Market Report, "Egypt Water Report Q2 2013", published

Despite the heightened political risk climate in Egypt, the government is clearly aware that it cannot afford to let the water sector drift; urgent action is needed to keep the sector moving. In this respect, there is cause for some optimism. The PPP Central Unit's decision to revive the prequalification process for the Abu Rawash wastewater treatment plan in Q113 is a positive development, as was the move by the Holding Company for Water & Wastewater to tap funding for some new desalination plants planned for the Sinai area. Though much of course hinges on the signing of a new loan package from the IMF - not a foregone conclusion at the time of writing - BMI believes that Egypt still has it within itself to emerge as a strong water investment market over the next couple of

Key themes to highlight for Egypt's water sector:

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* Egypt can expect much faster momentum across its water sectors, following news in Q113 that the prequalification process on the delayed Abu Rawash wastewater treatment plant - designed as a publicprivate partnership (PPP) project - has been restarted. Though wastewater treatment remains a priority area for the Cairo authorities, PPP structures will also deployed in other areas, notably desalination, with talk of two desalination projects being tendered in Hurghada and Sharm al-Shaikh in the Sinai. Reports indicate that the PPP Central Unit aims to launch eight to 10 privately financed water projects this year, with larger ones to follow in 2014..
* There is scope for optimism about Egypt's competitive landscape, given that the PPP Central Unit -- charged with bringing in private sector groups to implement infrastructure projects - has renewed momentum under director Atter Hannoura. The restart of prequalification on the Abu Rawash wastewater treatment plant, which will have an expanded capacity of 1.6mn cubic metres (m3/d), is a morale booster after two years of drift. Private water operators will find themselves in greater demand in future.
* The government is still some way from introducing much needed new tariffs, which remains a highly sensitive issue for an administration that is wary of imposing a greater financial burden on the public. BMI nonetheless expects water tariffs to be addressed in the course of 2013, particularly if the government chooses to accept IMF loans that will come with strings attached -- notably to reform the wider subsidy system. .
* Desalination will be the major priority under the new regime, with a reported US$164mn will be made available for deals schemes in the Red Sea and Mediterranean coastal regions. Prior to the political unrest that derailed all major infrastructure planning in Cairo in 2012, HCCW had been planning to build three small capacity desalination plants under public-private partnership arrangements. These are now considered more likely to go ahead.

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