Renewable energy is a necessity for Egypt – TAQA Arabia

Interview with Khaled AbuBakr, Executive Chairman of TAQA Arabia

Can you give us your evaluation of the energy sector here in Egypt, particularly the energy distribution sector?

Over the last decade, the economy in Egypt was growing at around 6 to 6.5%. During that period, the energy demand was growing at 9%. Our economic growth was driven mainly by new greenfields in the industrial sector and also new large real estate developers. Both of these sectors require a lot of energy, a reliable energy supply source and the infrastructure for energy supply. Over the last three years, during this unstable period, we have seen a shaking of our economy and so we have around 3 to 4% growth. Therefore we have seen the demand for energy drop to 5%, which is in fact still quite a large growth figure considering that the growth of energy demand in Europe is less than 0.5% and in the rest of the world the average is 1.5%. If we take into consideration that during three years, there was not a single penny invested in energy infrastructure, logistics, facilities, power generation, transmission lines, gas grid etc. we can see that we are now in a critical position. However, this crisis and challenge has created a golden opportunity for investment in Egypt in the energy sector.

What are some of the larger developments going on in terms of renewable energy?

What we have experienced over the last three years has taught us that we have to diversify our sources of energy from both a strategic point of view and also in terms of security of supply. Renewable energy is of course becoming state of the art all over the world and in Egypt it is becoming a necessity not only for its environmental benefits but also because we need to diversify our sources of energy. There have been a lot of discussions and plans made on paper over the last ten years, but no real policies or legislation that will be an incentive to investors have come about. So far, over the last few weeks in Egypt the government has become very serious about implementing a real national plan to develop renewable and green energy. There are now incentives that have been declared by the government and more are to come in the next few weeks.

Can you tell us a bit about TAQA? What are your key activities?

We are the one stop shop for energy solutions and energy supply in Egypt. Our customers are mainly old and new developers, the private sector, and multinational companies who have their factories here. All these kinds of customers, particularly the factories whether it be of steel, textiles, cement etc. need energy. Either they need gas for their furnaces or they need electricity for their facilities, they may need lubricants for their machines or fuel oil or gas oil etc. TAQA has developed to be able to serve these demands for energy and has been structured for three lines of business. We have TAQA Gas which built the gas line distribution network and which operates and manages this distribution network for more than one million customers and every year we are adding one hundred thousand new residential customers. Every year we supply gas to the top industrial and economic facilities in Egypt, in over 12 governorates. We also have TAQA Power, which generates electricity, builds the distribution network and sells electricity to the end user. We extend power into the touristic zones such as Sharm El Sheikh and to the industrial zones. Recently we have started to supply our electricity services to residential units also. In both the gas and the power sectors, we have been leading as a private sector company that can approach a sector that was only a monopoly for a state owned company. Our third line of business is TAQA Power Oil Marketing which is our fuel and gas oil business; in six years we have developed more than 35 stations for fuel distribution for cars i.e. fueling cars with the proper fuel, gasoline and gas oil. We are also the only company providing cars with compressed natural gas which is a renewable, green energy. We are very proud that we are delivering these services through these three companies to the highest levels of environmental safety, governance and with the best efficiency for our customers and end users.

TAQA has so far invested 1.2 billion Egyptian pounds, do you have more acquisitions in the pipeline? When it comes to Egypt, what is your strategy?

Actually the 1.2 billion Egyptian pounds is the equity part of the investment, so the total value of our investment at this stage is more than 2.6 billion Egyptian pounds. When we started TAQA eight years ago, we started by acquiring existing operational companies so that from day one we started with a big backlog of experience in operations and management. For the last four years or so we have not been doing any more acquisitions but we do incorporate new companies and new greenfield companies. We are very focused on enhancing and growing our business on the renewable energy sector. We have partnered with several multinational companies and we have begun to answer the shortages of electricity and the demands that are needed by small factories, workshops, industries and residential communities who all want renewable energy to cover their shortages particularly at peak times. This is our first line of increasing business.

The second line that we are focused on and that we have been encouraging the government over the past 5 years to look at is that of investing in large scale power generation. The government has declared last week that Egypt is in need of more than 20 Giga watts, which represents 20 billion dollars of investment only in power generation. This is a huge burden on the government budget and therefore it should be done under different structures, either an IPP, a BOT or a BOOT. I believe the government should be a regulator and should encourage the private sector to invest in large scale power generation, that way the government could put their money in other sectors like public health, education etc. that are in desperate need of investment. We at TAQA are playing quite an important role in this sector, by leading the market with different multinationals, and we have been qualified for the 2250 Mega Watt project which is a very important project that represents 2.2 billion US dollars investment. We have banks and financial institutions queuing up to partner with us to be part of this project. We are very happy to see this kind of spirit even after these three difficult years.

As you mentioned the three years instability, what challenges do you face right now with regards to distribution?

We are facing lots of challenges but our country, our economy and we as Egyptian entrepreneurs have all learned a lot and we have become stronger. Over the last three years we have learned to manage in uncertainty and to deal with strikes in a time where there is no proper law to govern the relations between employees and investors. There are some rules to protect the employees but there are no clear rules to protect investors. All of these things have taught both investors and the government the need to develop a proper structure with the proper legislation needed to encourage more investment. We are very comfortable about the near future. We are very optimistic about the long term future. We see that we are back on the right track. Of course there are lots of challenges but they are minor challenges if you compare them to what other countries have seen after different wars and instability. We now have a nation again, our country. Our institutions are facing challenges but we are in a phase of rebuilding. While we are rebuilding the economy is growing and we don’t want to miss this opportunity.

What is your vision for TAQA in three to five years?

I would like to see TAQA bringing as much as possible and sharing its knowledge to the value added part of our economy. I believe that our economy which is growing at around 4% now will be growing at twice that rate in five years’ time. I definitely think that TAQA and other companies will be leading and helping in supplying a reliable source of energy and a reliable source of infrastructure for energy to fuel the economy and the new industry. I am very happy with what we are doing right now, but this does not sideline our effort to also open new markets in Africa. We are very focused on East and West Africa where there have been many gas discoveries. These gas developments need companies like ours with our expertise to help them get onto the local market and bring added value to their economies.

Is there anything else that you would like to add?

The energy sector of Egypt has undergone a lot of reform over the past couple of decades, and the actual government and the actual leadership of our nation have realized the importance of these reforms. The directions of these reforms are quite clear: the government will enhance its role as a regulator and the private sector and both local and foreign investors will play a larger role as investors in this sector. I believe that when these reforms to the energy sector are in place in the coming few months, the energy sector will lead the investment in Egypt for the coming eight to ten years.

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