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A Capital searching for funding

The search for external funding led to a dispute between the Egyptian government and Alabbar, who asked that a part of the funding required to develop the first phase of the capital project be provided by Egyptian banks.

By Mohammed Darwish

According to the government, development of the first phase of Egypt’s new administrative capital will cost $45bn (EGP 352bn), a figure higher than the sum of all foreign reserves in Egyptian banks as of December 2014 (EGP 236bn).

The cost of the first phase of development for the planned city is not enormous, but almost exceeds the economy’s capacity to fund it, equivalent to roughly 16% of Egypt’s GDP in June 2015.

The original plan to overcome the issue of funding was to contract with an external real estate developer which would arrange the funding of a large portion from abroad.As such, the government signed a memorandum of understanding (MoU)with an Emirati company headed by Mohammed Alabbar. Alabbaris the founder and chairman ofEmaar, the most well-known real estate developer in the Middle East.

The search for external funding led to a dispute between the Egyptian government and Alabbar, who asked that a part of the funding required to develop the first phase of the capital project be provided by Egyptian banks.

However, the government refused, claiming that the MoU signed by the Minister of Housing in Sharm El-Sheikh last March with Alabbar required the Emirati investor to provide the cost of funding from abroad. This would be used to increase foreign investment rates so that Egypt’s banking sector, which currently suffers from a lack of dollar liquidity, would not have to bear the cost of funding.

So far, the state has only contributed the EGP 5bn, allocated by the New Urban Communities Authority (NUCA), in its budget for fiscal year (FY) 2015/2016 to begin the process of rezoning the first phase of the administrative capital project. Various facilities are set to be implemented by the Armed Forces Engineering Authority, and the Housing Ministry formed a technical working group on 18 March to follow up on implementation measures for the new administrative capital, in order to initiate implementation.

On the other hand, Capital City Partners, the company founded by Alabbar to implement the capital, did not officially announce its withdrawal from developing the project, and has selected a headquarters in Cairo. Completion of the administrative structure of the company and its leadership is currently underway, and a number of leaders with EmaarMisr, a subsidiary of the parent company in Dubai, have been hired for this purpose.

The funding crisis, whether internally or externally, first and foremost represents an obstacle for launching the project, and Minister of Housing MostafaMadbouly announced that the ministry has received offers from five Egyptian and Arab companies to help implement the new administrative capital project.

“Companies have made new offers, but this does not mean that negotiations have ended with the Emiraticompany headed by Mohammed Alabbar. Negotiations are still underway, and the state is committed to implementing this project,” he said.Thereby, the state is still looking for an investor to provide external financing, even for just a portion of the project.

It is possible that Alabbar will request that the state’s share of the project be reduced from 24% to 20% during negotiations with the Ministry of Housing in order to complete implementation. The new administrative capital project was announced at the Economic Summit held in Sharm el-Sheikh last March, and will require investments of up to $80bn.

The first phase of the administrative capital will sit on an area of 135 sqkm, out of a total of 700 sqkm for the entire city. This will include the administrative centreand a priority area of 105 km, located east of the Ring Road. The second will sit on an area of 30km west of the Sheikh Mohamed bin Zayed area, which links the project to New Cairo.

The government did not wait to resolve the funding problem, and decided to supply an initial EGP 5bn to be spent throughout FY 2015/2016 to outfit the desert region in which the city will be built with basic facilities.

In contrast to external funding, the government is expected to bear a portion of implementation costs associated with transferring ownership of the priority land of the first stage to the new contributing company, as well as the main roads serving the project site (Suez Road, Sokhna Road, Ring Road, Sheikh Mohamed bin Zayed Road). The government will also bear the costs resulting fromcreating a civilian section of the Katameya Airport in order to serve the city, as well as a light monorail line that will reach the city’s borders. Basic infrastructure resources to serve land in the first phase of the project will also be provided, includingdrinking water, sanitation, irrigation water, parks, and natural gas.

The Ministry of Housing will implement government facilities such as the headquarters of the Presidency, the House of Representatives, Cabinet Leadership, and the ministries.

Alabbar’sterms of reference, or those of whoever wins the rights to develop the city, are represented in preparing the complete master plan for all stages of the city through a global consultancy firm utilising the most up-to-date systems. This plan must be submitted within the months of the date the company is established so that the plan may be approved. Similarly, the detailed schema and a plan for financial flows for the first priority area of the first stage of the city must be submitted within 6 months of completing the master plan so that it may be approved and adopted.

Developing the priority area of the first stage of the project must take place according to the masterplan adopted for the city in accordance with the timeline and approved funding plans. Land settlement operations for the construction site of the government area, which will sit on approximately 1,000 feddans, must take place within two years, and the site must be delivered with utilities so that facilities may be built.

In accordance with an announcement made by the Minister of Housing, the downtown area as well as the central business district will be implemented within five to seven years. This will include a project to build the highest tower in Africa, with a height of more than 220 metres, and a residential neighbourhood with levels of housing. A public park will be built on an area no greater than 2km, similar to Hyde Park, while an amusement park will be built, according to the general scheme to be adopted.

Power plants required for the first priority area will also be implemented over various stages within seven years to serve this area of the project. The area will partially utilise new and renewable energy and the capital will include an innovation and knowledge area for the information technology and computer programme industry. The Cairo Expocetre, also slated for construction, will be a centre for global exhibitions and conferences.

Madbouly expects the labour force required for the project to reach 350,000 workers, 50,000 of whomwill remain on site. He emphasised that the state will not permit foreign labour to be imported from abroad, and that old government buildings in ministry squares will be utilised for the new project.

Sources further told Al-Borsa that the primary goal of negotiations with Alabbar or other Arab investors was to provide external funding for the project. The source went on to say:“The project, which was criticised upon being presented at the Economic Summit, has witnessed demand from Egyptian developers, although some previously attacked the project. However, limiting development to local companies deprives the state of foreign investments supplied for the project. Alabbar’s participation means providing external funding, even if this happens at a lower price than would be provided if he implemented the capital in full.”

Topics: New Capital

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