Contracting and construction companies decided to withdraw their offers for renewable energy companies to carry out civil works in feed-in tariff projects and announced that their estimated prices would be doubled, on the back of the exchange rate being liberated Thursday.
Contractors set new prices for establishment works, concrete, transportation, diesel, and general contracting at 100% higher than the original prices, according to the head of the solar energy company.
He added that the appreciation of the price of the US dollar caused an increase in the cost of projects; therefore, companies will face a major crisis in importing equipment, as customs fees are higher after the Central Bank of Egypt (CBE) liberated the exchange rate on Thursday.
Manufacturers of solar panels retracted their bids to companies, so as to modify their value after the changes to the exchange rate, including the Chinese Suntech Power Company.
Head of Cairo Solar, Hisham Tawfiq, said that contractors will not carry out projects at less than 84 cents per watt, as any lower would be a big risk under the current circumstances, and would cause losses for investors in renewable energy.
The CBE announced liberating the exchange rate of the national currency on Thursday and leaving its value to be based on supply and demand.
The currency’s liberalisation is a prerequisite for Egypt to obtain a $12bn loan from the International Monetary Fund.
Renewable energy companies in the feed-in tariff system began reconsidering the feasibility of the projects, as financial studies were conducted based on a dollar price of EGP 8.88, on which return and profitability were also calculated. But with the exchange price jumping to EGP 14, companies may face losses.
A source at the Ministry of Electricity said that the second phase of the feed-in tariff projects have taken all variables into consideration, adding that floating the pound may have even reduced the risk of the projects.
He noted that 45% of the feed-in tariff projects’ revenues is sent by investors to repay their loans, with profits standing at 25%, which amounts to 70% of the cost that will be calculated according to the exchange rate on the date of maturity.
He pointed out that 30% of the tariff is calculated at an exchange rate of EGP 8.88 to the dollar, including 15% for taxes and another 15% for operation and maintenance, and would not affect the projects.