Road BOOT Projects
Road Project Name
Cairo – Ein Sokhna + Exits Cairo – Kurimat + Exits Alexandria – Fayoum + Exits Development of Cairo – Alexandria - Matrouh Development of Cairo – Ismailia – Port Said Sohag – Hurghada Luxor – Hurghada Desert Road Fayoum – Assiut Dayrout – Farafrah Cairo – Center of Alexandria Ein Sukhna – Marsa Allam Cairo – Aswan (West of Nile)

Length Investment Cost (km) (LE million) 175 600-800 125 199 520 180 250 220 260 263 180 630 800 700 900 500 500 450 500 500 400 1200 1500

Project Stage

Contractors

Just started Under negotiations with Council of Ministers Under study for offer " " " " " " " "

Ministry of Defense

Studies are being prepared by GARBLT " " " " " "

Source: GARBLT

international coastal route extending from Port Said to Alexandria. The cost of this route will be approximately LE2.5 billion and the line will extend for more than 1,000 kilometers, tying together eight governorates.

Maritime
Developments in the Sector
An International Port Conference was held in late January 2002 and the topic was how to increase private sector participation in the ports sector. The recommendations of the conference are summarized as follows:
• •

tor in order to increase private sector participation in all maritime activities Implement policies which enhance the merger of small operating entities into larger and mega-entities through partnerships between the local private sector and Arab or foreign private sectors in order to better face strong competition worldwide Seek an appropriate partnership between public sector and private sector and encourage fair competition Manage and carry out financial restructuring of Egyptian ports with the objective of assigning one entity accountable for results to the maritime sector in order to cope with the economic changes and variables The promotion and implementation of IT in the maritime sector, ports and all activities and operations of the various parties; as well as promoting and implementing e-commerce mechanisms

•

Modify policies and enhance private sector participation by owning and operating maritime fleet to increase foreign trade in Egypt Issue legislation, decrees or amendments which conform with the general directives of the state and maritime sec-

•

•

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Figure 33:

January—March 2002

Status of Maritime BOT Projects
Authority
Old Alexandria Port/ (Dekheila) East Port Said Port Authority Red Sea Port Authority Damietta Port Authority

Project Name Period
Petroleum Quay in Alexandria 30 years (Dekheila) East Port Said Port North Sokhna Port 30 years

Investment Cost $45m

Project Status
Signed end of 1998 Signed August 99 Signed May 99 February 2001

Completion Date
Inaugurated July 2001

Name of Contractor
MEDTAB (to build quay pipes) MIDOR refines raw petroleum JV-European Container Terminal, Maersk (Danish), Ibrahim Kamel, National Bank of Egypt JV – ABL (American), Sawiris, SSA (American) Tantawy (Egyptian) Sea Gas – JV Spanish Venus & Egyptian Company

$480.8m

Early 2004

25 years

$176m

Early 2002

Damietta for Liquid Gas 25 years Export

$1.6 billion

2003

Source: Maritime Transportation Sector

Railway Sector
Potential BOT Projects
Reform of Railway Authority The Council of Ministers is in the process of completing a plan for the restructuring of the Egyptian Railway Authority following the Upper Egypt train accident. Reforming the Egyptian Railway Authority’s financial, technical and administrative situation will involve first the upgrading and development of the authority’s management structure and then the establishment of private sector companies to be responsible for maintenance of all railway lines and rolling stock. The next question that will face the Authority is to how best to invest the authority’s assets, which have a market value of approximately LE100 billion. Financial and technical reform of the authority should require privatization of services in the stations sector and the cargo goods transportation sector. Establishment of an Electrified Railway Line between Ein Shams and Tenth of Ramadan A high level delegation from the Railway Authority will represent Egypt in the joint Egyptian-Dutch Committee which will meet in Amsterdam to discuss executive actions for participation between both countries for

the establishment of the first electric line in Egypt connecting new cities. The electric line would connect Ein Shams to the Tenth of Ramadan, a distance of over 40kilometers. The project will cost approximately LE1.7 billion under the BOT system. Development of Train Signaling Systems and Single Line Communications The Railways Authority is discussing a number of future plans. These plans include the upgrade of signaling and communications systems for a total of 195 kilometers of railway lines in cooperation with Spain. Plans also include increasing the number of railway carriages and trains along single lines, as well as improving speeds through the transfer to electronic operating systems. Plan to Develop Egyptian Railways The Spanish Railway Authority has submitted a comprehensive plan to help develop the Egyptian Railway Authority. The Spanish company Aston will provide the Egyptian Railways Authority with locomotives worth US$50 million. The plan includes a plan to increase speeds of Egyptian trains by as much as 80% by electrifying the current lines. The Spanish government has provided Egypt with aid worth US $300 million, of which US$150 million was at low interest rates.

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Spanish Grant for Training of Railway Engineers The Spanish government will provide LE2 million as a grant to Egypt for training expenses for Egyptian Railway workers who will receive training for maintenance of Egyptian trains and carriages. The first training session took place in Madrid in January for two-weeks and a second session later took place in Egypt. Rapid Train between Sidi Gaber and Borg El Arab The Railway Authority agreed to conduct preliminary studies for the establishment of a rapid train line between the Sidi Gaber and Borg El Arab area. The line will extend for 60 kilometers, with a capacity of 100,000 passengers a day. The purpose of the line is to promote development of industrial areas in West of Alexandria, in particular Ameriya and Borg El Arab. A group of Canadian investment banks have agreed to finance the project at a total cost of US$150 million. The project will start this year after a feasibility study is completed.

January—March 2002

Developments in the Sector
Development of Railway Carriages The Chairman of the Railway Authority submitted a report to the Prime Minister on plans for current upgrade and development of the railways. The Chairman stated that the report highlighted the Authority’s need for LE300 million during the fiscal year 2001/2002 in order to upgrade carriages on the Cairo-Alexandria-Aswan route. It also includes replacement of 200 carriages at a cost of LE400 million. Dual Railway Lines between Ismailia and Port Said The Railway Authority is reviewing executive studies for dual railway lines between Ismailia and Port Said which will extend for 78 kilometers and cost LE150 million New Components for Upgrade of Railway Carriages The National Railway Authority will receive the first batch of equipment needed for the replacement and renewal of the railway fleet in March. The arrival of this equipments is part of an intensive program to renovate and upgrade 20 carriages per month in the authority’s workshops.

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Figure 34:

January—March 2002

Status of Railway BOOT Projects
Investment Cost LE1.7billion $268m LE50m N/A $150m LE10 billion (estimate) $75 m $230m $400m $520m LE780m LE850m

Railway Project Name Ein Shams—Tenth of Ramadan Ismailia – Rafah Giza – Sidi Gaber Marsa Matrouh – El Saloum Alexandria – Marsa Matrouh Sidi Gaber/Borg Al Arab Alexandria/Aswan (Supertrain) Cairo – Tebbeen Sinai – Salloum Dayrout – Rafah Salloum – Natrun Salloum – Morocco Borg El Arab – Alexandria
Source: PCSU compilation

Length 40km 225 km 260 km 300 km 60 km 225 km 165 miles 315 miles -

Project Stage Study Underway Offered Announced Bidding underway Bidding underway Study Underway Feasibility study to be conducted Offered Offered Offered Offered Under study -

Name of Contractor
Spanish Railway Authority Supervised by International British Company

Metro Sector
Developments in the Sector
Third Metro Line Starting Next Fiscal Year The execution of the first stage of the third metro line extending from Imbaba to Cairo Airport for a total of 33 kilometers would begin during the next fiscal year, with a total cost for all three stages LE7 billion. Negotiations with French and Japanese officials are underway to provide financing to the line.

Participation of European Development Bank in the Second Metro Line The European Development Bank is currently putting the final touches to the draft agreement under which the bank will provide 50 million Euros to finance the second metro line in Cairo. Egypt occupies a very prominent place in the bank’s interests since the start of the Euro Med partnership in 1992, adding that Egypt was one of the countries which had benefited the most from the bank’s loans which exceeded 1.5 billion Euros out of total loans of 9 billion Euros to the South Euro Med countries.

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January—March 2002

MINISTRY

OF

C I V I L A V I ATION
companies, civilian airports, as well as machinery and equipment related to air transportation activities in cooperation with other relevant authorities
•

resident Hosni Mubarak has issued three State decrees for a limited Cabinet reorganization which includes the appointment of Ahmed Shafik as Minister of Civil Aviation and Hamdi Al Shayeb as Minister of Transportation. The President has also issued a new Presidential decree for developing the organizational structure of the Ministry of Civil Aviation.

P

Developing training programs to improve the quality of skills in accordance with the international levels Increasing the productivity of employees in order to keep pace with current scientific and technological developments Developing programs to upgrade the weather bureau to provide services to various state authorities according to international standards Analyzing and preventing aircraft accidents in accordance with international commitments by utilizing results of research and modern techniques Determining civil aviation prices in cooperation with the concerned entities Issuing licenses for the establishment of civil aviation companies, domestically or internationally in accordance with the sector’s laws and regulations Developing and supporting the performance of the Cairo Airport Authority and modernizing the management of all Egyptian airports to international standards Developing and supporting the performance of EgyptAir to keep pace with international standards

•

Minister of Civil Aviation Biography
Brigadier Pilot Ahmed Shafik was born in Cairo in November 1941 and joined the Military Aviation Academy in 1958. He graduated as a pilot in 1961 and was appointed as military aviation base commander in 1981. Brigadier Shafik was a military attaché to Italy from 1984 to 1986 and moved up in the ranks to become Head of the Egyptian Air Force in April 1996.

•

•

• •

Ministry Objectives
The Ministry of Civil Aviation has serious plans to upgrade and improve the civil aviation sector and will be striving to elevate all aspects of it to international levels. Its highest priorities will be to ensure flight safety and security, create and upgrade facilities; and to train and prepare a professional workforce that will support its long run objectives. Ministry of Civil Aviation Responsibilities:
•

•

•

Developing a general strategy for the ministry within the framework of its objectives to ensure the efficiency of civil aviation sector and utilities in a manner aligned with the international standards Issuing guidelines and systems for civil aviation safety to ensure the security of both aircraft and passengers in accordance with international agreements Upgrading navigational aids and air traffic control facilities in order to ensure airline safety within Egyptian airspace and in accordance with international standards Supervision and control over airline

•

•

The Minister of Civil Aviation wishes to see the Aviation Sector and its services in Egypt function at the same level of standards as in more developed countries. In order to do so Egyptian Airports will need to be physically upgraded and the way airports are managed and operated will need to be radically changed both in structure and function. These changes are vitally necessary if Egypt is to succeed in improving tourism as regards both numbers and quality. The Minister held his first meeting at the Egyptian Aviation Holding Company with the Chairman of the Egyptian Aviation

•

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Holding Company and Chairmen of the two affiliated companies. This was the first in a series of meetings to be held with the heads of authorities related to the sector. The Minister is reviewing the master plan for upgrading all civil aviation activity. This plan seeks to guarantee increased efficiency and productivity within the sector and will be carried out in accordance with the country’s social and economic development plan in a manner that is aligned with international standards and which will ensure the safety and security of Egyptian aviation in the service of the local and international communities.

January—March 2002

Bank in a special account to support and encourage charter company flights to Egypt. The government had decided to allocate 33 million Euros in support and encouragement of charter flight companies to attract more tourist groups to Egypt. Payments amount to up to 30% of the aircraft capacity as a maximum, to bring the aircraft capacity to up to 80% of the seats. Renewal of Airport Scanning Machines A committee from the Ministry of Civil Aviation has completed the preparation of a report pertaining to the quality of screening machines within Cairo Airport departure and arrival halls. The report recommends the replacement of some of the screening and scanning machines, as well as maintaining the quality of other existing machines.

Developments in Privatization/BOT Projects
Establishing the Kom Osheim Airport The Governor of Fayoum presented a memorandum to Prime Minister Atef Ebeid in which he has reviewed a proposal for establishing an airport in the Kom Osheim area in order to encourage investment, agricultural, and industrial exports. This is particularly relevant because of the international trade point in the same area. The Governor indicated that there were large tracts of desert land available on which to establish the airport. Signing Contract for the Ras Sidr Airport A contract was signed for the establishment of Ras Sidr airport between the Egyptian Airports Company and the Ras Sidr Investors Tourism Development Company, a consortium of forty tourism companies. The Egyptian Airports Company has a 20% interest in the company’s capitalization, whereas tourism investors contribute the remaining 80% . Investments for the first stage of airport development amount to LE70 million, of which LE20 million has been provided, whereas the remaining amount is loans and contributions made by other companies.

Developments at EgyptAir
EgyptAir Debt Settlement EgyptAir has settled all foreign debts owed to international financial institutions, according to sources. The value of the debt tranche was US$39.5 and was settled in April 2002. EgyptAir debts have been settle through its own resources. Ambitious Training Program in EgyptAir EgyptAir has approved an ambitious high standards training program. It will be implemented by highly qualified instructors, utilize the latest technology and will offer a wide range of training for pilots, cabin crew, maintenance engineers, as well as courses for tourism and cargo.

Developments at Cairo Airport
Export Development Bank Finances Cold Storage Area The Export Development Bank has decided to finance the project for establishment of a cold storage area in Cairo Airport, through a LE12 million loan. The planned storage area will accommodate approximately 6,500 tons of products and agricultural exports. The bank had previously allocated LE6 million eight months ago, as a soft loan with an interest rate of

Developments in the Sector
Ministry of Finance Support Charter Flights The Ministry of Finance deposited 2 million Euros in the Export Development

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8.5%, to finance 50% of the project, and the bank had completed the provision of the remaining LE6 million (See Case Study on page 20). International Studies for a New Runway at Cairo Airport The Cairo Airport Authority will carry out studies and design work for the new runway in Cairo Airport with an international consulting firm in cooperation with an Egyptian partner. The consultant has begun to carry out this study and to determine the location of the runway. Execution of the project is expected to take twenty months.

January—March 2002

Development of Passenger Terminal at Cairo Airport The Cairo Airport Authority is expected to complete this year the development and modernization of the passenger hall number one, the airport parking area and surrounding gardens. The development of the passenger hall included the addition of other areas, a business center and cafeteria. The existing of the terminal is 4,300 sq. meters serving 1,400 passengers. After the planned expansions, the hall would increase to 8,130 sq. meters serving 2,800 passengers.

Figure 35: Status of Airport BOT Projects Airport Project Name Marsa Allam Hurghada Terminal Sharm El Sheikh (expansion) Luxor Airport Al Alamein Bahareya & Farafra Oasis Airport (2 Airports) Assuit Ras Sidr Borg El Arab East Oweinat Sohag Concession Investment Cost Period 40 5 25 25 50 50 $40m $15m $170m Approx. $70m LE200m
(Each Airport)

Project Stage
Inaugurated November 2001 Completed 1999

Name of Contractor
EMAC (El Khorafi Group

JV Artoc Suisse for Airport Services Investment & GOE ABB Equity Swiss–SESAM Awarded May 2001& contract (Swedish.Scansca-Vancouver/ details under negotiation Canadian-Samcrete/Sami Saad)
Under JV Aeroport de Paris/Vinci Negotiation Under* International Company for AirConstruction—expected opening in year 2002 ports (Ibrahim Kamel) Awarded

DM200m (for each airport)

ABB – Manheim Germany

Bidding underway Bid under negotiation and will be re-offered as a joint-venture Offers accepted till May 9, 2002 To be announced To be announced

Source: Civil Aviation HC Note: Expected opening date April 2002

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January—March 2002

MINISTRY
Introduction

OF

PETROLEUM
the government buys the gas from the foreign companies in hard currency. As a consequence the government’s obligations are negatively affected by currency devaluations. Amendment of the Gas Pricing Clause in Concession Agreements The Ministry has started implementing a more flexible contract form where a new mechanism of price determination will be used that is not so affected by oil price fluctuations. The Minister stated that through negotiations with its foreign partners, an agreement was reached for the amendment of the gas pricing clause in the East Delta Deep Marine and Rosetta agreements. As a result of that amendment an increase in foreign exchange revenues amounting to $250 million covering the period July 2000 to December 2001 will be realized. Natural Gas Reserves Rising Egypt’s proven natural gas reserves have risen to 55 trillion cubic meters and presently estimated new reserves could total as much as 65 trillion cubic meters. Egypt now ranks 18th on a list of world natural gas producing countries. To underline the importance of this resource, the Minister of Petroleum has stated that he expects international consumption of natural gas to double over the next 20 years. Advanced Technologies for Natural Gas Networks in Egypt The petroleum sector has placed a high priority on keeping pace with international technological developments. For example, the sector has applied these technologies to the national gas grid, which includes several pipelines that distribute clean energy to electricity stations and most industrial areas. This network also satisfies the growing need for natural gas by households and light industry. The Egyptian company responsible for the management of the network, Gasco, has implemented a new integrated system which supports the network.

he Ministry of Petroleum continues to strive aggressively to increase the country’s production capability for oil, gases, and petrochemical products. Meeting increasing local demand and earning export revenue for the country remains of the highest priority. Some brief highlights below indicate that Egypt appears to be on the right track towards energy independence and hydrocarbon self sufficiency over the long run. On a less positive note, it appears that Egypt is presently having difficulty meeting payments to foreign companies who produce gas for local consumption. Drilling Successes: A continuing run of successful Egyptian offshore deepwater Mediterranean gas wells could soon thrust Egypt into the top ranks of the region’s top hydrocarbon producers. The drilling success rate in the offshore Med is currently one of the highest in the world. Country Reserves: With the numerous natural gas discoveries made of late, the present value of Egypt’s reserves have risen to about $29 billion, which exceeds the country’s current foreign debt. Agreements Signed: Egypt has signed a number of new agreements concerning natural gas export with both Arab and European countries. Investments in Petroleum: The Minister noted that petroleum investments made over the past four years have totaled nearly $2.3 billion.

T

Developments in the Sector during the Quarter
Delay of Payments to Foreign Companies With a $2.5 billion current account shortfall, Egypt wants to delay payments to foreign companies producing gas for local consumption. Italy's ENI is the leading producer in the sector, followed by Royal Dutch/Shell, U.S. Apache Corp, BG Group plc of the UK and Edison SpA of Italy. The concern is that consumers pay for gas and electricity in LE at a subsidized rate and
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New Ultra Deepwater Rigs Seek Natural Gas in the Offshore Med Egypt, in co-operation with groups of major international petroleum companies, has entered an exciting new period in petroleum exploration and production. This new phase started with the operation of four ultra deepwater rigs in the offshore Mediterranean. These rigs were designed to drill as deep as 35,000 feet in water depths of nearly 7,500 feet and are currently operating 70 kms off the Egyptian coast north of Alexandria. One of the new rigs, the Sedco Express, an ultra deepwater semisubmersible, is the largest rig of the four and the largest of its kind in the world. Project for Liquefaction of Natural Gas A number of European companies operating in the energy sector are studying the establishment of a new plant in Egypt for the liquefaction of natural gas with the objective of exporting to European markets.

January—March 2002

Halliburton, British Petroleum, British Gas as well as Union Fenosa are studying the possibility of establishing a new LNG plant to be established at Damietta on the Nile Delta coast. This plant would start operations in 2004 at a rate of 68.8 billion btu’s per annum. Natural Gas Export Due to recent major natural gas discoveries, ranking Egypt 13th as a natural gas exporter, Egypt has joined the Gas Exporting Countries Forum (GECFA), which includes, among others: Algeria, Nigeria, Norway, Iran and Indonesia. New Natural Gas Export Terminal to be established in Edku The Ministry has announced that a new terminal will be built at Edku, Rosetta for export of natural gas. Expected production in the West Delta concession will be 1,050 million cubic feet per day and will double after the construction of a second gas liquefaction plant.

Figure 36:

Egypt Oil and Gas Production 1995—2010
(Actual and Estimated)

80 70 60 (Bb)/(TcuM) 50 40 30 20 10 0 1995 2000 Year
Source: ITE Group—Petrogas 2001

75

45 38 30 oil gas

6

6

6

8

2005

2010

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Agreement for the Export of Egyptian Liquefied Natural Gas to France The Chairman of British Gas said that Egypt has great potential in natural gas which would allow it to establish export projects while providing good incentives to upstream producers. An agreement has been signed between British Gas and Gaz de France to export natural gas to France. Gaz de France (GDF) has agreed to import 3.6 million tons of liquefied natural gas per year from Egypt over a 20 year period. Importation will start in 2005 once the necessary plant and infrastructure have been put into place. The deal could eventually cover as much as 10% of France's gas demand. After the implementation of the agreement Egypt would be one of the main gas exporters to France after Algeria and Nigeria. New Gas Discoveries in the Offshore The numerous natural gas discoveries that have been made over recent months have pushed Egypt high up the list of gas discovering countries.
•

January—March 2002

years. The Minister stated that the petrochemicals industry is a strategic industry which supports many other complementary industries in the country. Surplus production from these projects will be exported to international markets in order to increase the State’s foreign exchange resources. Egypt already exports petrochemical products to 32 countries and negotiations are underway to open yet new markets for the Egyptian petrochemical products. Arab Investment in the Sector The Minister announced that cooperation with countries abroad in the oil and gas industry was one of the Ministry’s main strategic objectives. Cooperation will be sought particularly with other Arab countries.
•

Kuwait will participate in the Egyptian natural gas liquefaction project through a $100 million investment. This would be in addition to $50 million to be provided by the Kuwaiti Arab Development Fund. An agreement has been reached between the Ministry of Petroleum and the Bahraini Gas Corporation regarding the establishment of a joint company between Egypt and Bahrain for the treatment of natural gas and the production of petrochemicals. The first stage of the project will be the production of natural gas derivatives (propane and polyethylene). The Minister stated that agreement contains a number of other projects to be executed over time with the Bahraini Gas Corporation. The Arab Fund for Economic Development has agreed to grant $150 million for the an Arab regional pipeline that will transfer Egyptian natural gas to Jordan, Syria, Lebanon and other countries in the region.

•

British Gas announced that it had made a new natural gas discovery in the deepwater Med north of Alexandria. The new find, SORAS, is estimated to contain reserves of up to 500 billion cubic meters. It will produce initially at the rate of 30 mmscfd, however that rate will start to increase as the field is further developed. The Ministry announced that the Tunisian company HBSI has discovered oil in its concession in the Western Desert. HBSI is currently producing 25,000 bbls a day from operating concessions. Suez Petroleum Company (SUCO) has discovered new oil reserves at Gabal El Zayt in the Gulf of Suez.

•

•

•

$10 Billion for the Petrochemicals Industry The Ministry has announced that it has set up a national petrochemical industry plan to be supported by an investment of $10 billion for the establishment of 14 petrochemical complexes over the next 20

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January—March 2002

M INISTRY OF H OUSING , U TILITIES A ND U RBAN C OMMUNITIES
Introduction
Completion of Construction Works for Expansions in the Koraymat Water Station he Minister of housing, utilities and urban communities has stated that work has started on expansions of the Koraymat water stations, adding that construction works and installation of electric equipment had been completed. The plant has a capacity of 110,000 cubic meters of water daily, compared to the current capacity of 56 thousand cubic meters. Work on the station is expected to be complete within six months. The plant expansions would serve tourism projects in the Red Sea governorate and industrial projects in North Gulf of Suez. Four Waste Water Stations in Cairo at a Cost of LE 190 Million Four new wastewater stations will be built in high population density areas which will totally eliminate associated problems and increase the groundwater levels. The cost of the four stations is LE 70 million, in addition to other projects currently under execution at a cost of LE 120 million. These projects should be complete by next June. Plans for Water and Sanitation Projects over the Next Five Years The Minister of Housing announced that investments needed to execute potable water and sanitation projects over the next five years are approximately LE 2 billion annually. The Minister indicated that LE 6 billion was needed for the execution of 39 new potable water projects, and LE 2.6 billion for completion of projects under construction. New Underground Garages in Cairo Abdel Rehim Shehata, the Governor of Cairo, has called for the construction of multistory garages under the BOT system in the Ahly, Zehour, and Shams clubs in order to house members’ cars which obstruct traffic in these areas. In addition, the Governor reviewed with the chairmen of companies executing projects for the construction of 8 underground garages under the BOT system the rates of project execution. The execution rate reaches between 15% to 70% for the Omar Makram and Tahrir garages which are expected to be complete within the end of this year and the end of next year respectively.

T

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January—March 2002

AND
Introduction

MINISTRY OF INDUSTRY TECHNOLOGY DEVELOPMENT
thority and operating in intermediate industries. Many of these would required modernization and upgrading in order to improve their competitive capabilities. Efforts to Improve Industrial Production Quality The Minister has stated that the state is directing a good deal of its efforts to product standards and specifications, considering it to be one of the cornerstones of Egypt’s industry modernization program. In further efforts to improve the quality of Egyptian industrial production, the Ministry of Industry recently held a symposium on product quality standards organized by the Egyptian General Authority for Standardization and Measurement in cooperation with USAID and the US Standards Board. Also in support of improved quality in industry, the Industry Modernization Program (funded by the EU) is currently preparing a working paper containing recommendations for improving the quality of Egyptian industrial products. After finalization, this paper will be submitted to Minister of Industry for his review and approval. Objectives of the Modernization Program A local industrial study has indicated that the industrial sector accounts for 14% of the total labor force, while only 6% of total industrial output is exported to international markets. Industry experts have suggested that an important reason for the deterioration of Egyptian industry has been the fact that Egyptian manufacturers have directed their efforts toward the local market and have for the most part ignored international markets. The program seeks to increase the value of industrial production from LE165 billion to LE 317 billion over the next ten years. This will include production from existing factories as well as from new factories. The Minister stated that the modernization

he Committee for Promotion of National Industries in the Federation of Industries has announced that the year 2002 will be the year for promoting and advancing Egypt’s industrial base. The industrial sector contributes approximately 20% to the country’s gross national income. Strengthening the industrial sector and improving its performance will require:
• • • •

T

Renovating factories’ infrastructures Updating machinery and production techniques Improving production quality to satisfy demand Increasing exports through achieving international quality standards

Modernization of Egyptian Industry In an endeavor to upgrade and improve local industry, the Egyptian Government is involved in two Industrial Modernization programs:
• •

The National Industrial Program (NIP) The Industrial Modernization Program (IMP).

Implementation of the Industrial Modernization Program (IMP) is being carried out under an agreement signed four years ago between the ARE and EU. This program is scheduled to run between four and six years. It’s estimated total cost is 476 million Euros, of which the Egyptian government will provide 140 million and the private sector 76 million. Aly El Saeedy, Minister of Industry, stated that the program seeks to modernize 5,000 industrial establishments and to upgrade their performance to international levels. Approximately 450 will be part of the first phase. A study prepared by the Obbour Investors Association indicated that there were 30,000 industrial establishments registered as members of the General Manufacturing Au-

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plan would increase industrial exports from LE8 billion (year 2000) to LE75 billion by the year 2011. Modernization Priorities According to Experts and Businessmen Experts called for the need to make the modernization process comprehensive within each production unit, putting in place modernization mechanisms in such a manner as to guarantee their continuity and ongoing performance capability. Businessmen have indicated that modernization of management must be amongst the very top priorities of the Egyptian Modernization Program. Tharwat Adam, Head of the Industry Modernization Program, believes that the first step in the program should be to search for new markets and then comprehensively study them in order to determine how to successfully penetrate those markets. Adam highlighted the importance of directing Egyptian industry to international markets first, and that remaining surpluses be directed to the Egyptian market, not vice versa. Modernization Program Extends Three More Years The Minister of Industry announced that the EU has agreed to extend the industry modernization program, which has only one and a half years left, for another three years following a request made by the Government. He stated that the program, which has been allocated 350 million Euros, includes carrying out studies on factories, and the financing of machinery and equipment. Human Resources Upgrading Campaign The Egyptian Federation of Industries has decided to execute a project for the comprehensive identification of the specialized human resource skills and expertise in the industrial sector preparatory to establishing a database to serve the industry modernization project. The project is based on building an integrated database that includes Egyptian ex-

January—March 2002

perts whether those who reside in Egypt or outside its borders, in order to participate in meeting national project needs. The project was meant to serve governmental, public enterprise sector as well as private sector companies. At the same time, The Shoura Council Industry and Energy Committee has completed the preparation of a report including a number of recommendations and proposals regarding the modernization of industry. Particularly important among these recommendations were ones focusing on needs for education, training and technology transfer.

Development in Privatization Projects
First Private Sector Company of Textiles The first private sector textiles company is currently under formation. Mr. Shawky Ozoby, speaking on behalf of the company’s shareholders, stated that the objective of the company was to develop and modernize the textiles industry and to bring modern technology into it. The company shareholders consist of a group of engineers, consultants, and professors in the textiles departments in the universities of Alexandria and Mansura. North West Gulf of Suez and West Delta for Investment under the BOOT System Prime Minister Atef Ebeid has indicated that Egypt would provide incentives and benefits to investors interested in establishing projects in the fertilizers industry. The Prime Minister stated that areas in North Gulf of Suez and in the West Delta area had been allocated for fertilizer projects to be established under the BOOT system. The PM added that the tax burden for these projects would not exceed 1%.

New Projects
734 New Industrial Projects Have Started Production in 2001 The Minister has stated that Egyptian industry showed major growth and development last year, with a total of 734 new pro-

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jects starting operations. The investment in these projects is LE14 billion with annual production of LE13 billion. According to the Minister, these numbers indicate that there has been major growth compared to the year 2000, which witnessed the inception of 368 new industrial projects. Egyptian Iraqi Joint Venture The Minister announced that an agreement has been reached for the establishment of a joint venture company between Egypt and Iraq in which the private sector will participate. This agreements is for inland and maritime transport of goods and should help to promote trade between the two countries. The minister also stated that an agreement had been reached between Egypt and Iraq for the issuing of certifications of origin for products exported to Iraq to ensure that those products are of Egyptian manufacture.

January—March 2002

A joint committee is to be formed from the two sides in order to develop a detailed plan for integration and cooperation in a manner that will optimize benefit from expertise available in the Productivity and Quality Institute in developing local industry. A Plan to Increase Industrial Production The Minister of Industry stated that the General Manufacturing Authority will participate in a proposed implementation plan for utilizing idle capacity to increase production without increases in investment. This will be undertaken through the production of nontraditional products through production lines that can be adapted to use locally available resources to produce intermediate goods. These goods will then feed into complementary industries. Problems Facing Engineering Industries Sector The Minister recently met with the Chairman and members of the Engineering Industries Chamber to discuss problems facing the industry. Nabil Farid Hussen, Chairman of the Chamber, stated that the engineering industries are operating at 40% of their capacity because of the shortage of financing needed to operate factories. The board of directors of the Engineering Industries Chamber is to nominate 80 industrial companies to participate in the first stage of the Industrial Modernization Program. Protection of Ready Made Garments and Consumer Rights The Minister stated that decisions recently issued for the protection of the ready made garments industry do not mean that the consumer does not have a right to obtain a product that is commensurate in quality to the price paid for it. He said that the protection afforded by the state to industry is for protection of good quality products not poor quality products. It will also help the country move out of the recession and open up new investments possibilities.

Developments in the Sector During the Quarter
Special Consideration to Small-Scale Projects Minister of Industry Aly El Saeedy stated that the Ministry had established eight new small-industry complexes in various parts of the country. These complexes include a total of 3,605 industrial units fully dedicated to small investors. The Minister stated that the ministry is giving special consideration to small-scale projects, which are part of the priorities in the execution of the industry modernization program. An Agreement for Quality Improvement An agreement was signed between the Productivity and Quality Institute of the Arab Science and Technology Academy and the Standardization Authority. The agreement calls for increasing awareness regarding quality standards through specialized symposiums and the execution of joint training sessions for factories and companies.

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55 Million Euros in Loans for Factories The European Investment Bank and the German Investment Bank have offered to provide credit facilities and loans worth of 55 million Euros to Egyptian manufacturers within the framework of services provided by the Industrial Modernization Program. Tharwat Adam, Executive Director of the industrial modernization program, stated that the European Investment Bank had agreed to participate with venture capital of 25 million Euros under condition that this be placed in a budget independent from that of the Industrial Modernization Program budget. It would be used to extend credit to industrial projects. Adam also said that the EIB’s offer included the participation of the EIB as a partner in the shares of companies which seek to borrow, thereby also undertaking risks stemming from future gains and losses. Draft Law for Promotion and Protection of Exports The Minister of Trade, Youssef Boutros Ghali, stated that a draft law for promotion

January—March 2002

and protection of exports had been prepared and that the law was currently being studied by Prime Minister Atef Ebied preparatory to review by the President. The draft, which contains ten articles, also will be reviewed by exporters in order to take their feedback into consideration. The law seeks to unify supervision and administration entities (which have a role in the export process) into a single entity in order to remove obstacles facing exporters. The Minister also said that coordination with the Minister of Industry was underway since export capability is the major objective of the Industrial Modernization Program. EU Finances Vocational Training Programs The Minister has announced that the EU has agreed to finance the Technical Skills Development Program. The Minister indicated that this program will outline and implement necessary guidelines and specifications for the preparation of a generation of workers whose jobs will require a high degree of skill. The program also seeks to provide the necessary financing for improving efficient vocational training centers and tying them to Egypt’s labor market needs.

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January—March 2002

MINISTRY

OF

S U P P LY

AND

INTERNAL TRADE

Establishment of 50 Grain Silos by the Egyptian and the Danish Governments he Ministry of Supply and Internal Trade is overseeing a major project to increase the capacity and quality of grain silos in Egypt. It plans to build 50 silos in a number of different locations all over Egypt. The Ministry is currently involved in negotiations with the Islamic Development Bank to establish forty silos for grain storage. Preparation of financial and legal studies for the silos project is underway in order to review these studies with the chairman of the Islamic Bank. Execution of the project would take place in two stages, with the Islamic Development Bank and the National Investment Bank participating equally in establishing these silos. As per the agreement with the Minis-

T

try, 20 silos will be built in the first phase where the Islamic Development Bank will pay $40 million and the National Investment Bank will pay the equivalent amount in Egyptian Pounds. The other 20 silos are to be constructed in the second phase after 3 years. As for the remaining 10 silos, they will be carried out by the National Investment Bank and the Danish government represented by DANIDA. The Ministry of Supply and Internal Trade announced that two silos would be established for the storage of grains, one in the Tenth of Ramadan City and the second in Fayoum. The cost of these two silos is LE20 million, of which the Danish government will pay LE 10 million; the rest will be borne by the Egyptian side.

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January—March 2002

FINANCIAL MARKETS
Introduction
igure 41 on page 68 presents data on the stock market performance of 57 privatized companies in the first quarter of year 2002. Companies are included on this list only when there are (greater than zero) transactions on the CASE. Therefore, majority ESA companies and a number of anchor investor companies have been excluded. The table tracks the rates of return on shares of the company over the three months of the quarter (column 1), since the date of first privatization (column 2), and the dividend yield (column 3), the market closing price at the end of the quarter (column 4), the P/E ratio at the end of the quarter (column 5), the most recent dividend payout (in LE per share), and the price at date of initial offering (columns 7 and 8). Shares for most companies decreased in price over the period. Share prices for 18 companies increased, 31 decreased, and 8 remained the same (or were not traded) during the quarter. A small but diverse group of companies showed big increases over the 1st quarter.

AND

PRIVATIZATION

F

Figure 37 shows the top 10 performers over the period. El Kahera Housing has continued its accent since the last quarter of 2001. Alexandria Cement also made a large gain over the 4th quarter of 2001 as the anchor investor prepared to buy out outstanding shares. Other sectors (including housing, chemicals, and trade) also showed big gains, but no clear pattern emerges. Despite the large gains for this small group, only Arab Pharmaceuticals has performed well since its first offer.
Figure 37: Top 10 Performers During the 1st Quarter 2002
1 2 3 4 5 6 7 8 9 10

El Kahera Housing Development & Engineering Consultants Alexandria Cement Abu Kir Fertilizers Misr Free Shops Kafr El Ziat Insecticides Al Ahram Beverages Ameriyah Cement El Nasr Civil Works Arab Pharmaceuticals

72.09% 63.30% 62.19% 30.76% 27.74% 16.24% 14.74% 14.12% 13.50% 11.99%

Source: CASE

Figure 38: Stock Market Performance
Egypt vs. all Emerging Markets 12 Months Ending March 31, 2002

130.0 120.0 110.0 100.0 90.0 80.0 70.0 60.0 50.0
01 01 01 01 01 1 1 1 /0 /0 /0 9/ 2/ 2/ 1/ 1/ 31 30 29 /2 4/ 5/ 6/ 7/

MSCI Egypt Index

MSCI Emerging Markets Free MSCI Egypt in EP

MSCI Egypt in USD
01 01 2 2 /0 /0 8/ 8/ /0 3/ 28 2

27 1/

/2

7/

8/

9/

/2

10

11

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2/

26

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Reported dividend yields have been adjusted to account for cancellation or postponement of dividends, based on CASE data. The flour milling companies dominate the list.

January—March 2002

Two companies on the list show increases in value since offer. Of the 57 companies on the list, only two companies have increased in price since offer. Figure 40 below shows the top ten performers (based on annual average increases) since privatization. The list is dominated by the cement and pharmaceutical sector.

Figure 39: Top 10 Privatized Company Dividend Yields During the 1st Quarter 2002
1 2 3 4 5 6 7 8 9 10

Figure 40: Top 10 Performers Since Privatization (Annual Average Growth)
1 2 3 4 5 6 7 8 9 10

General Silos & Storage El Nasr Civil Works Middle & West Delta Flour Mills South Cairo & Giza Flour Mills Upper Egypt Flour Mills East Delta Flour Mills Nile Matches Middle Egypt Flour Mills Egyptian Contracting (Mokhtar Ibrahim) El Wadi for Exporting Agricultural Products

31.20% 28.60% 25.60% 25.60% 24.80% 24.30% 23.10% 22.80% 22.60% 22.50%

Arab Pharmaceuticals Alexandria Pharmaceuticals Bisco Misr Memphis Pharmaceuticals Abu Kir Fertilizers Misr Aluminum Nile Pharmaceuticals Egyptian Financial & Industrial Company Alexandria Cement Kafr El Ziat Insecticides

4.45% 3.09% 0.00% -0.54% -0.96% -1.94% -2.05% -2.37% -3.11% -3.16%

Source: PCSU analysis of CASE data

Source: PCSU analysis of CASE data

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Figure 41:

January—March 2002

Stock Market Performance of Privatized Companies
Performance Indicators Market Data for QI 2002 Initial Offering

Company Name

Code

Over Qtr

Since Offer

Yield

Closing

P/E Ratio

Last Div.

Price

Date

1 1 Abu Kir Fertilizers 2 Al Ahram Beverages 3 Alexandria Cement 4 Alexandria Flour Mills 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 Alexandria Pharmaceuticals Alexandria Spinning & Weaving Ameriyah Cement Arab Cotton Ginning Arab Pharmaceuticals Bisco Misr Cairo Oil & Soap Cairo Pharmaceuticals Delta Industries (IDEAL) Development & Engineering Consultants East Delta Flour Mills Eastern Tobacco Egyptian Contracting (Mokhtar Ibrahim) Egyptian Electrical Cables Egyptian Financial & Industrial Company Egyptian Starch & Glucose El Giza Contracting El Kahera Housing El Nasr Civil Works El Nasr Clothes & Textiles KABO El Nasr for Dehydrating Agricultural Products El Shams Housing El Wadi for Exporting Agricultural Products Extracted Oils General Silos & Storage Heliopolis Housing Helwan Portland Cement Industrial & Engineering Projects Kafr El Ziat Insecticides Mahmoudia Contracting Medinet Nasr Housing Memphis Pharmaceuticals Middle & West Delta Flour Mills ABUK.CA PYBR.CA ALEX.CA AFMC.CA AXPH.CA SPIN.CA AMRI.CA ACGC.CA ADCI.CA BISM.CA COSG.CA CPCI.CA IDEA.CA DAPH.CA EDFM.CA EAST.CA ECMI.CA ELEC.CA EFIC.CA ESGI.CA GGCC.CA ELKA.CA NCCW.CA KABO.CA NDAP.CA ELSH.CA WACE.CA ZEOT.CA GSSC.CA HELI.CA HELW.CA IEEC.CA KZPC.CA MGCC.CA MNHD.CA MPCI.CA WCDF.CA
30.8% 14.7%

2

3

4
32.69 39.78 29.73 6.46 81.46 5.76 32.00 33.99 51.00 14.00 14.00 38.00 17.27 9.21 16.45 38.17 8.85 1.87 26.08 10.90 9.11 2.96 11.35 15.44 10.96 2.78 10.45 5.84 6.41 46.00 34.12 9.47 19.40 2.33 21.02 48.50 19.50

5
4.73 7.04 50.54 3.28 4.74 3.18 3.99 12.91 4.43 n/a n/a 4.10 3.28 27.46 3.63 3.43 3.44 0.00 4.22 3.23 3.03 7.78 2.16 n/a n/a 5.73 n/a 2.05 2.62 4.18 5.03 8.63 4.83 0.00 6.39 4.29 3.37

6
3.40 6.00 4.90 1.00 10.81 1.33 6.50 4.00 8.50 1.70 1.80 7.17 1.50 1.00 4.00 6.00 2.00 4.80 3.00 2.30 2.00 0.05 3.25

7
34.60 67.00 32.00 82.50 66.15 37.00

8
1-May-96 13-Nov-96 30-Nov-99 29-Jun-97 1-Jun-95 1-Jun-95

-1.0% 10.4% -9.2% 15.1%

62.2% -3.1% 0.0% -9.0% -41.5% 15.5% 0.0% 3.1% 0.0% 0.0%

5.1% -23.8%

14.1% -12.0% 20.3% -0.7% -9.7% 0.0% 12.0% 4.5% 0.0% -9.6% 0.0% 12.1% 2.2% -36.6% 12.9% 5.9% -3.5% 0.0% -1.3% -13.9% 8.7% 63.3% -19.0% 0.0%

86.97 1-Jun-94 60.00 1-Sep-96 40.00 1-Sep-96 14.00 26-May-96 31.00 01-Jul-00 46.00 01-Nov-96 33.08 01-Dec-97 26.36 31.00 96.00 55.00 23.33 01-Apr-97 18-Nov-96 22-Jun-95 24-Jun-98 17-Jun-95

11.7% -11.1% 24.3% -8.2% -12.7% 15.7% -5.9% -38.4% 22.6% -11.0% -31.1% 10.9% 0.0%

-2.4% 11.5% 0.0%

30.00 26-May-96 35.00 18-Jun-96

5.2% -18.3%

0.7% -30.4% 22.0% 72.1% -29.0% 1.7% 13.5% -24.3% 28.6% -9.7% -32.5% -4.1% -23.5% 0.0% 0.0%

47.25 15-Sep-97 16.48 24-Mar-97 33.25 24-May-98 11-Jun-97 11-Aug-97 01-Oct-98 17-Nov-98 30-Mar-95 28-Oct-96 15-Aug-95 09-Nov-95 29-Oct-97

2.00 102.00 0.86 0.60 2.35 38.00 15.00 31.00

-9.4% -38.3% 21.6% -7.4% -27.6% 22.5% 3.2% -25.3% 0.0% -2.7% -28.3% 31.2% -6.5% -16.8% 13.0% 12.0% -8.0% 0.0% -20.8% -33.3% 15.8% 16.2% -3.2% 15.5% -26.0% -47.5% 0.0% -3.2% -7.1% 9.5% -1.0% -0.5% 0.0% 2.1% -11.7% 25.6%

1.60 45.00 2.00 39.00 6.00 155.00 5.00 58.00 1.50 3.00 3.25 2.00 8.76 5.00 56.70

23.20 01-Sep-96 35.00 17-Jan-98 32.50 13-May-96 50.00 1-Sep-96 40.00 30-Jun-96

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Stock Market Performance of Privatized Companies
Figure 41 Continued
Performance Indicators Market Data for QI 2002 Initial Offering

Company Name

Code

Over Qtr

Since Offer

Yield

Closing

P/E Ratio

Last Div.

Price

Date

1 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 Middle East Paper Simo Middle Egypt Flour Mills Misr Aluminum Misr Chemicals Misr Free Shops Misr Oil & Soap Nile Cotton Ginning Nile Matches Nile Pharmaceuticals Nobareya Agricultural Engineering North Cairo Flour Mills Paints & Chemical Industries Pachin South Cairo & Giza Flour Mills Telemisr Torah Cement Unirab Spinning & Weaving United Arab Shipping & Stevedoring United Housing Upper Egypt Contracting Upper Egypt Flour Mills SIMO.CA CEFM.CA EGAL.CA MICH.CA MFSC.CA MOSC.CA NCGC.CA NMPH.CA NIPH.CA NAEM.CA MILS.CA PACH.CA SCFM.CA AEEL.CA TORA.CA UNAR.CA UASG.CA UNIT.CA UEGC.CA UEFM.CA
8.8% 6.1% -9.0% 5.6% 27.7% -22.0% 0.0% -13.4% 2.6%

2

3

4
4.46 7.45 10.66 3.21 14.00 18.89 35.97 5.42 49.23 7.93 18.31 10.91 10.14 3.76 32.05 1.50 1.88 3.09 10.48 18.55

5
n/a 2.59 3.68 11.19 n/a 5.38 n/a 2.69 4.32 n/a 3.29 3.78 2.43 7.25 4.51 8.56 n/a 5.91 2.01 3.14

6
1.00 1.70 1.00 0.18 3.80 2.20 1.97 1.25 8.55 2.00 4.00 2.40 2.60 1.00 6.00 3.30 2.80 0.45 2.00 4.60

7
22.00 24.81 71.25 5.00 32.00 31.00 43.00 27.00 56.70

8
22-Jun-97 10-Apr-94 1997 1-Jan-95 02-Feb-97 07-Aug-96 1-Jan-97 1-Sep-96 1-Jun-95

-28.4% 0.0% -14.0% 22.8% -1.9% 9.4% -5.9% 0.0% -14.8% 0.0% -8.4% 11.6% -3.3% 0.0% -25.0% 23.1% -2.0% 0.0% 0.0% 0.0%

6.4% -22.2% -2.6% -20.4%

27.00 14-May-97 87.00 29-May-95 60.16 1-Jun-95

-10.4% -22.1% 22.0% 0.7% -14.9% 25.6% -1.1% -25.9% 0.0% 3.1% -3.7% 18.7% 0.0% -27.6% 0.0% -51.5% 0.0% 0.0%

26.00 26-May-96 20.00 42.25 18.75 1-Sep-96 9-Dec-94 1-Jun-94

31.00 16-May-98 4.34 38.50 40.00 12-Feb-96 05-Jun-97 04-Nov-96

-9.9% -5.4% 14.6% -19.4% -23.7% 0.0% 10.4% -13.3% 24.8%

Source: CASE Notes: Companies in Italics are included in PIPO index Companies in Bold are listed among the 10 Most Active Companies in Terms of Volume Traded for September 2001 Column 1: Change in share price over quarter (percent) Column 2: Annual average growth in share price, from first offering date to end of quarter (percent) Column 3: Dividend yield (column 5/column 3). If no dividend is reported by CASE in the last 12 months, then the dividend yield is set to 0 (Percent) Column 4: Closing CASE price at end of quarter. Source: CASE Column 5: P/E Ratio at end of quarter. Source: CASE. "n/a" stands for negative earnings Column 6: Stated dividend payout (LE per share). Source: CASE Column 7: Initial offering price per share. Price has been adjusted for corporate actions. Source: CASE, Prime Securities Column 8: Initial Offering sale date. Source: PEO

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January—March 2002

DONOR-FUNDED ACTIVITIES
Introduction
he Government of Egypt has several bilateral and multilateral international donors which provide technical assistance for a wide range of structural adjustment activities covering privatization and economic policy reforms. These donors include the United States Agency for International Development (USAID), the European Union (EU), the UK Department for International Development (DFID), the Canadian International Development Agency (CIDA) and the German Government. The desired results of these donor investments are: • additional higher-paying jobs • improved productivity & competitiveness • increased exports • larger tax revenues • greater economic opportunities • higher standard of living • access to new technologies • use of better management techniques • application of modern, more efficient business organization • access to overseas markets Foreign donors expect to benefit through the ultimate improvement of the Egyptian economy through increasing regional stability while providing donor nations a source of diversified and less expensive commodities and services. Donor countries also gain a more viable market partner in a strategic center of a significant economic region. Within the field of privatization, donor activity broadly includes financial support as well as technical and training assistance for a number of ministries with privatizable assets. Specific donor activities include providing assistance for reorganization, financial restructuring, policy development, and the valuation and packaging for sale of publicly owned companies. Also, technical assistance is being provided for the Capital Markets Authority (CMA) and other entities and institutions associated with the Egyptian financial markets.

T

United States Agency for International Development (USAID) Projects

PRIVATIZATION MONITORING, COORDINATION AND SUPPORT UNIT (PCSU)
CARANA Corporation is implementing USAID’s three-year (1999 – 2002) Monitoring and Coordination Services Project under the “Partnership for Competitiveness” agreement between the GOE and the United States. CARANA formed a Privatization Coordination Support Unit (PCSU) that is providing privatization coordination support and monitoring services to nine key Government Ministries. PCSU also is mandated to monitor the Development Support Program I (DSP-I) and track privatization progress against DSP-I benchmarks, gather privatization benchmark-related information, and analyze shortfalls and successes. PCSU CORE FUNCTIONS Support Overall Privatization Process Management & Coordination • Introduce additional privatization methods • • Support changes to privatization policy and procedures/regulations Facilitate coordination of activities among donors, within USAID, & among contractors, particularly the Privatization Implementation Project (PIP) Ensure sharing of privatization information and experiences among Ministries; providing a privatization information “clearing house” for ministries to access

•

Coordinate and Provide Privatization Support to Individual Ministries • Complete development and analysis of MPE and MOEFT database for privatization management. • • • Complete installation, testing, and website management training for PEO Provide ad hoc capacity building for use of alternate privatization methods Help define and obtain training and other capacity building support

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P rivatization in Egypt - Q uarterly R eview
Improve Understanding of Privatization & Economic Reform • Develop special studies/initiatives • • • • Prepare the Privatization Quarterly Review Prepare press clippings Develop & maintain an Egypt privatization website (www.carana.com/PCSU) Track privatization progress against USAID/GOE cash transfer benchmarks ACHIEVEMENTS DURING
THE

January—March 2002

MAJOR TER:

L AST QUAR-

the art knowledge and expertise on options and mechanisms for securing publicprivate partnerships in the provision and financing of infrastructure services. It is expected that the participants in this course will be senior policy makers from the public sector and business leaders from the private sector. PCSU will finance the cost of two trainers for this program. We have agreed with the World Bank’s Task Manager to collaborate on the design of country specific case studies and the selection of appropriately qualified participants from the various public sector agencies to enhance the course effectiveness. Workshop Syllabus and Workshop Materials Report Airport Infrastructure Public-Private Partnership Workshop was held during March 6-7,2002. A total of 6 international experts in various fields related to aviation sector made presentations. Approximately 150 participants from the public and private sectors attended the sessions. The workshop concluded with a comprehensive discussion on the issues and future strategies for the aviation sector in Egypt. All material on the workshop was sent to USAID including presentations in hard and soft copy and a list of attendees in addition to a summary report on the workshop.

Annual Work Plan The third option year of the project began on June 20, 2001. USAID has now extended a formal no-cost extension through August 19, 2002 at which date the project will be closed. Database Development Completed, with no additional work in the third option year. Training Plan The PCSU was requested by USAID to explore the possibility to collaboration with a training activity being planed by the World Bank Institute on the subject of Infrastructure Finance Methodologies. This ten days training program aims to provide state of

PCSU Staff
Mr. Tejinder Minhas Mr. Tom L. Thompson Ms. Ola Attia Mr. Paul Smith Mr. Jim Sorenson Ms. Shahira Hamza Ms. Amal Nawar Mr. Tamer Al Attar Ms. Maie El Tabbakh Ms. Ola Abdel Wahab Ms. Marwa El-Moslemani Ms. Enas El Gafarawy Ms. Noha Medhat Ms. Dina El Ahwal Ms. Nagwa El Sayed Managing Director / Chief of Party Deputy Chief of Party Director & Monitoring Specialist Director & Privatization Specialist Quarterly Review Editor and Webmaster Senior Privatization Analyst Special Studies Manager Financial Manager Privatization Analyst Privatization Analyst Privatization Analyst Privatization Analyst Research Analyst Office and Administrative Manager IT Manager

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Figure 42:

January—March 2002

Option Year 2 Special Studies
1. 2. 3. 4. 5. Alternative Privatization Methods Debt Study of Law 203 Enterprises Data Study of Law 203 Enterprises ESA Study of Law 203 Enterprises Other Privatization Opportunities Approval Date November 2000 December 2000 March 2001 February 2001 April 2001 Status Completed Completed Completed Completed Completed Survey: 1500 “Qualitative interviews” now underway. Target date for completion now June 2002. Some difficulties were faced in locating the retirees addresses and contacts. Cooperation from the companies with information was initially less than expected Briefings were held with Social Fund for Development. Policy / Background paper: First Draft reviewed by PCSU Additional drafting continues pending the results from the field survey. Final draft now due early June, 2002
Source: PCSU

Submission Date May 2001 June 2001 July-October 2001 March 2002 September 2001

6. Labor and Early Retirement Study

May 2001

June 2002

Six Special Studies The table below reviews the progress to completion of the six special studies for option year 3, and the studies outstanding from option year 2. Case Studies As part of the PCSU’s cooperation with an APRP project privatization review, we undertook a case study on the Horticultural Exports Improvement Association (HEIA). HEIA is a private sector initiative using BOT methodology for export promotion of agro-industrial goods. This case study will be included in the first 2002 Quarterly Report. Web Site Revision All aspects of the PCSU web site were updated, and the 1st, Quarter 2002 Quarterly Review, press clipping and aviation workshop presentation is now fully on line.

Quarterly Reviews The 1st, Quarter Quarterly Review was initiated in March Weekly Press Reviews CARANA Corporation continues to provide a weekly summary of pertinent privatization articles from printed media. These weekly press reviews are circulated to USAID and Ministry professionals and are available on the PCSU website (www. carana.com/pcsu). Since July 99 over 8,300 articles have been summarized for circulation (now running at about 500 articles per month). Monitoring of DSP I & DSP II Monitoring Plan of DSP II is in the final stages. Coordination with IS Provider - PIP No activities during the period.

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Figure 43:

January—March 2002

Option Year 3 Special Studies
Approval Date Status Submission Date

1.

2.

3.

3.

4. 5.

Summary and draft conclusions presented to the minister of Privatization in March. USAID was briefed on the findings as well. Final report to be presented Privatizing Troubled Companies (and separate June 2001 in a seminar to the additional work on debt restructuring) Minister and the Holding Company Chairmen in early May. The report will be finalized and issued by May 15, 2002. Consultant located. Delay TA to the Ministry of Privatization to streamline its due to issues with records management and retrieval system for March 2002 USAID approval of daily privatization transactions. rates. Documenting & Tracking of New GOE EnterScope of Work approved March 2002 prises Study under way Data collection continues\ Recruiting finalized and approvals submitted. Workshop preparations finalNovember Airport Privatization ized; workshop to be 2001 held at the Meridian Heliopolis Hotel, at the instruction of the Holding Company Scope of work approved Case Study Anthology March 2002 Research underway Scope of work drafted and An Assessment of Privatization Impact in Egypt TBD submitted for approval Recruiting underway

April 2002

June 2002.

July 2002

July 2002.

July 2002 July 2002

Source: PCSU

THE DEVELOPMENT SUPPORT PROGRAM I (DSP-I)
The Development Support Program (DSP) is a USAID/Government of Egypt policy reform program that has been jointly designed to assist the GOE in achieving its planned reform measures and objectives. Under DSP I, (1 April 1999 to 30 September 2001) the policy reform priority areas include trade, finance, employment, balance of payments, privatization and financial markets. The policy reforms, defined as measures, agreed upon as means of achieving the Specific Objectives determined in the

Memorandum of Understanding (MOU), are the basis for disbursement of up to $400 million of USAID funds in the thirty month period. MAJOR TER: ACHIEVEMENTS DURING
THE

L AST QUAR-

DSP-I has been extended from September 2001 to June 2002. The final draft of the DSP II is in the final stages, and the Monitoring Plan will define the policy benchmarks, terms of disbursements, and means of verification.

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USAID Privatization Implementation Project
USAID and the GOE has formed the “USAID Privatization Implementation Project” a USAID-funded project under the “Partnership for Competitiveness” agreement between the GOE and the United States. The PIP is tasked to accelerate the pace and volume of selling state-owned assets, thereby increasing competitiveness and reducing the burden on the state budget as well as on scarce management resources. The PIP will provide Technical Assistance to MPE for the privatization of Law 203 companies as well as sale of public sector shares in joint venture and insurance companies, both through the MOEFT. The duration period of the project is three years and it started in August 2000. COORDINATION BETWEEN PCSU AND PIP PCSU and PIP are working closely together to provide a coordination and effective approach to the MPE and MOEFT in meeting privatization objectives for Law 203, joint venture, and insurance companies. PCSU and PIP are retaining distinct and separate roles. PCSU guides the privatization discussion GOE-wide; enhances understanding of privatization methods, issues, and approaches through workshops and individualized training; monitors and reports on overall progress regarding GOE-wide privatization efforts; and undertakes specialized research on privatization in Egypt to better understand its opportunities, strategies and constraints. PIP is responsible for assisting in the day-to-day tasks of facilitating the sales of individual firms, bundles of associated firms, or shares in firms. Elements of the PIP Scope of Work include: SELLING-RELATED T ASKS:
• • •

January—March 2002

Provide guidance to the PEO to accelerate the selling process Assist the HCs, in the translation of Uniform Egyptian System of Accounting to International Accounting Standards Assist the HCs in scheduling the sale of companies in their portfolios Work with the MPE with regard to company valuation ACHIEVEMENTS DURING
THE

• •

MAJOR TER:

L AST QUAR-

See Ministry Public Enterprise Section for Major Achievements

CAPITAL MARKETS DEVELOPMENT PROJECT (CMD)
PROJECT DESCRIPTION To assist Egypt with strengthening the legal, institutional, and technological infrastructure underpinning its capital markets, USAID created and funded the Egypt Capital Markets Development (CMD) project. Launched in Fall 1998, CMD is implemented by Chemonics International Inc. and a team of highly qualified Egyptian and U.S.-based subcontractors. During 2001, USAID officially extended CMD for a fourth year. As a result, the project is currently scheduled for completion in August 2002. CMD works with the eight most important capital market institutions:
• • • • • • • •

Assist in the day-to-day tasks of facilitating the sales of individual firms, bundles of associated firms, or shares in firms Assist the PEO with respect to maintaining and using its database Assist in the financial and operating analysis of firm-level information

Capital Market Authority (CMA) Central Bank of Egypt (CBE) Ministry of Finance (MOF) Ministry of Foreign Trade (MOFT) Cairo and Alexandria Stock Exchanges (CASE) Misr for Clearing, Settlement, and Central Depository (MCSD) Egyptian Capital Market Association (ECMA) Egyptian Investment Management Association (EIMA)

• •

CMD’s technical assistance is designed to meet Chemonics’ contractual obligations to USAID and the Government of Egypt. There are four major objectives:

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•

January—March 2002

Improve the efficiency, transparency, and stability of the capital market’s architecture (automated trading, and clearing and settlement systems for stocks, bonds, and money market instruments). Strengthen institutions, including partner organizations such as the CMA, CASE, ECMA, MCSD, CBE, MOF, MOFT, and the brokerage industry. Strengthen the regulatory environment for capital markets, including greater self-regulation and disclosure. Develop secondary trading in new financial instruments, particularly money and bond market instruments. ACHIEVEMENTS DURING
THE

registry operation and maintenance, developed a disaster recovery plan, and drafted a press release to announce the system’s launch to the press and public. The registry will be fully ready for launch in the second quarter. The book-entry registry will eliminate risks associated with holding paper certificates, which can be lost, stolen, or destroyed. It will also increase the speed and safety with which Treasury bills can be distributed and traded. Currently, certificates are printed after each auction and then distributed to owners. This process, which takes as long as two days, will be eliminated, allowing ownership of Treasury bills to be established within hours. Procedures for trading Treasury bills will also be simplified. Instead of exchanging certificates, which must be delivered by hand, banks will be able to send instructions to the Central Bank, which will electronically transfer ownership from seller to buyer and funds from buyer to seller. Similarly, Treasury bills will be redeemed at maturity through the direct payment of funds to a bank’s account at the CBE, without their having to present the certificates. Capital Market Authority (CMA) The CMA and CMD finalized drafts of new regulations governing margin trading (permitting short selling) and introducing net capital requirements for brokers. We also finalized a decree for the creation of an investor protection fund. When launched, the fund will protect investors from the loss of cash or securities in the event of the insolvency or bankruptcy of their brokerage firm, or other CMA-licensed intermediary holding client securities or cash. We also completed an initial report on the securitization of assets, including mortgages, conducted roundtable sessions on the findings for the CMA, and participated in a Union of Arab Banks conference on securitization. These efforts will continue in the second quarter, culminating in comprehensive recommendations on the regulatory and operational prerequisites for the successful introduction of securitization into the Egyptian market. The CMA and CMD initiated several new institutional development tasks during the

•

•

•

MAJOR TER:

L AST QUAR-

The following is a brief summary of CMD’s major achievements during the first quarter of 2002. Each of these initiatives was implemented jointly by the institutions and the CMD project. Ministry of Finance (MOF) The MOF, CMD, and U.S. Treasury completed the final version of the decree for the creation of the primary dealer system. The Minister of Finance issued the decree in April 2002, shortly after the end of the quarter. The primary dealers will be a permanent underwriting syndicate for the debt of the government of Egypt, with responsibilities for maintaining active secondary markets. Next quarter, we will work with the MOF and potential primary dealers to adjust and finalize the executive regulations to the decree (drafted previously) to correspond to the decree as issued. Central Bank of Egypt (CBE) With the exception of final testing on sample data, the CBE and CMD completed all of the remaining steps necessary to launch the electronic book-entry registry for Treasury bills. This included implementing software modification, drafting procedures, remodeling the workspace housing the registry, and procuring necessary computer equipment. We also trained CBE staff in

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quarter. These include an effort to restructure the CMA along functional lines, an initial plan for which was delivered. A CMD advisor also drafted three manuals for inspecting different classes of market intermediaries. To help the CMA organize, track, and retrieve the thousands of filings it receives from issuers on a yearly basis, CMD delivered hardware and software for an electronic archiving system. The system is capable of processing, indexing, and retrieving documents by type, date, keywords, and text. It supports Arabic, as well as documents in Latin scripts. In addition, it can be interfaced to a Web server to provide public access to CMA filings. In another important initiative, CMD completed two overseas study tours in market surveillance and enforcement. The first was for the CMA national experts. It explored a broad policy and regulatory issues that the delegates must address in their roles as senior advisors to the CMA Chairman. The second study tour was an intensive twoweek training program in market surveillance that combined classroom instruction with site visits. The study tours were planned and led by CMD short-term advisor, who is a former head of market surveillance for the National Association of Securities Dealers. The tours were funded by USAID through the Development and Training II project. Cairo and Alexandria Stock Exchanges (CASE) CASE’s new trading system, which was successfully launched earlier in the year, continued to operate successfully throughout the quarter. The hardware for the new system was provided by USAID through the CMD project. The new system substantially increases the trading capacity of the exchange and provides comprehensive backup features to protect against system failures. CASE surveillance staff members also participated in the market surveillance and enforcement study tour discussed above. We will jointly design and plan follow-up efforts in this area during the second quarter. Misr for Clearing, Settlement, and Depository (MCSD) MCSD and CMD focused their joint efforts

January—March 2002

on implementing the requirements of the newly issued Executive Regulations to the Central Securities Depository and Registry Law (93/2000). These tasks included developing a policy and executive procedures for the reallocation of MCSD’s share capital and a proposal for a new fee structure. The proposed reallocation policy ensures that MCSD’s ownership structure equitably reflects its participants, both as individuals and as industry groups, which is in accordance with the principles of self regulation. The policy will be included in new MCSD by-laws, also developed with CMD assistance. In other areas, MCSD and CMD also moved forward, including disaster recovery planning and the final steps in the establishment of a fully functioning training department. Finally, CMD successfully negotiated a subcontract with Mellon Consulting for extensive technical assistance on the establishment of a state-of-the-art Central Registry Service at MCSD. Egyptian Capital Market Association (ECMA) and the Egyptian Investment Management Association (EIMA) On behalf of ECMA, CMD completed the initial draft of an Introduction to Corporate Finance, an Arabic-language booklet for investors, potential investors, students, and other interested audiences. We also continued to draft a booklet on the Egyptian capital market, its instruments, and institutions, and taped additional footage for the six-episode educational video series. These initiatives will be concluded later in the year. EIMA continued to implement the certification program for investment managers with support from the USAID-funded DT2 project and CMD. The program gives asset management professionals an industry “stamp of approval” for having passed technical and ethical standards. The rigorous program runs for six months, concluding in April 2002. The second iteration, scheduled for later in the year, will be selfsustaining, not requiring outside donor support.

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LEGAL, INSTITUTIONAL, AND REGULATORY REFORM PROGRAM (LIRR)
LIRR Phase II—Technical Assistance for Regulatory Reform and Private Participation in theWater and Wastewater Sector PROJECT DESCRIPTION LIRR Project are advisors to the Ministry of Housing, Utilities and Urban Communities under the Legal, Institutional, and Regulatory Reform program (LIRR) in the Water and Wastewater Sector, funded by USAID/ Egypt. LIRR is implemented by a consortium of three consulting firms: § § § Chemonics International Inc.; The Institute for Public-Private Partnerships (IP3); Chemonics Egypt. • MAJOR TER:

January—March 2002

ACHIEVEMENTS DURING

THE

L AST QUAR-

Operationlizing the Regulatory Agency • A simple tariff analysis model for the Sixth of October/Sheikh Zayed management contract was developed, based on the tariff analysis done for the pre-feasibility study, but expanded to include a discussion of the methodology and notes on how to operate the model to incorporate the final service fee requirement which will result from the procurement process. This model is now being expanded to serve as a simple model for use by NUCA in setting tariffs for all new urban communities whether governmentally or privately managed. Major progress was made in restructuring the basic revenue requirements model for EWRA use. The model now integrates water and wastewater into the same model and allows for benchmarking of UFW, collection efficiency, and staffing levels. The model will be tested using preliminary Beheira data. The LIRR-II regulatory advisor met with AGOSD ISPR team members to review work to date on AGOSD tariff study data collection, compare LIRR-II approaches with the approaches being used in Alexandria PSP study, and review data requirements for the new LIRR-II model. A SOW was prepared developing cost estimation guidelines to assist utilities in budgeting for compliance with regulatory performance measurement and reporting standards. These budgets would be included in the revenue requirements. A committee has been established in MHUUC to review the management and financial conditions of the water and wastewater utilities in the 16 new towns. At the request of the LIRR-II Project officer, LIRR-II is developing a simple tariff analysis

LIRR’s focus in the Egyptian water and wastewater sector: § Regulatory reform (including assistance in preparing a new Concessions Law); Helping establish a regulatory agency - the Egyptian Water and Wastewater Regulatory Authority (EWRA); Tariff restructuring and reform; Helping establish a GOE department to facilitate the development of private sector participation projects - the Central Department for Private Sector Projects (CDPSP); Development of Private Sector Participation Procurement and Contract “Toolkits” for use by water/ wastewater companies; Private sector participation training for water/wastewater companies; Pre-feasibility studies and transaction support for selected projects.

§

•

§ §

•

§

§ §

•

Project Duration: The LIRR project’s estimated completion date is July 31, 2002.

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model with instructions. The manual will contain a combined (w&ww) revenue requirements model, detailed instructions on model inputs and operation, business planning templates and guidelines, and rate design worksheets and guidelines. CDPSP Establishment and Capacity Building • Prepared the Sixth of October/ Sheikh Zayed Cities pre-feasibility study. LIRR-II also prepared a list of additional required data for NUCA to provide based on comments received. Met with Sixth of October officials and CDPSP to clarify NUCA comments. Performed full review of Egyptian laws governing concession contracts for public utilities. Held conferences with short-term staff and USAID/Cairo on progress with Project Development Fund. Discussed consequences of the GOE’s failure to pass the proposed concession law on concessions in the w/ww sector. Submitted several installment of draft Toolkit documents to Magd ElDin Ibrahim and Dr. Beyaly for MHUUC review. Transmitted revised LIRR-II plan to USAID & GOE. Planned schedule and content of DT2 training for Toolkit.

January—March 2002

(revision No. 6) based on developing two alternatives. Alternatives No. 1 “Management Concession”, Alternative No. 2 “Demand Driven Concession” and developed a revised work plan up till the end of July 2002. Work is progressing on the revised pre-feasibility study, and it is anticipated that this revised study, incorporating both alternatives, will be completed by the end of July 2002. • Initiated the process of investigating the mechanism of issuing a GOE guarantee for the Beheira transaction.

•

•

BRITISH DEPARTMENT FOR INTERNATIONAL DEVELOPMENT (DFID)
The objective of the assistance providing by the DFID over the past two years has been the successful development of the capital markets by strengthening capacity in the regulatory institutions. The project is due to finish and its budget of 500 thousand pounds sterling to be fully disbursed early within the next quarter. The main counterparts for the project have been the Ministry of Economy and Foreign Trade (MOEFT) and the Capital Market Authority (CMA). Other counterparts have been the Ministry of Social Insurance (MOSI), the Egyptian Insurance Supervisory Authority (EISA) and the Cairo and Alexandria Stock Exchange (CASE). A UK resident adviser has been working at the CMA on a contract due to end at the beginning of April 2002. He has been supported by visiting UK experts on short-term specialist contracts. MAJOR TER: ACHIEVEMENTS DURING
THE

•

•

•

• •

Private Sector Participation Projects • Formal approval from Beheira Water Company of Final Pre-feasibility study of Beheira sent to MHUUC. Received Sixth of October/Sheikh Zayed/NUCA response to LIRR-II requirements and held subsequent meetings to confirm LIRR-II understanding of the data. Revised Sixth of October and Sheikh Zayed transaction schedule

LAST QUAR-

•

•

Two U.K consultants from Cadogan Financial have been undertaking a project to help the Capital Market Authority improve its regulation of investment funds and fund managers, over three visits to Cairo in February, March and April. They have advised the CMA on different forms of investment fund and made recommendations to improve the accounting and reporting of funds. They have delivered a training program for members of the CMA staff, and provided guidance on an operational super-

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visory and inspection manual for use by the CMA regulators.

January—March 2002

which $4.52 m would be contributed by the Government of Egypt and $4.85 m by CIDA. The goal of the project is to support the Government of Egypt’s Human Resource Development Plan to reach its goals of reducing the overall of unemployment and the number of underemployed. The primary expected outputs include: a) 25 pilot employment service offices established in 26 governorates with an additional 60 subsidiary offices established by June 2007 - three in each of 20 governorates; b) fully trained staff in the 25 pilot employment centers with increased skills; c) a roster of fully qualified trainers; and d) added enhancements to the National Occupational Classification (NOC) system. The Egyptian Social Fund for Development (SFD) - Human Resources Development Program in its capacity as the Technical Secretariat of the Supreme Council for Human Resources development and Training is the Agency responsible for the implementation of the activities of this project. Te Social Fund will work in cooperation with the Ministry of Manpower and Immigration (MoMI).

CANADIAN INTERNATIONAL DEVELOPMENT AGENCY (CIDA)
Egyptian Labor Adjustment service project (ELAS) – Phase II The project helps create mechanisms within the Labor Adjustment Unit at the Social Fund for Development (SFD) to address the needs of redundant and displaced workers. The SFD is an active player in labor issues resulting from the economic reform program. It draws upon Canada’s own experience in this politically and economically sensitive area. MAJOR ACHIEVEMENTS DURING TER:
THE

LAST QUAR-

As per the Memorandum of Understanding, the project concluded in August 31, 2001. The National Occupational Classification System (NOCs) has successfully developed and translated into Arabic.

THE EGYPTIAN LABOR FORM (ELMSR)

MARKET SERVICE RE-

The Government of Canada represented by the Canadian International Development Agency (CIDA) and the Government of the Arab Republic of Egypt has signed a Memorandum of Understanding concerning the Egyptian Labor Market Service Reform (ELMSR) in February 2002. Mr. Len Good, the President of CIDA and H.E. Fayza Abul Naga, Minister of State for Foreign Affairs countersigned the MOU. The purpose of the project is to support the creation of a national job matching service by creating a network of accessible and fully functional employment centers in all 26 of Egypt’s governorates. The centers would be an adaptation of the Canadian model. The project aims at establishing the employment centers, strengthening the capacity of professional staff to operate the employment service and, enhancing the Egyptian National Occupational Classification System (NOCS), including an automated Electronic Labor Exchange. The project would be implemented over a five-year period with a budget of $9.37 m of
PCSU—Privatization Coordination Support Unit CARANA Corporation

GERMAN TECHNICAL COOPERATION (GTZ) ON BEHALF OF THE GERMAN MINISTRY FOR ECONOMIC COOPERATION AND DEVELOPMENT (BMZ)
The GTZ project “Improvement and Decentralization of Governmental Seed Production and Marketing” (IDGSPM) has been working in the Ministry of Agriculture and Land Reclamation (MoALR) since 1987. The current project phase is planned up to December 2002; it is focusing on the privatization of the governmental seed services. The project results are twofold. On the one hand support of the MoALR’s privatization policy is provided by policy advice and technical assistance. This includes tender documents for privatization of stand-alone seed processing stations as well as necessary legal steps for privatization of larger entities. On the other hand the project supports the private Egyptian seed companies by supporting the Egyptian Seed Association (ESAS).

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MAJOR ACHIEVEMENTS DURING TER:
THE

January—March 2002

LAST QUAR-

No activities have been reported in the last quarter.

Multilateral Donors
EUROPEAN UNION (EU)
The European Union and GOE agreed in October 1987 to establish a Public Enterprise Reform & Privatization Program (PERPP). The two-phase program was designed to increase private sector participation throughout the economy, facilitating the reform process of the public enterprise sector through the provision of specialized expert technical assistance. Two phases are involved: Phase 1 – Analysis and evaluation of privatization strategies and pre-privatization restructuring or other tasks required of the companies for sale Phase 2 – Technical assistance for the sale of the companies As part of the PERPP, in 1993, the EU established a Project Management Unit (PMU) to establish lists of privatization or restructuring candidates, and to oversee and hire experts for a privatization technical assistance program for the valuation and the development of restructuring and privatization strategies for selected Law 203 affiliate companies. MAJOR ACHIEVEMENTS DURING TER:
THE

result of the efforts of the 3 consulting firms running the Holding Company specific (HC/S) contracts. It is probable that up to half of these could have been privatized in the next three to six months if the extension to the project requested by the GOE had been agreed by the EU. Holding Company specific contracts (HC/S) Holding Company specific contracts: The main thrust of the project continued to be in the area of Holding Company specific contracts: During the quarter the three HC/S contracts continued and all worked well. All 3 HC/S contracts – for the Metallurgical Industries, Engineering Industries and Chemical Industries Holding Companies continued apace right to the final day of the project. Indeed, some of the consulting firms are continuing to support the HCs on a “no fee” basis, to ensure an orderly handover. All consultants Core Teams continued to work closely with the HC senior staff to the end and all three HC Chairmen expressed their heartfelt thanks for the assistance received. Training The Final reports on the Pilot Training Program, which was carried out by the Maastricht School of Management were presented and approved during the quarter. Although no further use under EC Support to PERPP can be made of the valuable lessons learnt form the Program, the documentation has been given to the Industrial Modernization Center, for use in training private sector companies under the EU’s new Industrial Modernization Program. All paperwork, in both hard copy and electronically held, was formerly handed over to the IMC shortly before 15 March 2002. Advertising for the Ministry of Public Enterprise A significant advertising Program was carried out in the last three months, as reported above. Advertising was published in a number of international media, such as The Financial Times and The Economist, plus local newspapers, such as Al Ahram.

LAST QUAR-

The European Union project to support the PERPP ended on 15 March 2002. In the 6½ years of the project a total of 66 Affiliated Companies (ACs) and/or Independent Business Units (IBUs) have received assistance from the project, including the 6 Textile Companies who were the subject of the Pilot Training Program. The total cost for this assistance is estimated to be €22,630,000. The assistance has resulted in two actual Privatizations, worth LE85 million (€20 million). In addition, 24 ACs/IBUs have recently been advertised for sale, as a direct

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In addition, trade newspapers were utilised to advertise for specialised companies. A total of approximately €250,000 was expended on advertising during the final quarter of the project.

January—March 2002

UNITED NATIONS DEVELOPMENT PROGRAM (UNDP)
FUNDING
OF

PUBLIC ENTERPRISE OFFICE

UNDP, along with the GOE and USAID, will continue funding the Public Enterprise Office (PEO) of the Ministry of Public Enterprise until May 2002.

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Appendix I
Reports and Studies Delivered to USAID by PSCU and its Predecessor
Title
CARANA: Airport Infrastructure: PublicPrivate Partnership

Date

Description

Airport Infrastructure Public-Private Partnership Workshop was Study will held during March 6-7, 2002. A total of 6 international experts in various fields related to aviation sector made presentations. Apbe completed by proximately 150 participants from the public and private sectors July 2002 attended the sessions. The workshop concluded with a comprehensive discussion on the issues and future strategies for the aviation sector in Egypt. All material on the workshop was sent to USAID including presentations in hard and soft copy and a list of attendees in addition to a summary report on the workshop. At the request of the Public Enterprise Office, the PCSU conducted an exhaustive study on the performance of companies sold to their Employee Share Association. It makes several important findings concerning the appropriateness and effectiveness of the ESA sale program. Below is the executive summary of the study. The entire study can be downloaded from our web site at www.carana.com/ pcsu. Important study discussing the appropriateness of the exisitng law 203 structure and how that structure needs to be changed to allow for the privatization of 49 distressed companies. The study makes a number of recomendations and comments on the governments existing plans and offers solutions.

CARANA: Post Privatization of ESA Companies 3/02

CARANA: Alternative Methods II “Privatization of Distressed Companies” 5/02

CARANA: BOOTs and BOTs as Shortcuts for Privatizing Egypt’s Infrastructure 9/01

CARANA: Debt Restructuring: Strategic Options 6/01

CARANA: Law 203 Portfolio – Financial Data CARANA: Alternative Privatization Methods 5/01 6/01

This report summarizes on-going efforts to reform and privatize Egypt’s infrastructure enterprises and sectors to date, and identified the problems that the government is already facing or likely to face in the future. Specific suggestions are proposed to develop a comprehensive privatization infrastructure development policy. The ultimate goal is to ensure that all Egyptian stakeholders – consumers, taxpayers, workers, the government, and the private sector – benefit from overall infrastructure sector and infrastructure enterprise reforms. This paper addresses a fundamental issue in Egyptian privatization strategy: how to restructure the debt of Law 203 companies to make them viable candidates for privatization. The approach suggested by this Special Study is to first define the debt that is a “problem”, and second to recommend restructuring methods that combine “internal restructuring” and the use of resources from the Privatization Restructuring Fund (Restructuring Fund). The study recommends focusing all debt restructuring resources on so-called “Group 2” companies, those for which a reduction in debt should make a difference in how easily they could be sold for more attractive prices. The study presents and analyzes data on the current Law 203 portfolio, and presents an action plan for next steps. This study is considered confidential, and is available only with the permission of the Public Enterprise Office. This paper presents 3 volumes of data from the PEO’s Law 203 company database, and analyzes patterns among holding companies and affiliate companies.

This special study reviewed some of the obstacles impeding Law 203 privatization, and identified several potential approaches to privatization that could serve to invigorate the current program and push it forward. Four specific groups of recommendations were proposed to accelerate the traditional process of privatization of Law 203 companies in Egypt, including (1) Accelerating case-by-case privatization, (2) Packaging, (3) Rapid Batch Tendering, and (4) Auctions. The study also examined strategic issues surrounding the establishment of intermediate privatization vehicles.

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Appendix I
Reports and Studies Delivered to USAID by the PCSU Project and its Predecessor
Page 2

Title
CARANA: The Corporate Governance Policy Framework

Date
6/00

Description
This special study sets out the essential elements of the concept of corporate governance, and reviews the nature and origin of many corporate governance concerns. The second section summarizes the main features of the emerging international standards in corporate behavior and regulation. The third section reviews the corporate governance situation in Egypt, with emphasis on areas of greatest divergence between the new international standards and Egyptian law and practice. The fourth and final section proposes an initial strategy for reform. This study examines the post-privatization development of a sample group of 15 privatized Law 203 companies and seeks to evaluate the degree to which they are becoming independent of the State after their privatization. A set of qualitative evaluation criteria was created to categorize the degree of post-privatization enterprise independence. A review of recent privatization offerings by the Holding Companies of the Ministry of Public Enterprises, concentrating on unsuccessful transactions and difficult negotiations with potential anchor investors. The purpose of the study was to isolate common sources off difficulty to determine “lessons learned” and to recommend corrective action while deploying best international practice. The PCSU sponsored “Valuing Insurance Companies”, a 5-day workshop for the Ministry of Economy and Foreign Trade and the insurance industry, to assist in the understanding of critical issues and procedures.

CARANA: The Post Privatization Development of Former Law 203 Companies: 15 Case Studies CARANA: Getting the Deal Done: A Review of Recent Privatization Transactions CARANA: Valuing Insurance Companies: Workshop Materials IBTCI: Privatization Best Practices (Vol. I and II) IBTCI: Employee Stock Ownership Plans In Egypt “Case Study” 9/98 1/99 4/00 4/00 6/00

The study was conducted in 2 distinct phases. The 1st phase consisted of in-depth research on 22 countries engaged in privatization programs and 6 sectors that had specific relevance to Egypt. The 2nd phase was an on-site assessment of the Egyptian Privatization Program and the identification of opportunities for the adoption of new methodologies of privatization in Egypt. This special study was completed to: 1) identify options to solve challenges and issues with the current Employees Shareholder Associations (ESAs) that would allow them to be more effective and efficient while also creating options for more effective use of employee ownership in the privatization process; 2) develop a strategic plan for ADALA, an employee ownership association that will allow them to be a self sufficient organization that provides technical information to employee ownership companies and will represent their interest in the establishment of laws and regulations; and 3) to educate the public sector on the various employee ownership options that can be used to meet different business objectives. The study's primary objective was to provide USAID, the PEO and the MPE with the status and understanding of the int'l and domestic investment banks and their capacity to support the H/ Cs and A/Cs in their privatization initiatives.

IBTCI: Investment Banking Special Study IBTCI: Privatized Companies Case Study 3/98 5/98

This report summarizes the case studies carried out on 7 newlyprivatized Egyptian firms by IBTCI at USAID/Egypt's request. The principle purpose of this report is to assess the effect of the differing methods of privatization both on the efficiency and productivity of the firms privatized and on the economy in order to help determine the nature of and direction for future approaches.

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Reports and Studies Delivered to USAID by the PCSU Project and its Predecessor
Page 3

Title
IBTCI: Valuation Advisory Report Assessment

Date
2/98

Description
The purpose of this review was to determine whether or not privatization authorities were using int'l standard methodologies for valuing the companies and assets and to assess their application to the process of bringing a company to the point of sale.

IBTCI: Assessment of Investment Information Memoranda 12/97

A review and evaluation of information memoranda' (IM) prepared for the government of Egypt (GOE) as a part of the U.S. Agency for Int'l Development (USAID) privatization project.

IBTCI: 9/97 Banking and Capital Markets in Emerging Market Economies

In emerging market economies, the initial development of capital markets is usually dominated by the banking sector and a small but growing brokerage industry. In developed market economies, the commercial banks' share of the financial service industry activities is much smaller due the growth of diversified financing options. Egypt is currently in the transition phase from the 1st stage to the 2nd with the commercial banks dominating the financing sector. This report is a follow-on to a legal and regulatory analysis which analyzed law 95, 195, 203, 230, the commercial code, the unified tax law, and other applicable regulations.

IBTCI: 8/97 Capital Markets: Growth and Development IBTCI: Privatization In Egypt: A Review of Program Development and Current Status IBTCI: Privatization Organizational Structure 5/95 6/95

The purpose of this study was to show how Egyptian reform leadership was able to change popular attitudes and implement economic change. In addition, the paper provides a description of the privatization of industrial companies as it now stands. Finally, the factors influencing the current program are discussed in an effort to illuminate the complex environment facing program managers. The purpose of this study is to assess the effectiveness of the organizational framework in support of the privatization assistance services to the Government of Egypt.

IBTCI: Organizing for Privatization 1/95

An assessment of organizational effectiveness of the Egyptian Privatization Program and the associated impact on the USAID Privatization Support Program.

IBTCI: Capital Markets: Operations and Procedures 1/95

This special study released at the time of the sale of shares in Egypt reviews the current operations of the Cairo Stock Exchange and related financial intermediaries. An Analysis of the 2 partial flotations in 1994 El Amereya Cement and Paint and Chemicals highlight the strengths and weaknesses of the financial markets from a variety of relevant viewpoints.

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Appendix II

Law 203 Portfolio
Total Revenue 2000 1999 2196.6 638.2 264.8 NA 144.3 66.1 100.7 151.2 31.3 57.4 73.8 34.8 44.0 96.4 42.0 40.4 25.6 15.0 Net Income 2000 268.5 (150.6) 22.5 10.4 16.3 4.5 8.8 2.7 6.7 0.3 (10.6) 1.1 (5.4) (73.3) (6.9) (8.7) (8.8) 0.9 1999 243.2 45.2 12.5 NA 10.1 (302.5) 3.6 5.9 (28.7) 1.4 0.1 (5.1) 3.5 (8.5) 6.3 0.8 (13.7) NA Number of Workers 2000 13,152 3,837 5,098 1,802 2,268 1,991 2,039 421 1,164 1,564 1,148 993 1,217 641 943 2,109 719 286

1999 13,612 3,934 5,244 NA 2,289 2,052 2,131 449 1,053 1,647 1,444 1,045 1,260 834 971 3,225 882 380

Chemical
Eastern Tobacco National Cement - Kawmia Delta Fertilizer Al Nasr Salines Chemical Industries - Kima Al Nasr Fertilizers Paper Manufacturing - RAKTA General Trade & Chemicals Tanta Flax National Paper Company Paper Manufacturing - VERTA Moharam Press National Plastic Company Sinai Manganese Dyestuffs & Chemicals Egyptian Shoes - Bata Al Nasr Leather Tanning Al Nasr Particle Board & Resins 2290.2 589.0 279.5 122.0 117.7 116.0 115.7 102.7 65.1 62.8 59.6 48.4 35.1 30.2 29.5 28.6 19.9 16.4

Construction
Hassan Allam Contracting Mokhtar Ibrahim Contracting Egyco Egyptian Contracting (Al Abd) Misr for Concrete General Electric Projects - Elegect High Dam Electrical Projects (Highdelico) Heliopolis (Misr El Gedida) Housing & Dev. Maadi Housing Nile Concrete Development - SPEECO Atlas General Contracting Arab Foundations (Vibro) General Construction Company - Roulan Egyptian General for Building Cairo General Contracting Arab General Contracting El Wady El Gedid Contracting Alexandria Contracting Nile General Contracting Red Sea Contracting 999.3 812.1 306.6 290.5 243.0 199.4 193.2 181.7 132.2 93.7 73.0 66.2 59.2 55.4 54.4 51.3 45.2 38.9 38.0 23.3 1530.2 958.0 349.5 393.4 310.1 188.7 150.7 189.0 157.3 74.8 121.9 59.5 68.4 56.3 66.4 34.2 41.1 47.0 43.2 44.2 95.8 56.5 4.5 10.9 5.2 7.0 7.2 50.7 34.4 2.7 2.2 6.3 1.4 5.4 2.2 4.3 2.2 1.8 3.7 0.3 512.7 77.7 4.8 11.5 1.5 7.0 7.1 70.2 52.9 (15.5) (6.5) 2.6 1.7 4.0 4.0 2.1 0.2 0.8 1.6 2.1 NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA 9,323 12,598 3,259 2,129 4,885 3,152 NA 1,156 631 1,279 1,975 1,517 597 379 1,206 573 788 443 486 348

Source: PEO

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Appendix II

Law 203 Portfolio
Total Revenue 2000 Net Income 1999 554.8 329.2 212.6 178.8 244.0 179.7 16.0 41.2 32.1 51.1 40.4 31.6 2000 2.4 9.1 1.0 2.2 (74.0) (69.0) 3.0 (29.2) 6.9 0.4 2.4 1.5 1999 41.2 14.1 0.2 3.9 (5.3) (48.9) 0.1 (16.1) 6.3 4.2 3.7 3.7 Number of Workers 2000 666 5,680 NA NA NA NA 296 1,814 NA NA 404 NA

1999 800 7,538 NA 2,160 NA 3,214 15,537 1,947 921 567 582 662

Trade
Al Nasr Export and Import Omar Effendi Department Stores Sednawi Department Stores Hannaux Department Stores Benzayoun Department Stores Egyptian Product Sales - Bea Masnouaat Misr Foreign Trade Commercial Co. for Wood Arab Bureau for Design (Eng. Design & Irr. Projects) Misr Auto Trading Misr Import & Export Alexandria Cooling* 628.3 498.4 187.8 146.0 143.0 131.3 73.5 42.2 35.4 32.6 29.0 18.2

Engineering
Al Nasr Automotive Egyptian Copper Factories Transport & Engineering Egyptian Pipes - SIEGWART Tractors & Engineering Egyptian Light Transport Company - Eltramco Al Nasr Electrical Apparatus - Niaza Alexandria for Metal Products Precision Industries - SABI Al Nasr Television Cairo Metal Products Nile General Engineering Al Nasr Rubber - Naroubin Springs Manufacturing Co. Al Nasr Forging Al Nasr Cooling - KOLDAIR 370.2 246.9 226.3 113.1 67.0 64.1 61.9 35.1 33.0 32.5 31.2 22.9 20.9 19.5 18.6 14.5 682.3 265.2 256.7 119.9 119.6 111.4 113.3 105.8 59.9 57.6 41.2 18.0 NA 23.0 37.1 40.1 (100.0) (58.9) (12.0) 3.3 (8.7) (52.6) (23.7) 2.1 0.5 (37.3) 0.5 (6.2) (6.6) 0.2 (10.1) (7.5) 18.3 0.0 10.5 5.9 (6.1) 4.9 0.5 52.5 2.4 (13.0) 2.9 0.2 NA 0.4 (7.4) 0.0 7,565 NA 3,942 3,590 816 765 2,446 106 262 997 949 723 896 401 1,109 605 NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA

Source: PEO

*Sale reported by PEO, but not completed

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Appendix II

Law 203 Portfolio
Total Revenue 2000 Net Income 1999 2484.3 647.9 543.5 NA NA 397.3 393.6 369.9 337.7 307.1 336.7 NA 137.1 NA NA 84.1 86.6 104.6 NA NA NA 15.5 NA 2000 106.0 47.9 26.9 (18.6) (3.5) 7.2 9.3 19.6 13.8 10.0 17.0 24.8 (2.2) (12.7) (6.4) 12.5 3.0 0.4 5.0 (3.6) (13.4) 4.3 NA 1999 86.3 50.9 24.5 NA NA 10.9 11.1 14.9 12.8 8.0 16.2 0.0 0.3 NA NA 11.6 1.5 7.4 NA NA NA 1.8 NA Number of Workers 2000 20,677 4,990 4,908 NA NA 3,951 3,697 3,013 3,767 4,000 3,021 3,941 4,548 NA NA 1,530 962 1,375 627 NA NA 119 NA 1999 21,613 5,044 5,220 NA NA 4,300 3,882 3,090 4,106 4,345 3,281 NA 6,115 NA NA 1,601 995 2,117 NA NA NA 114 NA

Food Industries
Sugar & Integrated Industries North Cairo Flour Mills Middle Egypt Flour Mills General for Wholesale Trade Egyptian Wholesale trade Alexandria Flour Mills Alexandria Oil & Soap Nile Oil & Detergents South Cairo Flour Mills Tanta Oil & Soap Salt & Soda Co. General Silos & Storage General Greater Cairo Bakeries Nile Consumption Outlets Alex Consumption Outlets Egyptian Starch, Yeast & Detergents Edfina for Preserved Food Misr Dairy Products Rice Marketing Co. Al Ahram Consumption Outlets Egyptian for Fish Marketing Packing & Distribution Co - SHIMTO Egypt Meat, Poultry & Supplies 2500.0 581.4 539.0 508.3 471.4 399.2 376.9 356.6 310.2 292.8 279.8 175.2 126.7 87.8 83.9 81.0 80.6 73.8 56.0 49.5 43.7 26.9 NA

Housing, Tourism and Cinema
Misr Travel Al Maamoura Housing & Urbanization Delta General Contracting Al Nasr Housing Gomhureya Contracting Misr Hotels Misr Distribution & Theatres Misr for Sound & Light EGOTH
Source: PEO

289.0 118.4 95.5 83.1 73.4 54.6 32.6 31.6 NA

234.7 117.0 68.2 88.4 72.1 53.2 23.0 21.7 211.1

16.4 31.0 11.1 26.9 16.2 35.4 6.4 12.9 NA

15.9 40.1 9.8 23.2 8.6 33.2 3.8 7.5 129.6

2,346 1,123 390 611 350 92 1,135 374 NA

2,311 546 254 620 200 111 437 362 1,498

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Appendix II

Law 203 Portfolio
Total Revenue 2000 1999 249.7 192.1 136.9 201.6 135.4 122.0 106.7 79.4 61.0 60.3 52.7 63.7 22.3 Net Income 2000 102.2 (17.0) 17.8 44.9 24.5 5.8 21.2 32.3 3.4 1.1 1.2 (25.7) (1.0) 1999 91.0 2.0 14.8 74.9 34.1 11.7 22.8 29.1 3.0 575.0 1.1 (22.9) 2.0 Number of Workers 2000 2,078 1,500 NA NA NA NA 1,644 NA NA NA NA 657 657 1999 2,004 1,557 NA NA NA NA 1,740 NA NA NA NA 2,863 1,149

Maritime and Inland Transport
Alexandria Containers Handling Egyptian Navigation East Delta Bus Canal Shipping Agencies Port Said Containers Handling Upper Egypt Bus Egyptian General Warehouses Damietta Containers Handling Middle Egypt Bus West Delta Bus Nile Car Repair Alexandria Shipyards Egyptian Shipbuilding & Repairs 246.0 165.5 156.5 151.9 140.5 135.8 103.4 103.2 71.9 64.7 58.9 48.7 22.7

Metallurgical
Misr Aluminum Egyptian Iron & Steel Al Nasr for Coke Al Nasr Steel Pipes Railway Wagons Co. - SEMAF General Metals Company Delta Steel Egyptian Metal Construction - Metalco Egyptian Ferroalloys Al Nasr Glass & Crystal Al Nasr Phosphate Porcelaine & Dinnerware-SHINI River Transport Co. Red Sea Phosphate Water Transport Co. (Gen. Nile for Water Trans.) Sornaga Ceramics (New) Alexandria Refractories Egyptian Irrigation workshops National Metallurgical Industries 1648.0 1519.0 633.7 174.8 166.4 158.6 147.1 137.7 124.6 103.6 86.1 48.2 29.9 28.3 22.4 3.1 NA NA NA 1571.1 1649.1 703.7 173.9 71.8 141.8 204.7 200.6 125.5 108.9 94.8 40.3 33.0 60.7 21.9 NA NA NA NA 76.4 0.1 28.3 0.6 10.2 0.6 0.9 0.1 1.8 0.0 3.1 4.1 0.1 (20.1) 0.1 0.4 NA NA NA 37.2 0.1 32.6 (4.8) 7.5 0.6 0.8 0.1 2.0 0.0 8.9 (5.9) 0.1 0.1 0.1 NA NA NA NA 10,573 19,886 4,821 2,601 1,866 1,337 2,416 4,463 1,588 2,292 1,063 1,130 1,654 800 1,291 110 NA NA NA 10,761 20,665 5,019 2,682 2,354 1,378 2,490 3,091 1,769 2,770 1,275 1,194 1,752 1,308 1,361 NA NA NA NA

Pharmaceuticals
Egyptian Pharmaceutical Trading El Gomhureya Pharmaceuticals Nile Pharmaceuticals Chemical Industries Development (CID) Cairo Pharmaceuticals & Chemicals Alexandria Pharmaceuticals & Chemicals Al Nasr Chemical Memphis Pharmaceuticals & Chemicals Arab Pharmaceuticals & Chemicals (ADCO) Misr Pharmaceutical Industries Pharmaceutical Packaging Co.
Source: PEO Source:

1509.2 454.6 222.9 199.2 184.1 170.2 136.9 134.8 120.8 83.9 31.6

1470.3 464.5 217.0 200.0 186.1 158.5 135.4 131.8 120.4 108.0 33.1

73.0 49.9 35.3 33.6 31.0 34.4 10.5 27.4 13.8 7.6 2.1

55.4 40.9 27.9 28.8 30.8 32.3 6.0 26.8 11.0 11.2 0.7

3,655 1,592 2,533 2,377 2,488 1,405 2,961 1,505 1,287 1,718 626

3,920 1,988 2,734 3,229 2,766 1,469 3,049 1,656 1,496 1,915 689

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Appendix II

Law 203 Portfolio
Total Revenue 2000 Net Income 1999 866.9 413.1 311.3 223.7 363.0 320.5 344.1 214.0 176.9 123.9 137.4 78.3 80.4 108.4 82.6 76.2 53.3 88.9 76.1 NA 55.9 40.0 70.0 23.1 30.5 7.3 48.6 22.5 32.6 16.1 NA 4.7 NA 72.9 285.9 28.6 58.2 112.7 123.9 1.4 1.1 75.1 166.9 2000 (87.8) 20.0 16.7 14.8 17.0 12.8 12.1 12.1 (16.9) (58.7) (38.8) 6.2 (93.1) (67.9) (20.4) 4.2 (9.2) 18.5 3.1 19.5 (19.9) (11.4) (109.0) 7.4 (71.7) (89.8) 6.9 (4.3) (77.9) (65.2) (10.5) 3.2 (7.7) (7.6) 0.0 0.0 0.0 0.0 NA 0.0 NA NA 0.0 1999 12.5 17.8 16.1 14.1 16.4 12.6 15.4 15.8 16.1 (22.4) 10.0 6.0 (78.8) (29.7) (13.1) 4.1 (20.4) (21.1) 7.1 NA (7.7) (18.6) (73.0) 0.7 (69.8) (134.9) 8.6 (2.6) (52.8) (61.0) NA (6.8) NA (0.4) (106.1) (11.9) (14.5) (23.9) (19.7) (1.5) 0.0 (46.3) 6.4 Number of Workers 2000 28,400 586 536 873 592 573 613 6,605 5,257 6,517 3,508 784 6,256 4,986 2,462 1,081 NA NA 1,064 805 2,816 2,205 3,417 1,354 2,735 4,086 1,192 578 4,262 2,113 2,134 622 1,354 1,546 NA NA NA NA 4,105 NA NA NA NA 1999 28,568 601 576 NA 699 635 650 NA 5,430 NA 3,556 897 6,838 NA 2,573 NA 2,430 NA 1,333 NA 2,917 3,013 NA 1,005 4,744 5,750 NA 830 NA 3,527 NA 736 NA 1,552 NA 2,104 1,534 4,106 4,290 300 95 5,627 NA

Spinning & Weaving(Textiles)
Misr Spinning & Weaving - Mehala Alexandria Commercial (Trading) Co. Misr for Cotton Export Port Said for Cotton export Sharkeya Cotton Cotton Trade & Export Co. Cairo Cotton Shebin ElKom Spinning & Weaving Delta Spinning & Weaving Al Nasr Spinning, Weaving & Dyeing Dakahleya Spinning & Weaving Delta Cotton Ginning Misr Helwan Spinning & Weaving El Seyouf Spinning & Weaving Orient Linen & Cotton El Wady Cotton Ginning Mit Ghamr Spinning (newly split) Misr Beida Dyers Misr Cotton Ginning Egyptian Cotton Pressing Sharkeya Spinning & Weaving General for Jute Products National Spinning & Weaving Arab Carpet & Upholstery Middle Egypt Spinning & Weaving Industrial Stores - ESCO Port Said Spinning & Weaving Misr for Textile Equipment Al Nasr Wool-Wooltex Shourbagy & Tricona Kom Hamada Spinning & Weaving Cairo Dyeing & Finishing El Mahmudeya Spinning & Weaving Menya El Kamh Spinning & Weaving Misr Fine Spinning - Kafr El Dawar Misr Services (newly split) Misr Polyester (newly split) Misr for Rayon Damietta Spinning & Weaving Alexandria Blankets (newly split) Alexandria Dyeing (newly split) Upper Egypt Spinning & Weaving Al Nasr Wool & Selected Textiles - STIA
Source: PEO

700.2 366.2 290.7 284.2 274.4 251.2 228.7 216.0 112.2 86.5 81.1 71.7 61.0 55.3 54.3 50.6 47.7 43.0 40.5 39.4 39.3 39.0 36.6 29.2 24.4 24.3 23.5 17.2 15.5 15.3 15.1 10.0 7.2 4.4 NA NA NA NA NA NA NA NA NA

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Appendix III List of Acronyms Complied from the Quarterly Review
APRP BCFG BMZ BOE BOOT BOT BP CASE CBE CDPSP CFG CIB CIDA CMA CNG DFID DSP EAC EDF EEHC EG EGOTH EGPC EIB EMF ESA ESOP EU EWRA FSR GOE GTZ Agricultural Policy Reform Project Billion cubic feet of natural gas German Ministry for Technical Cooperation and Development Barrel of oil equivalent Build Own Operate Transfer Build Operate Transfer British Petroleum Cairo and Alexandria Stock Exchanges Central Bank of Egypt Central Department for Private Sector Projects Cubic feet of gas Commercial International Bank Canadian International Development Agency Capital Markets Authority Compressed Natural Gas Department for International Development Development Support Program Egyptian Aviation Holding Company Electricity Authority of France Egyptian Electricity Holding Company Egypt Egyptian Organization for Tourism and Housing Egyptian General Petroleum Corporation European Investment Bank Emerging Market Free Index Employee Shareholding Association Employee Stock Ownership Plan European Union Egyptian Water and Wastewater Regulatory Authority Food Security Research Government of Egypt German Technical Cooperation

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Appendix III List of Acronyms Complied from the Quarterly Review
HC HRDC IFC IMF IMP IPO IPV JAICA JVC LIBR LNG LPG MAIB MCSD MIGA MMBL MOALR MOEFT MOF MOU MPE MSCI MVE NGO PCSU PE PEO PERPP PIP PIPO PMU RBT RDI RFP S.A. SESAM SFD SOE SRO TCFG UAE UNDP USAID WB Holding Company Human Resources Development Canada International Financial Corporation International Monetary Fund Industrial Modernization Program Initial Public Offering Intermediate Privatization Vehicle Japanese Aid Authority Joint Venture Company Legal, Institutional and Regulatory Reform Program Liquefied Natural Gas Liquefied Petroleum Gas Misr America International Bank Misr for Clearing Settlement and Depository Multilateral Investment Guarantee Agency Million barrels of total petroleum liquids Ministry of Agriculture and Land Reclamation Ministry of Economy and Foreign Trade Ministry of Finance Memorandum of Understanding Ministry of Public Enterprise Morgan Stanley Capital International Monitoring Verification Evaluation Non-Governmental Organization Privatization Cooperation and Support Unit Public Enterprises Public Enterprise Organization Public Enterprise Reform and Privatization Program Privatization Implementation Project Prime Index of IPO Companies Project Management Unit Rapid Batch Tendering Reform Design and Implementation Request for Proposal Societe Annonyme Sharm El-Sheik Airport Management Company Social Fund for Development State Owned Enterprise Self-Regulatory Organization Trillion cubic feet of natural gas United Arab Emirates United Nations Development Program United States Agency for International Development World Bank

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