MAXIMIZING FINANCE FOR DEVELOPMENT STORIES ARAB REPUBLIC OF EGYPT Providing Affordable Clean Energy The Egyptian government has a clear vision to ensure energy security. In 2014, it initiated reforms to improve the sector’s operational and Highlights of World financial performance, attract private investment, and expand renew- Bank Group Support able energy sources. It partnered with development banks, including the World Bank Group, which provided a wide range of technical and IBRD supported policy action in elec- tricity tariff and subsidy management, financial support that strengthened investor confidence and mobilized as well as introduction of a renewable $2 billion of private investment in renewable energy. energy law through a development policy loan. Development Challenge The country has historically been reliant on fossil fuels for electricity, and the market IFC helped design the landmark solar for low-cost renewable energy was underdeveloped, without clear business models Feed-in-Tariff program to attract pri- and practices to make energy more reliable and more affordable for citizens. In 2013, vate investment in renewable energy. fuel subsidies were high at seven percent of gross domestic product—more than the IFC also led a consortium of nine combined government spending on social protection, health and education—and international banks to invest $653 were not targeted at the poorest. Long periods of underinvestment in the energy sec- million in solar energy. tor transitioned the country from an energy exporter in 2009 to an energy importer by 2014. There were severe power shortages from 2012 to 2014, which contributed to social unrest. MIGA is providing $210 million in political risk insurance to enable pri- The MFD Approach vate investments. To achieve its energy security goals of generating 20 percent of its electricity from renewable resources by 2022, Egypt embarked on a major restructuring of the sector’s institutions and regulation, with a focus on attracting private capital to build renewable energy sources. The World Bank Group responded by supporting the government’s reforms through risk-informed and sequenced interventions that focused on policy and institutional issues. It also coordinated international financing and guarantees that enabled private companies to invest in the country’s energy infrastructure. Photo © egdigital/iStock Setting up the regulatory and institutional Europe Arab Bank, Green for Growth Fund, FinnFund, framework ICBC, and OeEB of Austria. Together with IFC, their financing will support six groups of private power compa- In 2014, the government initiated its strategy for the energy nies. sector, which prioritized energy security, sustainability and governance, and private sector investment. The World Bank MIGA is playing a critical role enabling the private invest- Group, the European Union as well as other local and inter- ments by providing $210 million in political risk insurance national experts collaborated to support the preparation of to private lenders and investors involved in the solar park. the strategy, and subsequently, the government requested IFC’s due diligence facilitated MIGA’s decision-making the World Bank Group’s assistance to implement it. process, streamlining the underwriting process and sup- porting rapid deployment of guarantees. A World Bank development policy loan totaling $3.15 billion delivered technical assistance and financial support Altogether, IFC and other lenders will mobilize private over 2015 to 2017, which transformed the energy sector, set- investments of 1,600 megawatts involving a total of $2 ting the path for financial viability in line with the national billion of private investment in the FiT program. energy strategy. Changes included the enactment of a new renewable energy law, adjusting electricity tariffs to allow Making a difference recovery of operational costs, gradually phasing out fuel The budgetary efficiencies gained through the energy subsidies, revising the feed-in-tariff policy, introducing a reforms not only provided a better enabling environment modern renewable energy law, and establishing a regulatory for the private sector, they also freed up fiscal space for framework for competitive bidding for independent power spending in social sectors, and improved targeting of producers. subsidies toward groups that need them most. Before the energy tariff subsidy reform, the richest 20 percent of the Spurring private-sector investment population benefited from 60 percent of fuel subsidies; the As part of Egypt’s economic reforms that were supported savings from subsidy reforms enabled doubling of budgetary by the World Bank Group, the government introduced a spending this year on social protection for the poorest 20 solar Feed-in-Tariff (FiT) program to leverage private sector percent of the population. capital and expertise to support the country’s energy goal. The Benban Solar Park is contributing to Egypt’s clean An important part of the program is the Benban Solar Park, energy security and will help boost economic growth. It has which will be the world’s largest solar installation when attracted numerous private investors and opened the market completed. to commercial lenders, many of whom are investing for the The government worked with IFC and the European Bank first time in Egypt and are broadening the capital base for for Reconstruction and Development (EBRD) to prepare future power sector investments. contracts for the FiT program and reach out to investors. In World Bank Group efforts have been complemented by 2017, IFC finalized a $653 million debt package to finance other development partners. EBRD has approved projects the construction of 13 solar power plants as part of the that will deliver 750 megawatts of solar photovoltaic capac- Benban Solar Park. The power plants will generate up to ity. EBRD, the Agence Française de Développement, the 752 megawatts of cost-effective and eco-friendly power and European Investment Bank and the European Union have is expected to supply power to over 350,000 residential cus- also launched a €140 million Green Economy Financing tomers and generate up to 6,000 jobs during construction. Facility for Egypt to provide loans for small-scale renewable IFC gathered a consortium of nine international banks, energy investments by private companies through a group which are investing for the first time in Egypt’s renewable of participating banks. energy sector. The consortium includes the African Devel- opment Bank, the Asian Infrastructure Investment Bank, the Arab Bank of Bahrain, CDC of the United Kingdom, 03/2018 WHAT IS MFD? Achieving the Sustainable Development Goals to end extreme poverty by 2030 will require about $4.5 trillion annually, far more than multilateral development banks or donors can provide by themselves. To face this challenge, the World Bank Group adopted the MFD approach, which entails working with governments to crowd in the private sector while optimizing the use of scarce public resources. This approach is guided by the Hamburg Principles adopted by the G20 in 2017 and builds on the substantial experience across the institution. www.ifc.org www.worldbank.org www.miga.org