How Egypt's New World Bank Facility Will Plug Infrastructure Gaps

Egypt and the World Bank are cooperating on a $520 million facility that will provide guarantees for energy and water infrastructure projects, helping attract private financing while reducing the country's reliance on sovereign guarantees.

This $520 million facility would issue payment, debt-service, and contract-termination guarantees in a bid to attract private investors to infrastructure projects that currently rely on state-backed sovereign guarantees. A financial guarantee, which resembles insurance, is a third-party promise to repay a debt if the primary borrower defaults.

Egypt's Minister of Electricity and Renewable Energy, Dr. Mahmoud Esmat, met with a World Bank delegation earlier this week to discuss how this financing vehicle would work. Set up as a commercially run, non-bank special-purpose company, the World Bank will contribute $150 million of the facility's total $520 million. By reducing risk, it aims to enhance the ability of infrastructure projects to attract private sector investments and financing.

Infrastructure projects in Egypt currently face a number of gaps in attracting financing, including the scarcity of long-term, local-currency funding, high financing costs, and increasingly tight limits on sovereign guarantees. By shouldering the risk commercial banks, institutional investors, and development finance institutions might face when investing in infrastructure projects, this facility would help tackle all three problems at once.

Once up and running, the facility would also cut Egypt’s reliance on sovereign guarantees, which pose contingent liabilities in the state's budget. The Finance Ministry has already cut its its guarantee ceiling for the coming fiscal year to EGP 560 billion from EGP 740 billion in the previous year.

The wider meeting between the Minister and the World Bank delegation discussed joint cooperation to develop a unified national grid that can accommodate more renewable energy capacity, and provide the necessary financing for a number of renewable energy production projects across the country to meet Egypt's goal of achieving a renewable energy mix of 45% within two years.

Beyond electricity, the first phase of the facility would also cover desalination, wastewater treatment, and waste-to-energy projects, extending the financing mechanism across some of Egypt's other key infrastructure priorities.