Report No. 181S-EGT FILE COPYArab Republic of EgyptEconomic Management in a Period of Transition(in Six Volumes)

Volume V: Physical InfrastructureMay 8, 1978

Country Programs Department 1Europe, Middle East and North Afnica Region

FOR OFFICIAL USE ONLY

Docunefpt ot the World Bank

This document has a restncted dstnbution and nay be used by rec1pientsonly in the performance of theiroffhcial dutie Its contents may nototherwise be disclosed without World Bank authorizatiop.

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CURRENCY EQUIVALENTS

Official Rate

1 Egyptian Pound (LE) - US$2.56 or SDR 2.118

1 US Dollar - LE Q.391

Parallel Market Rate

From December 1, 1976:

1 Egyptian Pound (LE) - US$1.43

1 US Dollar LE 0.70

From May 21, 1976:

1 Egyptian Pound (LE) US$1.47

1 US Dollar LE 0.68

From February to May 1976:

1 Egyptian Pound (LE) US$1.56

1 US Dollar LE 0.64

Until February 1976:

1 Egyptian Pound (LE) US$1.70

1 US Dollar LE 0.59

Fiscal Year

January 1 - December 31

WEIGHTS AND MEASURES

1 hectare - 2.379 feddans1 feddan 8 1.038 acres1 acre - 0.963 feddans1 sq. kilometer = 238 feddans1 ardeb (metric) = 198 liters

- 160 kilograms (kg) of lentils157 kg of clover

- 155 kg of beans, chick peas, lupine, fenugreek- 140 kg of maize, millet- 120 kg of cottonseed, barley, sesame- 60 kg of groundnuts

1 quinter - 157.5 kg of seed cotton50 kg of cotton lint

- 45 kg of onions, sugarcane

FOt OFFICIAL USE ONLY

ARAB REPUBLIC OF EGMPT

ECONOMIC MANAGEMENT IN A PERIOD OF TRANSITION

VOLUME FIVE: PHYSICAL INFRASTRUCTURE

Table of Contents

Page No.

CHAPTER 17: PHYSICAL INFRASTRUCTURE:CURRENT SITUATION AND DEVELOPMENT ISSUES

A. An Overview of the Existing Situation 1B. Energy and Power 3C. Transport 13D. Telecommunications 24E. Water and Sewerage 27

LIST OF TABLES

17.1: Gross Fixed Investment in Physical Infrastructure 117.2: Current Prices of Major Energy Products 717.3: Investment of the Ministry of Electricity and Energy 11

Under the Five Year Pl&n, 1978-8217.4: Road and Highway Network 1417.5: Annual Average Growth of the Vehicle Fleet 1517.6: Volume of Freight Traffic, 1970-75 1617.7: Passenger Railway Traffic, 1970-75 1617.8: Planned Investment in Transportation 22

This document has restricted distribution and may be used by recipients only in the performanceof their official duties. Its contents may not otherwise be disclosed without World ank authonzation.

CHAPTER 17

PHYSICAL INFRASTRUCTURE: CURRENT SiTUATION AND DEVELOPMENT ISSUES

A. An Overview of the Existing Situation

17.01 There is a pervasive impression of seriously underdeveloped physicalinfrastructure in Egypt. 1/ Despite post-1973 acceleration in investments,serious capacity limitations characterize its port facilities, railways,inland water transport system, and telecommunications. The road transportsystem is not seriously deficient, however, and has experienced rapid growthduring the last decade. Regarding power, although Egypt at present has

adequate generation facilities, the distribution system is deficient. About40 percent of the population have access to electricity, but in the ruralareas, this figure is about 20 percent. About one-third of the total popu-lation have no access to safe water and per capita supply of water is lessthan the minimum adequate level in most of the urban areas. Sanitationfacilities are still worse.

17.02 The present situation in physical infrastructure is a direct con-sequence of underinvestment in the past (see Table 17.1):

Table 17.1: GROSS FIXED INVESTMENT IN PHYSICAL INFRASTRUCTURE(LE millions)

/a"Real" Increase Percent

Subsector 1965/66 1973 1976 1965/66-1973 1973/1976

Electricity 61.1 30.3 48.5 -60.2 +29.1Petroleum & Gas N.A. 26.8 52.4 - +57.7Construction 6.8 5.0 48.0 -41.0 +774.2Transport & Communication 53.1 123.0 347.9 +85.9 +228.1Housing 47.5 40.3 109.3 -32.0 +217.7Public Utility 12.4 22.8 44.6 +47.6 +157.8

Aggregate 180.9 248.2 650.7 - +211.4

if /a Based on the estimated increase in the GNP deflator of 24.6 percent

between 1965/66 to 1973 and 24.0 percent between 1973 to 1976. Theestimated GNP deflator probably understates actual price movements sothat real increases and decreases as estimated above are overstatedand understatea respectively.

Source: Statistical Appendix Tables 2.2 and 2.5.

1/ Petroleum and gas are an exception and have been separately analyzed inChapter 13.

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17.03 As seen above, three was a decline in the real volume of invest-ment expenjitures during the period 1965/66-1973 in electricity, construction,and housing. The two significant exceptions have been transport and communica-tions and public utilities (principally water supply and sewerage). However,the figures on the former are highly biased in favor of road transport andconceal the neglect of other modes of transport. Regarding public utilities(mostly water supply and sanitation), the current low level of services under-scores the need for further acceleration in investments in this area. Therehas been, of course, a break in this trend since 1973. Rapid acceleration ininvestments took place in all the subsectors listed above and this led to anamelioration of the situation. The need now is for sustaining the presentpace of investment expenditures. The Government has recognized this need

by allocating about 45 percent of the public investments in the 1978-82Five-Year Plan to the various infrastructure subsectors. (About 9 percentwent to power, 27 percent to transport and telecommunications, and the restto construction and housing.)

17.04 Apart from operational inefficiency resulting from past underinvest-ment, the sector is also debilitated by serious general overemployment, andconcurrently, a severe shortage of technical and managerial manpower. Thissituation is a direct consequence of the Government's policy of providingguaranteed employment and largely contributes to the poor financial per-formance of the public sector institutions.

17.05 Distributive price policies are anoti-r area of concern becausethey are frequently set below marginal costs and what the market will bear.Major examples, are found in the electricity, telecommunications, railway,petroleum, and gas subsectors. The price policies in these areas conform tothe general pattern of subsidized pricing in public sector institutions. Oflate, however, the Government has sought more appropriate price policies, forresource allocative reasons as well as to improve the financial performanceof the majority of the public sector institutions. Some progress has alreadybeen made in this respect by revising the tariff structure in some of thesubsectors.

17.06 A major impediment in the sustained development of the sector isthe lack of coordination in investment programming, notably in the energyand transport sectors. At present, Egypt lacks a national energy develop-ment program that relates to evolving patterns of national demand throughan optimal mix of the delivery modes. There is a general aim to developindigenous e!nergy resources; beyond this, little has been done to relate themodal choice to a least-cost strategy. In transport again, the pattern ofpast investment has created some excess capacity in the road subsector butsevere undercapacity exists in-all other subsectors. Among other things,investment programming now has to address this issue of disequilibrium inthe delivery modes.

17.07 A good part of the problem in investment programming originates inthe complex organizational responsibility for management and development inthe various sectors. For example, the responsibility for the transport sec-tor is divided among five ministries and thirty public sector companies.

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A good beginning has been made in the creation of the Transport PlanningAuthority and the transport survey currently underway. The objective for theformer is to secure improved coordination in investment and policy planning.The latter would provide the basis for the modal choice in investment. Simi-larly, the creation of the Ministerial Committee on Energy in 1974 was anecessary first step in coordinating the work of the various energy agencies.

B. Energy and Power

1. Energy Resources

17.08 The principal indigenous energy resources are petroleum, naturalgas, and hydropower; small coal deposits also exist in the Sinai. No conven-

tional deposits of low-cost uranium ore have been discovered so far. In thelong run solar energy may be another important source, but it has not been

tapped because of present limitations of knowledge and technique. Non-commercial fuels, in the form of animal and vegetable wastes, may be anothersignificant energy source in rural areas, but no information is available ontheir use.

(a) Petroleum 1/

17.09 Egypt has been virtually self-sufficient in petroleum since 1963and is becoming an important exporter. Of the 16.7 million tons of petroleumproduced within the country in 1976, the Egyptian share was 12.7 million;4.5 million was exported, while 10.5 million tons were domestically refinedusing 2.3 million tons of imported light crude. Petroleum authorities areexpecting production to reach 35 million tons by 1980.

17.10 Domestic refining capacity is entirely owned by the public sectorcompanies. Gasoline, kerosene, gas and fuel oil are the predominant type ofrefined products used for transportation, cooking, electricity generation andindustrial uses. Total reserves of crude petroleum stood at around 320 mil-lion tons at the end of 1976. Prospects for new discoveries are fair. Aroundforty exploration and production agreements have been signed with foreign com-panies since 1973. Recently discovered fields in the Gulf of Suez are beingdeveloped so that, on balance, it might be possible for reserves to show a netincrease over the coming ten years.

(b) Natural Gas 2/

17.11 Reserves of natural gas in its non-associated form stood at around75 million tons (crude oil equivalent) at the end of 1976. Associated gasin the Gulf of Suez is currently being flared at the rate of 4 million cubic

1/ For a more complete discussion, see Chapter 13.

2/ Again, for a more complete discussion, see Chapter 13.

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meters a day, and unless plans tor its use materialize, the flaring rate wouldrise to about 12 million cubic meters daily by 1990. The non-associated gashas an average caloric value of 1,100 Btu/scf and the associated gas a valueof 1,350 Btu/scf. 1/ Both types of gas are clean and have virtually nosulfur.

17.12 Reserves of the non-associated variety are currently being developedfor new industrial consumers. These include fertilizer plants in the Delta tobe supplied from the Abu Madhi field, cement and steel plants at Helwan andnear Cairo from the Abu Gharadek field, and a sponge iron plant near.Alexandriafrom the Abu Qir field. These fields have an estimated life of twenty years.

Gas pipeline systems have already been completed for the first two fields.

17.13 Natural gas production is expected to rise sharply from around 100thousand tons oil-equivalent in 1976 to around 3.5 million in 1980. If theexpected 1980 production rate is maintained, the lifetime of present provenreserves would be around 20 years. Should new discoveries take place, the

production rate should be even higher than is now expected for 1980.

(c) Hydropower

17.14 The main conventional hydropower resources are on the Nile andhave been largely developed. The principal hydropower stations are at theAswan Dam, which were commissioned in 1960-61, and the Aswan High Dam, whichcame into service in 1967-70. Their installed capacities are 345 MW and2,100 MW, respectively, but their available capacity varies from about 800 MWin the winter months to about 1,400 MW in the summer. The reservoir wasfilled in 1976 but the maximum effective capacity in 1977 is only 1,300 MWbecause of transmission limitations. Improvements are expected to raise thisfigure to 1,800 MW by 1983.

17.15 Between Aswan and Cairo,a further 635 MW could be developed usingthe 70 metres of head if existing regulation barrages are strengthened andadditional ones constructed. There are also significant potential economicsites for pumped-storage schemes on the high plateau overlooking the Gulf ofSuez and on plateaus bordering the Nile near Cairo and Nag Hammadi. The onlyother potential source of hydropower is the Qattara Project, 1/ which couldhave a firm capacity of about 640 MW while the depression is filling (an esti-mated twelve years) and 340 MW thereafter, replacing water lost by evapora-tion. 2/ This project is being evaluated by consultants from the FederalRepublTc of Germany, whose studies are not expected to be completed untilabout 1978.

1/ British thermal units per standard cubic foot, where an scf is a cubicfoot of dry gas measured at 60 F and a barometric pressure of 14.65lbs/sq. inch.

2/ Water from the Mediterranean would be channeled to the Qattara depres-- sion, about 160 km southwest of Alexandria.

(d) Nuclear Fuels

17.16 Systematic prospecting for nuclear fuel materials, which began in1961, indicates three possible sources of uranium: conventional-type deposits,uranium-bearing monazite found in the heavy mineral beach sands, and phosphaterock. About 13 to 14 percent of the total land area of Egypt has been survcyedfrom the air and of this area ground surveys have been made of about 10 percent.A considerable number of conventional-type deposits have been discovered, espe-cially in the central part of the Eastern desert, but sub-surface explorationhas been too limited to allow ore reserves to be estimated. Favorable geologi-cal indications in both the Eastern and Western Deserts suggest that intensi-fied prospecting may prove the existence of economic uranium ore deposits.The main problem is to obtain financing but the possibility of joint explora-tion and exploitation agreements, along the lines of the oil agreements, isnow being pursued with U.S., German, and French companies.

17.17 The heavy mineral beach sands of the Nile delta and Mediterraneancoast are potentially an important source of nuclear fuel material (bothuranium and thorium in the form of U 0 and Th 0 ). Approximate reserve

2r 8s follows2 *estimates to a depth of 20 meters ar a (in thousands of tons):

Heavy Minerals Monazite Th 02 u308

600,000 6,000 370 28

Because of the low percentage content of uranium and thorium, their productionfrom this source would be feasible only as a by-product operation. Whetherthis would be economic would depend on the successful development of the wholebeach sands industry and the marketing of various principal products. Anindustry with an annual throughput of one million tons of heavy minerals,for example, could theoretically provide annually 40 to 50 tons of U 308 andabout 600 tons of Th 02.

17.18 Finally, an estimated 100,000 tons of U 30 may exist in the coun-try's rich phosphate deposits, estimated at 4,000 MP, of which about 1,000 Mtmay be economically exploitable. Again, U 0 would be a by-product operation,completely dependent on the installation oB 8 triple-superphosphaLe plant.Such a plant handling 500,000 tons of raw phosphate rock a year could theoret-ically produce 25 tons of U 303

1/ Water from the Mediterranean would be channeled to the Qattara depres-sion, about 160 km southwest of Alexandria.

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17.19 Any realistic estimate of nuclear power growth to the year 2000 callsfor uranium fuel running into many thousands of tons. The above figures makeit clear that most of such future requirements would have to be met by importsunless significant amounts of uranium deposits are discovered.

17.20 The most important potential applications of nuclear energy arein the production of electricity and desalinization of sea water. The pos-sibility of combining electricity generation with water desalination atnuclear power stations has been under study for some time, particularlyin relation to the use of desalted water for irrigation. The desalinationtechnology is well established, but it has not yet been economic to applyit in agriculture. Special techniques for utilization of the desalted water(for example, trickle irrigation) would have to be developed to overcome thisproblem.

(e) Coal

17.21 Coal deposits estimated at about 80 million tons have been dis-covered in the Sinai near Suez but no information is available on theirquality and there are no plans to develop them.

2. Energy Consumption

17.22 Consumption of oil, natural gas, and hydroelectricity averagedaround 230 kilograms oil-equivalent (kgoe) 1/ per capita during the 1960-72period. The 1972 figure of 249 kgoe compares with an average world consump-tion of 1,526 kgoe in that year and an average for Africa of 279 kgoe. Worldconsumption ranged from 8 kgoe (in Burundi) tG 8,032 kgoe (in the UnitedStates). Egypt, therefore, was in the lower end of the range.

17.23 During the 1960-72 period the average rate of increase of totalenergy consumption was around 4 percent a year, slightly less than theaverage rate of growth of real GDP, yielding an average energy coefficientof 0.93 (ratio of energy to GDP growth rate). With an expected annual growthrate of real GDP of 7.8 percent between 1975 and 1980, energy consumption couldgrow at about 8-10 percent a year during the plan period. This assumes aslightly higher energy coefficient than the above. Given an estimated totalenergy consumption of around 9 million tons oil-equivalent (Mtoe) in 1975,energy requirements for 1980 thus would not exceed 15 Mtoe. Net domesticsupply of energy for 1980 was estimated by the Egyptian General PetroleumCorporation (EGPC) and the General Egyptian Electricity Corportion (GEEC) tobe around 18 Mtoe. Thus, overall energy availabilities in 1980 would exceedexpected requirements by at least 3 Mtoe.

1/ Assuming 1,000 kWh of generated hydroelectricity is equivalent to 0.096toe, in accordance with the standard UN convention, which measures thefuel equivalent of hydro (or nuclear) electricity in terms of its heatvalue (860 kcal/kWh) rather than of the amount of fuel which would berequired to generate I kWh.

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17.24 The above analysis is too aggregated and does not shed much lighton the subject of energy balances for different types and uses of energy.A more complete and useful discussion of the energy sector should address thequestion in a much more disaggregated fashion, attempting to understand energyavailabilities and uses by type and allowing for possibilities of inter-fuelsubstitution.

17.25 Still, on the aggregated level, the picture that emerges is that thecountry should have enough overall energy resources to sustain the anticipatedgrowth of production through 1980 and beyond (given a degree of fuel substitu-tability). Such growth would imply an increase in per capita energy consump-tion but would still leave its average at a very low level compared with othercountries. Should industrialization proceed at a more accelerated rate, therequirements for energy sources would necessarily increase. 1/

3. Energy Prices

17.26 The structure of domestic distributive prices of energy productsindicate a very high degree of subsidization (see Table 17.2).

Table 17.2: CURRENT PRICES OF MAJOR ENERGY PRODUCTS(In US Dollars/Ton)

Domestic Prices asProducts Domestic Prices /a Export Prices % of Export Prices

Gasoline (Regular) 124.2 257.6 48.2Gasoline (Premium) 160.2 286.3 55.9Liquid Petroleum Gas 74.4 165.0 45.1Naphtha 36.7 122.3 30.0Kerosene 45.1 150.7 29.9Diesel 35.2 114.4 30.8

/a Converted to US dollars at the parallel market exchange rate ofLEI = US$1.43.

Source: Egyptian General Petroleum Corporation.

The present price structure is intended to provide production subsidies topublic entities as well as to be direct consumption subsidy. In either case,it tends to perpetuate the pattern of underpricing of publicly distributedgoods in Egypt which is advisable neither from the viewpoint of resourceallocation and mobilization, nor is it desirable on income-distributiongrounds as energy use is biased against lower income brackets.

1/ Analysis of Egypt's investment program in petroleum and natural gas sub-sectors is provided in Chapter 13.

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4. Electric Power Subsector

17.27 Electricity was first introduced in Egypt in 1895. Isolated dieseland some oil-fire steam units were installed in major population centers byvarious Government, private, and municipal organizations. Supply in Cairo wasin private hands until 1949 when the Government-owned Cairo Electric and GasDepartment took over the responsibility from the privately owned Lebon Company.In Alexandria the assets of the Lebon Company were nationalized in 1961 anda government corporation, the Alexandria Electric and Gas Authority, took overcontrol.

17.28 In 1964 the Ministry of Electricity and Energy (MEE) was formed toconsolidate all of the electricity organizations into one state-owned orga-nization. -his was achieved in 1965 with the establishment of the GeneralEgyptian Electricity Corporation (GEEC) to own, operate, and expand the peblicpower system. In 1971 the General Rural Electrification Authority was createdto plan and supervise the construction of rural electrification projects.Early in 19,K the sectov was reorganized through the establishment of four newauthorities: the Egyptian Electricity Authority (EEA) replacing GEEC, theRural Electriciation Authority (REA), the Nuclear Power Plant Authority(NPPA), and Qattara Depression Authority.

a. Existing Facilities

17.29 Since 1970 all important hydro- and thermal-generating stations inEgypt have operated through EEA's unified power system. The system has atotal installed generating capacity of 2,445 MW of hydro in the South--345 MWat the Aswan Dam station, and 2,100 MW at the High Dam station--and 1,370 MWof steam and gas-turbine units, mostly in the Delta. A 500-kV, double-circuittransmission line, 838-km long, connects the Aswan station to the Delta Regionand is the backbone of the interconnected system. Further interconnection isaccomplished through 2,400 km of 220-kV and 3,550 km of 132-kV transmission.Subtransmission at 66 kV (1,600 km) and 33 kV (1,600 km) supplies 11-kV,6.6-kV, and 3-kV distribution in the entire service area. Low voltage distri-bution is 380/220 volts, patterned after European practice. System frequencyis 5U Hz.

17.30 Excessive outages experienced during early operation of the 500-kVsystem moved EEA to impose unusually severe restrictions on the maximum loadassigned to the hydro stations. This limitation in the power transmittedfrom Aswan to the large load centers in the Delta has delayed full utilizationof available High Dam generation. Although load growth averaged 17 percentannually during 1974-76 and is estimated at 13 percent annually for 1976-80,existing capacity and committed construction are ample to serve the short-tern.needs if expected improvements in system operation are realized.

17.31 Total net generation for 1975 was 9,793 GWh, with a peak demand of1,733 MW, and 64.5 percent load factor. For 1976 the estimated figures are:

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11,8C0 GWh, 2,000 MW and 67.4 percent load factor. Approximately 40 percentof the total population has access to electricity. In the rural zones thisfigure is about 20 percent.

b. Tariffs

17.32 EEA's existing tariffs are based on a 1970 study by Electricite deFrance (EdF), which provided an appropriate basis for calcuiaLing the costsof supply. The current tariffs do not realistically reflect the costs ofsupply in economic terms, however, because fuel is charged to EEA at sub-sidized prices, that is, pre-1973 prices and not at its expert value or atinternational prices. Using international prices for fuel oil, the cost ofgeneration per kWh from EEA's new steam plant has been estimated to be 14.4milliemes, of which 8.5 milliemes would be for fuel alone. 1/ This positionwill improve once the changeover to associated gas firing is accomplished.

17.33 In 1975 EEA's average revenue per kWh sold was about 9 milliemes,barely sufficient to cover the fuel cost in new thermal plants. Industry,which consumes about 60 percent of electricity sold, paid on average onlyabout 7 milliemes per kWh despite a tariff increase of 20 percent rhat wasintroduced in January 1975 for all consumers except municipalities and residen-tial customers. Certain larger industrial customers are on special tariffs,the two most important being the aluminum smelter at Nag Hammadi, which paidabout 2.5 milliemes/kWh, and Kima fertilizer complex near Aswan, whose tariffwas increased from about 1.3 milliemes/kWh in 1974 to about 5.0 milliem''/kWhin 1975. 2/ By 1979 these two customers are expected to account for about36 percent of EEA's total sales. The prices paid by these consumers and otherindustrial consumers are clearly less than the marginal cost of supply fromEgypt's newest baseload steam plants. To the extent that these tariffs arebelow the long-run marginal costs of supply, these consumers are being subsi-dized through EEA. Action to correct this situation is expected to be takenby EEA following a tariff study.

17.34 The nunicipalities, which buy power in bulk from EEA at 10.5 milliemesper 1kWh (that is, 9.0 milliemes/kWh for power and 1.5 milliemes/kWh for system

* operation and maintenance), bill all medium- and low-voltage consumers in thecities, towns, and villages beyond Cairo and Alexandria. By law, the pricesthey charge may not exceed those in Cairo and Alexandria, and in practice they

1/ Sanderson & Porter - "Egypt: Power Sector Survey" - November 1976, p.103, Table VII-1.

2/ A ministerial Committee headed by the Minister of Finance reduced thisrate to 3.354 milliemes per kWh for i975 but has made no decision on theactual rates to be applied in 1976 and 1977.

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are the same. No doubt the cost of supply to rural consumers is higher thanin Cairo and Alexandria, but the Government is anxious to improve conditionsin rural areas and thus established a uniform tariff for low-voltage residen-tial and commercial consumers who have a limited capacity to pay higher costsfor supply.

17.35 Nearly all medium- and low-voltage rates are based on declining blocktariffs. As consumption increases, the price to the consumer is reduced,but the cost of incremental supplies may not be declining. As a result, largerconsumers who often can afford to pay more may in fact be paying less thanthe cost of supplying them. The proposed tariff study is also expected toaddress this problem.

17.36 Changes in electricity prices can be secured only through a time-consuming and cumbersome process. First, EEA must determine its basic costs,which are then checked by the Central Auditing Organization and the PricePlanning Authority. They are then submitted to the Higher Council of theElectricity Sector and finally approved by the Council of Ministers andissued as a Presidential decree.

17.37 In June of 1976 the Chairman of EEA set up a committee to study thecosts of generation, transmission, and distribution up to 1980, to recommendrate increases and to establish a fair basis for determining costs on whicha tariff structure could be formulated. The committee has recommended thatthe cost of electricity include:

(i) depreciation of the High Dam electrical assets and the500-kV transmission and assets transferred to EEA by REAfor operation and maintenance;

(ii) interest on all local and foreign loans; and

(iii) a 3 percent return on total invested capital as approved by-he Council of Ministers on July 25, 1973.

Other important proposals of the committee were: consumers in the duty-freezones in Alexandria, Port Said, and Suez should pay tariffs, which includethe international price of fuel (calculated at the parallel market rate ofexchange), and local fuel and other price changes should be reflected intariffs for all categories of consumers. Its proposals for increases intariffs of about 10 percent were recently approved by EEA's board of directorsand submitted to the Government for consideration.

c. Investment under the 1978-82 Five-Year Plan

17.38 Public investment appropriations in electricity under the 1978-82Five-Year Plan amount to LE924.0 million (around 9 percent of total public int-vestment). Of those the bulk (LE874.7 million or 95 percent) are designated

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for the Ministry of Electricity and Energy. Of these appropriations, around73 percent are earmarked for EEA, 24 percent for REA, and the small remainderdistributed among other agencies (Table 17.3).

17.39 As could be expected, the largest portion of EEA's expected in-vestments (66 percent) are for the construction of new and expansion of oldgeneration plants. Most of the remainder is for transmission and distributionnetworks, with only around 0.5 percent going to research, training, housing,and other expenditures. By contrast, the bulk of REA's expected investmentsis for transmission and distribution.

Table 17.3: INVESTMENT OF THE MINISTRY OF ELECTRICITYAND ENERGY UNDER THE FIVE-YEAR PLAN, 1978-82

Category/Agency Amount PercentL.E. (000)

Egyptian Electricity Authority (EEA) 635,787 72.7Rural Electrification Authority (REA) 210,000 24.0Nuclear Power Plant Authority (NPPA) 8,000 0.9Qattara Depression Authority (QDA) 7,000 0.8Public Companies Attached to MEE /a 10,212 1.2Solar Energy Projects 3,348 0.4Administration 345 ...

TOTA1. 874,692 100.0

/a Four companies that manufacture electrical equipment.

Soturce: Draft Five-Year Plan, 1978-82.

d. Main Issues and Government Policy in the Energy Sector

17.40 A national energy policy in the sense of an explicit statement ofnational objectives in the energy field and specific plans for achieving themdoes not exist at the present time. Implicitly, the aim appears to be todevelop and exploit indigenous energy resources as rapidly as possible and tosupplement these internal resources by increasing recourse to nuclear power inthe early 1980s. Egypt's ambitious plans for economic development and thetransformation of the world energy scene following the 1973-74 oil priceincreases have, however, emphasized the need to formulate a more clearlydefined national energy strategy. The first important step in this directionwas taken with the Government's decision in 1974 to set up the MinisterialCommittee on Energy, with the Minister of Electricity as Chairman. Thecommittee's main responsibilities are to coordinate the work of the different

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energy agencies in the light of economic and social development needs; toreview the present organization of the energy sector with a view to itsimprovement; to consider the most economic way of meeting the country's energyrequirements; to consider legislation on energy matters; and to take decisionson joint issues concerning the ministries and agencies engaged in the energyfield.

17.41 Energy use. Before the completion of the High Dam and the discoveryof natural gas fields and the large oil fields in the Gulf of Suez, Egypt wasclearly an energy-deficient country relying on fuel imports to satisfy domesticdemand. Under those circumstances, the policy of developing domestic sourcesat as fast a rate as possible made much sense. The High Dam was built and oiland gas exploration intensified. The completion of the High Dam substantiallyincreased the country's electrical power capacity, and the availability ofmore crude oil enabled the country to increasingly substitute for imports ofrefined products to fire thermal power stations and for use in transportationand houses. With the continued increase in oil production and the recentavailability of natural gas, Egypt has acquired energy sources that are inexcess of its immediate needs. Thus the generating capacity of electricalenergy is adequate for the short term, and sufficient new plant is being addedto take care of planned load growth. Egypt has also become a net oil exporterwith exports expected to reach around 12 million tons in 1980.

17.42 With the transition from an energy-deficient to an energy-Rurpluscountry and the availability of new forms of energy (gas and possibly nuclearin the near future), the need for an overall energy management program hasbecome more important. This is so because the availability of more types ofenergy, and the possibility for substitution among them, raises the questionof what the most optimal fuel-mix is, both for social and economic ends.A further question concerns the best rate of development of new sources ofenergy. Regarding the latter, it seems likely that Egypt will continue todevelop its energy resources (especially crude oil) at the fastest ratepossible and that it will export larger volumes in order to relieve thecountry's severe balance of payments problems (assuming a modest rate ofdiscovery of new sources). In the case of very large discoveries, however,the question of the optimal rate of extraction becomes operationally moresignificant. Discussion about optimal fuel-mixes are already taking place.The use of gas, especially in associated form but also in its non-associatedform, as a fuel for electrical generators releases more crude oil for export.Such a shift may prove beneficial as long as associated gas is being flared,but its longer term implications need to be investigated further, taking intoaccount alternative uses for gas. The EGPC is in fact conducting two studiesfor the possible use of Gulf of Suez flared gas. Whatever the results may be,the development of Egyptian energy is now at a stage where it would greatlybenefit from an overall energy management program.

17.43 Additional energy sources. Four million cubic meters of associatednatural gas are being flared daily. The flaring rate will increase to 12 mil-lion cubic meters a day by 1980 unless programs for its use are executed. Asmentioned, studies for its utilization are in fact underway.

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17.44 Other than the Qattara depression, another possible source of hydro-power is an additional 70 meters of head in the flow of the Nile between Aswanand Cairo. In order to tap this extra energy, existing barrages would needto be strengthened and new ones constructed. Such work might lead to another635 MW of additional power.

17.45 System planning. A comprehensive energy management program shouldaddress the question of the location of new power generation plants relativeto load centers and the related question of transmission and distribution net-works. The choice seems to be between locating thermal plants closer to loadcenters but using liquid or gaseous fuel that have alternative uses, or util-

izing the excess capacity of the High Dam and reinforcing the transmissionnetwork so that outages are minimized. Again a more complete answer to thisquestion would be possible if it were addressed in an overall energy use andresource framework. Related to this problem is EEA's development program,which anticipates a large number of new generating units in the near future.It is important that this additional capacity not be frustrated by an inade-quate transmission and distribution network.

17.46 Tariffs. The Government's current distributive price for energyproducts policy involves significant subsidies to industry and direct con-sumers (see paragraph 17.26). It is necessary to seek a gradual brcak fromthis pattern on the grounds of resource mobilization and its allocative effi-ciency as well as income-distribution. The objective should be to revisethese prices in relation to their opportunity costs (i.e., export prices). Asimilar argument can be made for the EEA's electricity tariffs where the basisfor price revision should be marginal costs (see paragraph 17.34). Themarginal cost calculations, in turn, should price the fuel inputs at theiropportunity costs.

C. Transport

1. Background

17.47 Egypt's economic activities and the bulk of its population of38 million are concentrated along the narrow Y-shaped Nile Valley and Delta,which account for less than 4 percent of Egypt's total area. As a result,the demand for transport is concentrated along the 1,000 km long Alexandria-Cairo-Aswan corridor. The Suez Canal area, which was active before theclosure of the canal in 1967, is now being reconstructed and developed.The flat topography of the Nile Valley has encouraged the development ofrailways as a main mode of inland transport, supported by inland waterways.Roads are the most important means of transport of freight and passengers,however, and are crucial for short distance hauls. Continuing hostilitieshave prevented full utilization of air and coastal shipping, which haveconsiderable growth potential. Egypt has one major international airport inCairo and nine domestic airports, with only three of the latter on the sched-uled services of Egypt Air, the only domestic carrier. It also has fourmajor ports, two on the Mediterranean and two on the Red Sea. Followingis a summary of the principal features of the various transport subsectors.

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2. Roads and Motor Vehicles

17.48 Roads are the main mode of transport, and in 1975 they carried more

than 80 percent of total freight tonnage and around 75 percent of passenger

kilometers. There are about 27,000 kilometers of roads in the country, about12,000 of which are paved (see Table 17.4). Favorable climatic conditionshave kept Egyptian roads in relatively good condition and the regional roads

are all usable for normal motor vehicles.

Table 17.4: ROAD AND HIGHWAY NETWORK

Category Length (km) x of Total Paved (km)

Divided Highways 238 1 238

Main Highways 11,244 42 10,282

Regional Roads 157 1,799

Total 26,521 100 12,319

Source: Ministry of Transport.

17.49 In 1974 there were about 231,000 motor vehicles for passengers and

freight; about 84 percent of the registered vehicles were for passengertransport and the remaining were buses. Of the total number of passenger

vehicles, taxis accounted for 21 percent, buses for 4 percent, and trucks for

the remaining 75 percent. While taxis accounted for a substantial share in

the passenger fleet, buses were more significant in terms of passenger kilo-

meters. About 89 percent of motor vehicles were found in the Delta area (42

percent in Cairo, 20 percent in Alexandria, and 10 percent in Giza), 7.5 per-

cent in Upper Egypt, 2.5 in the Suez Canal area, and the remaining (1 percent)in the rest of the country.

17.50 During the period (1962-74), the motor vehicle fleet in Egypt in-

creased at 7.3 percent annually. Annual growth rate between 1970 and 1974was particularly rapid, amounting to 9.9 percent. This is largely relatedto capacity constraints in other transport modes, and the consequent risein demand for road transport service. The growth, however, was differentfor different categories, as Table 17.5 shows. Ownership of the availabletrucks and trailers is about evenly split between public and private sectors.

-15-

Table 17.5: ANNUAL AVERAGE GROWTH OF THE VEHICLE FLEET(Annual Percentage)

Total TotalPrivate Passenger Trucks and Total

Period Cars Taxis Cars Buses Trucks Trailers Fleet

1962-65 11.1 1.4 9.6 9.7 6.8 50.3 9.41965-70 4.9 5.1 5.2 1.5 0.2 20.8 4.61970-74 7.9 20.8 10.0 8.9 9.0 14.1 9.9

Source: Ministry of Transport.

17.51 Road projects under construction amount to about 2,810 kilometers.This, however, includes construction, resurfacing, widening, doubling, andsuch minor improvements as shoulder paving. New construction alone amountsto only 1,700 kilometers or 60 percent of the total. The main road projectsconsist of the doubling and widening of 700 kilometers of roads, including thedoubling of the Cairo-Ismailia, Cairo-Suez, and Alexandria-Marsa-Matruh roadsas well as the widening of the Ismailia-Port Said and Ismailia-Suez roads.

17.52 Total traffic on Egypt's roads is expected to rise rapidly by 1980--at 13 percent annually between 1975 and 1980 and at 8 percent between 1980 and1985. The volume of freight on roads should rise from 52.7 million tons in1976 to 67.0 million tons in 1980 (6.2 percent annually), and from 8.9 mil-lion ton-km to 13.6 million ton-km (11.2 percent annually). A much lowerrate of growth of freight is forecast after 1980. In 1985 freight volume willreach 75 million tons (a 2.2 percent annual growth) and 14 million ton-km (a0.6 percent annual growth).

3. Railways

17.53 The flat terrain in the Delta and along the Nile and its heavy con-centration of population and economic activities have led to the developmentof an extensive railway network. At present Egypt has a total railway routeof 3,905 kilometers. It extends from the Aswan High Dam in the south and runs1,107 kilometers northward through Cairo and the Nile Valley to Alexandria onthe Mediterranean. An extensive system of railways runs between Cairo andAlexandria in the Delta. A main line is the 113 kilometer northeast line,which travels from Benka eastward to the Suez Canal and ends at Ismailia;there it intersects with the line that runs 173 kilometers parallel to theCanal from Suez to Port Said. Another line runs westward for 561 kilometersfrom Alexandria to the Libyan border. In addition, there is a direct line of141 kilometers from Cairo to Suez, and a new 360 kilometer line that runs fromthe iron ore area at the Bahariya oasis in the western desert to the steelworks at Tibein.

17.54 The railway network in Egypt is standard gauge (1435 mm), withdouble track for about 351 kilometers of the 3,905 route. The railways crossthe Nile ten times and the Suez Canal twice, with a considerable number of

crossings of other canals and waterways.

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17.55 Freight traffic on the railways has decreased since 1970-71. Short-age of locomotives, cancellations of trains, and unreliability of servicehave led customers to switch from rail to other transport modes. H'inlybecause of poor maintenance programs, the Egyptian Railways (ER) has beenexperiencing a shortage of serviceable motive power. As a result, the capac-ity of ER, particularly in freight, has been declining during the recentyears. This factor is believed to be at least partially responsible for theshift of freight traffic even though it is cheaper to ship by rail than byroad. During the period 1970-75 ER's freight traffic declined by about 25percent in terms of tons and by about 31 percent in ton/km. Wuat is needed atpresent is a determination of ER's requirements of rolling stock and motivepower as well as an improvement in its repair and maintenance facilities.Table 17.6 shows freight traffic over the past five years.

Table 17.6: VOLUME OF FREIGHT TRAFFIC, 1970-75

Tons Ton km Average HaulYear (million) (billion) (km)

1970/71 10.4 3.2 3061971/72 9.4 2.8 3031973 8.4 2.5 2941974 8.4 2.4 2811975 7.8 2.2 281

Source: Egyptian Railway Authority.

A few commodities account for most of railway freight traffic. These aresugarcane and sugar, followed by iron ore, cereals, and petroleum products.In 1975 these commodities accounted for 50 percent of the weight carried byrail.

17.56 In contrast, passenger traffic has been growing rapidly. Between1970-71 and 1975, the number of journeys increased at an average annual rateof 7.4 percent (see Table 17.7).

Table 17.7: PASSENGER RAILWAY TRAFFIC, 1970-75

Year Main/Branch Suburban Total Passenger Average Trip----million journeys--- km (million) (km)

1970-71 91 130 221 6772 311972 105 142 247 7216 291973 118 165 283 8258 291974 126 167 293 8671 301975 129 176 305 8831 29

Source: Egyptian Railway Authority.

-17-

The Egyptian Railway Authority is responsible for the railway network in Egypt.Established in 1956, the Authority is a semi-autonomous agency responsible tothe Ministry of Transport. Although semi-autonomous and responsible for theday-to-day operation of the railway, the Authority does not enjoy commercialfreedom since it has to abide by the Government policies and procedures govern-ing staffing and tariffs.

4. Inland Waterways

17.57 The inland waterways, particularly the Nile, constitute a main trans-port mode in the densely populated area of the Delta and the Nile Valley. Be-cause of their relatively low hauling cost and high transport capacity, theyare expected to be a major factor in Egypt's industrial development.

17.58 The inland waterways include the Nile River and the canal network,which consists of two classes of waterways. Class I is a narrow line beginningat Alexandria, which is linked by a canal to Cairo, and runs from there downthe Nile to Aswan. Lake Nasser is navigable as far as Sudan but because ofthe difference in altitude at the Aswan High Dam, there is no shipping connec-tion between the lake and the Lower Nile. This class of waterway is 1,495kilometers long and is navigable by vessels with a capacity of up to 920 tons.The Class II waterway is mainly located in the Delta, and caters only tosailing boats and small barges with a capacity of up to 200 tons. The lengthof this class is 1,849 kilometers.

17.59 Information on freight movement on inland waterways is incomplete.But since the two large Roads and Waterways Authority (RWA) companies arebelieved to handle nearly 75 percent of all such freight, a description oftheir activities gives a general impression of waterways traffic. Both ton-nages and ton-km of the two RWA companies have been increasing since 1974.Between 1974 and 1975 total tonnage increased from 1.9 to 2.6 million tons.Numerous commodities are handled, the most important ones being petroleum,iron ore, phosphate, clay, cement, fertilizer, and coal.

17.60 Traffic is expected to increase rapidly during the coming decade.Between 1980 and 1985 volume is projected to rise from 6.4 million tons to18.1 million tons and from 2.3 million to 5.7 million ton-km. The relativelyabundant capacity makes it likely that it will be able to meet the increase indemand (relatively) at low cost. Moreover, the extension of the main water-ways proposed in the Five-Year Plan will permit the use of larger vessels,which in turn will be beneficial to the development of basic industries.

5. Ports

17.61 Egypt is bordered on the north by the Mediterranean Sea and on theeast by the Red Sea and the Gulf of Suez but because of inland geographicalconditions, it has only one major port, Alexandria, at the western corner ofthe Nile Delta on the Mediterranean Sea. The conditions inhibiting develop-ment of other ports in Egypt are the heavy concentration of population andeconomic activities in the Nile Valley, far from the coastal area, with the

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remainder of the country almost desert, and the existence of a mountain chainseparating the Red Sea coast from the rest of the country.

17.62 It is only when the Suez Canal was constructed about a century agothat seaports of any significance developed on the eastern coast: Port Saidon the Mediterranean end of the Suez Canal, and Suez on the Red Sea end.Both ports are also located near the densely populated areas of the Delta andCairo. The development of other ports have been limited by sparse populatiouand low level of economic activity as well as by the lack of adequate transportlinks with the densely populated areas. Two small ports, Safaga and Quseir onthe Red Sea, specialize in bulk traffic of phosphate and other minerals. Onthe Mediterranean is another small port, Marsa Matrouh, located midway betweenAlexandria and the Lioyan border. Other small ports handle nominal trafficbut have good prospects for future development. Egypt also has specializedoil ports.

17.63 The hostilities in 1967 and 1973 badly affected the operations ofPort Said and Suez, which led to the increase in Alexandria's share of trafficfrom 76 percent in 1966 to 90 percent in 1975. The total number of shipscalling at the port in that year was 2,926. Both Port Said and Suez partlyresumed operations in late 1974, and additional reconstruction work willincrease their capacity by 1978. Some traffic in foodgrain, fertilizer,timber, and general cargo has already been diverted from Alexandria to PortSaid. Since reopening, Port Said and Suez have handled a fair volume oftrade, reaching 1.3 million tons and 1.8 million tons, respectively, in1975.

17.64 The decline in exports from Alexandria has been substantial--from2.6 million tons in 1971 to about 1 million tons in 1975. Alexandria'scapacity has been deficient since 1969, and the port has been suffering fromserious congestion with average waiting time for general cargo ships increasingfrom 3.3 days in 1974 to 6.2 days in 1975. Causes of congestion are numerous.They include: insufficient and poor equipment, blockage of access ways bystored cargo, inadequate dock transport, and insufficiently trained manpower.

17.65 The congestion at the Port of Alexandria, coupled with the pro-jected increase in traffic for Egyptian ports have resulted in a number ofproposals by the Egyptian authorities for increasing port capacity, includingconstruction of new ports (for example, in Marsa Matruh, Dekheila, Damietta,Ismailia, and Berenice), rehabilitation (for example, Port Said) and furtherdevelopments (for example, Suez-Adabiya) of existing ports. A number of theseproposals are still nothing more than ideas, others have been subjected topre-feasibility studies. Apart from Alexandria Port, the only project underimplementation is the construction of a new port at Marsa Matruh. This is asmall port, and much of the initial proposal was reduced owing to lack offunds and doubtful economic justification for the project. So far, a deepquay (12 meters depth) has been constructed to a length of 575 meters, suf-ficient for four or five ships.

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17.66 Based on the economic prospects of the Egyptian economy, porttraffic forecasts over the coming decade show a considerable increase. Drycargo exported and imported through Egypt's four main ports (Alexandria,Port Said, Suez, and Safaga) is expected to reach 19.4 million tons in 1980and 28.3 million tons in 1985. The forecast for 1980 represents an annualincrease of about 7.7 percent over the 1975 level. This is largely relatedto the expected increase in imports of wheat, flour, corn and coal as wellas to the imports needed for Egypt's development programs.

6. Shipping

17.67 Egypt's location at the crossroads of international shipping hasnaturally led to an involvement in shipping activity. The nationalization ofEgyptian shipping industries in the early 1960s, coupled with the closure ofthe Suez Canal in 1967, resulted in a sharp decline in shipping activitieshowever. Since the reopening of Suez and recent Government measures toencourage private shipping, Egypt has been passing through a period of transi-tion, and this makes the formulation of developmental policies difficult atthis stage. The country's development is not, however, critically dependenton its shipping industry.

17.68 Egyptian shipping is handled by one state-owned company and two pri-vate companies. A third private company is being formed. The public companywas formed in 1963 after taking ownership of five private companies. Itoperated obsolete fleets for a long time, but recent government decisionsto encourage foreign investment have enabled the company to renew and expandits fleet. Prior to nationalization, the Egyptian fleet consisted of thirty-three ships (twenty-one, general cargo, five, passenger, and seven, tankers),with a total of 225,000 dead weight tonnage. By 1976 the public company'sfleet had expanded to forty-five ships with a total of 307,000 dead weighttonnage. The two privately owned companies were recently established (onein late 1974, and the other, which is owned by the Arab League, even morerecently). The publicly owned company owns about 81 percent of the ships andcarries 84 percent of the tonnage of the Egyptian fleet.

7. Air Transport

17 69 The direct distances between Cairo Airport and the most distantairports are as follows: about 850 km to Abu Simbel in the south, about 420km to Marsa Matruh in the west, and about 450 km to Ghardaka in the southeast.Cairo Airport is the only international airport and the main center of allflight activities. It is also the base of Egypt Air, the national airlineand the only domestic carrier. Egypt has nine domestic airports, only threeof which are included on Eigypt Air's regular schedules. These are Abu Simbel,Aswan, and Luxor. The other airports are Alexandria, Asyut, Cairo Embaba,Ghardaga, Marsa Matruh, and Port Said.

17.70 Air transportation to Egypt, and within the country, is largely fortourism because only a small segment of the population enjoys a standard ofliving that permits such travel. About 80 percent of the domestic passengerson internal routes are foreign tourists.

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17.71 In 1975 there were 43,300 civilian aircraft movements at Cairo Air-port and 51,200 in the whole country. In that same year there were 2.7 millionpassenger movements at Cairo Airport and 2.9 million in the whole country.Air freight amounted to a little over 2,500 tons, almost all of which wasinternational traffic going through Cairo Airport. Cairo Airport is also oneof the main transit airports in the Middle East, and in 1975 it handled about157,600 transit passengers.

17.72 Apart from a slight decline in 1973 owing to the war, air traffic hasbeen growing since 1971. Between 1971 and 1975 aircraft movements grew at anannual rate of 11 percent. Growth of passenger traffic (domestic and interna-tional) has been rapid, amounting to 16.2 percent annually. Similarly, freighttraffic has been growing since 1971, at a rate of 10.4 percent annually.

17.73 Should peace prospects materialize, demand for tourism and conse-quently for air transport would increase rapidly. The Ministry of Tourismprojects an annual increase of 15 percent in the number of tourists up to1980, compared with an annual increase of 6.5 percent during 1962-72. Thiscould mean that there would be 5.3 million passengers handled by Egypt'sairports by 1980. Rapid growth is also projected for air freight, reaching50,000 tons in 1980 (double its 1976 level).

8. The Suez Canal

17.74 A navigable waterway linking the Mediterranean with the Red Seawas constructed during 1859-69. Its length is 160 km and its permissibledraft is 11.60 meters. The Canal route shortens the voyage between WesternEurope and Asia by about 5,000 nautical miles.

17.75 In 1956 the Egyptian Government nationalized the Canal, and in1957 it formed an autonomous entity, the Suez Canal Authority (SCA)ito takecharge of the canal operations. The operations were extremely efficient, andthe Canal became the second foreign exchange earner after cotton. Proceedsfrom the canal operations accrued to the Government in the form of SCA taxesand royalties and also transferred profit. Foreign exchange transfers fromthe SCA to the Government grew from $15.5 million in 1957 to $195.5 million in1967, the last full year of operation. In addition, the service activitiesgenerated by the Canal provided income and employment in the cities of theCanal Zone (Ismailia, Port Said, and Suez).

17.76 Until World War II dry cargo accounted for 75 percent of thecanal traffic but this situation began to change in the late 1940s and early1950s when petroleum traffic from the Middle East to Europe increased rapidly.Between 1955 and 1966 petroleum and dry cargo traffic grew at an averageannual rate of 8.5 percent, with petroleum traffic growing at 10 percentand dry cargo at 5.8 percent. As a result, the share of petroleum productsin total tonnage increased from 63 percent in 1955 to 73 percent in 1966.Regarding the direction of trade, most northbound traffic consisted ofpetroleum, agricultural products, and raw materials from the Middle East,Australia, and South East Asia, while southbound traffic consisted largelyof cereals from North America and manufactured goods from Eua,ope.

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17.77 On the eve of its closure in 1967, the Canal was the main transportroute for Middle Eastern oil to the markets in Europe and the Western Hemi-sphere. During 1966 about 99 percent of petroleum passing through the Canalcame from the Middle East, of which 93 percent went to Europe, 6 percent toNorth America, and I percent to Africa. The increase in volume was handled bylarge tankers rather than increased numbers. In 1964 tankers of over 50,000dead weight tonnage carried only 16 percent of petroleum traffic, while in1966 they carried over 40 percent. These developments reflected the worldtrend toward large tankers and by 1965 when the first tanker of over 100,000dead weight tonnage was constructed, permissible draft on the Canal became anobstacle to tanker traffic. As a result, the SCA prepared an expansionprogram. Tenders for the first stage of the program were received on June 5,1967, the day hostilities broke out and the Canal was closed.

17.78 The closure of the Canal accelerated the construction of largertankers in anticipation of sustained high freight rates. In 1966 tankers ofover 125,000 tons accounted for less than 1.5 percent of world's fleet capacity,but by 1973 this had grown to more than 45 percent. Most of the tankers builtsince 1967 are unable to use the Canal. In addition, a number of projectshave been implemented to provide alternative routes to Europe for MiddleEastern petroleum, such as the Suez-Mediterranean (SUMED) Pipeline from Suezto Alexandria, which has ar initial annual capacity of 80 million tons.Technological developments affecting dry cargo have been less significant, andmost of the large ships can still use the canal.

17.79 Despite these developments, the Canal still has considerable poten-tial for tankers up to 150,000 DWT returning in ballast and for dry cargovessels, and for this reason the Egyptian Government has given priority to itsreopening and rehabilitation. By mid-1975 the Canal was reopened for traffic.An expansion project has been undertaken to be financed by a number of aiddonors, with the World Bank contributing US$100 million.

17.80 Traffic forecasts show a rapid pickup in shipping activities, risingfrom about 55 million Suez Canal Registered Ton (SCNRT) in 1975 to 170 millionin 1977, and then a leveling-off at 175 million through 1980. The reason forthe modest forecast for the 1977-80 period is the expected decline in petroleumtraffic resulting from the progressive disappearance of small tankers. Theshare of petroleum traffic in the Canal is forecast to decline from 47 percentin 1975 to 30 percent in 1980.

17.81 The expected decline in the share of petroleum will result in alarge loss of revenue to the SCA. Based on the 1967 tariffs, the potentialloss of revenues to Lhe SCA would be about US$150 million annually and tothe world shipping community about US$250 million. As mentioned, the SCA wasaware of this situation even before the closure of the Canal. Thus, as soonas the Canal was reopened, the SCA decided to proceed with the dredging forthe first stage of the expansion of the Canal. The first stage will increasethe permissible draft and wet section of the Canal from 11.5 meters to 16meters and from 1,800 square meters to 3,200 square meters, respectively.This will make it possible for tankers of 150,000 dead weight tonnage andof 250,000 dead weight tonnage to use the Canal laden and in ballast.

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17.82 Expansion of the Canal has to be carefuly coordinated with the SUMEDpipeline because the latter is a definite alternative. There is little doubt

among the experts that the first stage of the Canal expansion is justified butadditional studies are needed to determine the optimum size and the timing offurther expansion.

9. Major Issues in the Transport Sector

17.83 Investment Program. The 1978-82 Plan envisages the following publicsector investment program for the various transportation subsectors:

Table 17.8: PLANNED INVESTMENT IN TRANSPORTATION(LE Millions)

Roads:Construction 100Vehicles and Equipment 310

Railway 310Waterways and River Transport 74

Ocean Transport and Ports 144Air Transport 169Suez Canal 495

1,602

Source: The Five-Year Plan, 1978-82, August 1977.

Several reservations on this allocation need to be noted. First, the allo-

cation does not adequately address the issue of the present disequilibrium in

the capacity of the various transport modes. There is now some excess capac-

ity in the roads while serious capacity limitations exist in the railways.

In the light of this, a major road transport program as envisaged in the Plan

is inadvisable. Similarly, there seems to be an excessive emphasis on buildingup the vehicles fleet while very little emphasis has been put on maintenance.A high proportion o'- the fleet is now unserviceable but could be made sothrough proper repair and maintenance. Greater emphasis on this issue could

substantially economize on the estimated investment needs for road transport.Investments in railways, on the other hand, is well-conceived,involving track

renewal and expansion, replacement of unserviceable equipment, maintenance ofequipment, and training facilities to relieve the shortage of technical man-power. Similarly, the proposed investments on inland water transportationseems appropriate; this and railways probably represent the-most cost-effective modes for internal transportation.

17.84 There are, however, major reservations with respect to the develop-ment of ports. With the exception of Alexandria port, the port proiects(e.g., Suez/Adabiya, Said, Marsa Matruh, and Safaga) are not yet based onfeasibility studies. Until these are completed and integrated into a compre-hensive national transportation development plan under the Transport Survey(see para. 17.86), the planned investments in this area should not be under-taken. The investment plan for expansion of the ocean fleet also seems

- 23 -

excessive and a more conservative approach would be desirable. With regard to

the further expansion of the Suez Canal (i.e., increase of the draught level

to 67 feet), such an expansion remains to be economically justified and a

final decision should await the findings of a comprehensive feasibility

study.

17.85 Organization and Management. Responsibility for the transport sector

is distributed among at least five ministries and about thirty public sector

companies. Areas of responsibility and jurisdiction among these institutions

are not clear and often overlap. Disguised unemployment and redundant admin-

istrative functions are characteristic of the transport institutions. The

responsibility for execution in the sector is lopsided. For example, the

Ministry of Housing and Reconstruction has a larger budget for highway con-

struction than the Ministry of Transport, the primary ministry in the sector.

A significant step in the right direction is the recent establishment of

the Transport ?lann2ng Authority (TPA) in the Ministry of Transport, which is

to serve as the primary governmental agency for bringing about a well-integrated

transport plan for the country. If this authority is to achieve its objectives,

it will be necessary to examine all existing organizational and decisionmaking

mechanisms and to establish formal procedures to ensure the flow of informa-

tion on a cont .iuous basis and the coordination of planning efforts. Moreover,

the planning and policy responsibilities of various governmental organs should

be reviewed to eliminate duplications and to define clearly the areas of re-

sponsibilities. In this organizational structure, it should be clearly under-

stood that the TPA has the primary responsibility for coordinating planning

and policymaking activities of all transport-related agencies at the working

level. Finally, TPA should be supported by technical assistance programs and

resources adtquate to its role.

17.86 In addition to the establishment of the TrA, a comprehensive trans-

port survey is underway. Financed by the IDA's Second Railways loan in March

1975, the survey will cover all transport modes servicing domestic and inter-

national demand as well as those construction and storage industries that

affect transport cost. The survey will be in two phases, which should be

completed during 1978. The interim report of Phase I was completed in January

1977 and the final report is currently under preparation. In addition to

providing comprehensive information on the transport sector, the survey is

also expected to make policy iecommendations that could form the basis for a

national transport development plan. These would include estimates of the

level of investment needed for the sector and its distribution among the

various transport modes.

17.87 Tariffs. The structure of tariffs in the various transport subsec-

tors follow the general pattern of underpricing of public goods and services.

Prime examples are the ra-lway and road tariffs. The railway freight tariffs

have not been changed si e 1957, while passenger tariffs were last raised in

1967. Combined with falling freight traffic (see paragraph 17.56),,these

largely account for the ER's 1977 operating deficit of about LE 22 million.Similarly, the road users' charges bear no relation to the costs of such ser-

vices. The charges are determined by the Government, which has the effect of

deferring private investment. The current capacity limits in urban transpor-

tation could, inter alia, be traced to thiis effect. Admittedly, the break

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from this pattern of underpricing of transport services can only be gradual,

but a reco6nition of the need to secure a change of direction is important.

D. Telecommunications

1. Background

17.88 Public telecommunications facilities in Egypt are state-owned. TheArab Republic of Egypt Telecommunications Organization (ARETO), attached tothe Ministry of Communications, is responsible for the operation, management,and development of all public telecommunications facilities in the country.The Suez Canal Authority, defense service, railways, and civil aviationauthorities do, however, maintain telecommunications facilities for their ownspecialized needs.

17.89 Some items of telecommunications equipment and cables are manufac-

tured in Egypt. The state-owned Egyptian Telephone Company, attached to the

Ministry of Communications, produces crossbar telephone switching equipment and

telephone instruments under license from L.M. Ericsson of Sweden. The state-

owned Electro Cable, attached to the Ministry of Industry, produces wires and

underground cables for telecommunications and electric power. Production ofthe factories does not, however, cover the full range of ARETO's needs, andARETO has to rely on substantial imports of telecommunications equipment andcables.

17.90 In its very limited habitable area, Egypt has one of the highestpopulation densities in the world, and the concentration of population,particularly in the valley of the Nile, the Delta, and the Canal area, hasbrought considerable pressure on telecommunications facilities. In addition,given its tourism potential, its large market, relatively skilled population,low wages, varied raw materials and its key geographical location--which makeit a natural base for industries that wish to supply the growing domestic and

regional markets--Egypt's inadequate telecommunications system is a significantconstraint on the development process.

2. Access to Telephone Service

17.91 Egypt's density of 1.34 telephones per 100 population is signific-antly lower than that of other Middle Eastern countries (Iran, 2.00; Turkey,2.52; Syria, 2.30; Iraq, 1.69). The telephone density in Cairo is abouit 5.0and in Alexandria, 3.4, compared with Algiers, 9.5; Teheran, 8.2; and Manila,23.2. The overall average for the country, excluding Cairo and Alexandria, isonly 0.44. Even primary access to telephone service, for example, to a publiccall office, is still not available in as many as 1,000 villages.

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17.92 Telephone availability in Egypt has been deteriorating at a rapidpace during the last decade. 1/ It declined from 96.9 percent in 1968 to 56.8percent in 1976. According to the registered telephone waiting list of ARETO,the number of waiting applicants rose during the same period from 15,500 to268,000 2/, which is about 76 percent of the number of existing connections.Actual unsatisfied demand is likely to be higher, however, because registeredtelephone waiting lists tend to understate demand (lists are not kept in areaswithout telephone service and long waiting periods discourage many potentialsubscribers from registering). An ordinary applicant in Cairo may have towait as long as fourteen years before getting a telephone. The sitoation isslightly better in Alexandria and the principal cities of Upper and LowerEgypt.

17.93 In cases where there is less than 10 percent of available telephonecapacity to meet demand, connections are allocated to applicants by a com-mittee composed of the chairman and top officials of ARETO. Priority is givento categories that are felt to be of greatest benefit (hospitals, doctors,schools, police, arms, press, government offices, airlines, and offices ofengineers, lawvers, and accountants). Nonpriority requests are filled on afirst-come first-served basis; as a result, these applicants wait many yearsfor service. Most business firms desiring a telephone have no designatedpriority and therefore must (i) press for special consideration from thecommittee, (ii) rent a furnished office or apartment in which a telephone iscurrently installed, or (iii) wait many years on a list. The price mechanismis not used by ARETO to ration new connections to the telephcne network or toattempt to maximize the benefits of telecommunications investment.

3. Users of Telephone Service

17.94 Overall statistics of telephone usage by classification of user typeare not available. A breakdown by type of subscriber for Cairo at the end1976 shows that, officially, business subscribers represent 47 percent of thetotal, Government, 10 percent, and residential subscribers, 43 percent.ARETO's present tariff structure allows for a substantial number of free callsfor residential subscribers. Other subscribers (of uncertain numbers) areoften classified under this category to avail of this preference, resulting ina much larger number of residential subscribers than are actually in existence.Furthermore, as in other developing countries, a sizable portion of the use onresidential premises is for actual business or business-related matters. Manyof the residential telephones are used for business purposes -luring off-peakbusiness hours. ARETO estimates that in Cairo approximately 95 percent of allcalls during business hours are business-related. The situation in Alexandria

1/ Telephone availability is defined as the ratio of direct exchange lines(DELs) to the sum of DELs and waiting applicants.

2/ This estimate does not include waiting applicants in small townscurrently served by manual exchanges.

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is similar to Cairo. In the smaller towns and villages, the subscribers arealmost entirely business- or Government-related.

4. Constraints

17.95 In addition to the inadequate quality and quantity of telephoneservices, the sector suffers from several other constraints, some of whichstem from the existing relationship between ARETO and the Government in thefinancial and administrative areas as well as from weaknesses within the ARETOorganization itself. The former affect the financing and development programs,their execution and staff control in ARETO, and the latter affect ARETO'sday-to-day operational efficiency.

17.96 The single major constraint that has impeded progress in the tele-communication sector has been the lack of adequate investment 1/. As with allgovernment boards in Egypt, ARETO must turn over to the Ministry of Financeany operating surplus in lieu of dividends, and the Ministry of Finance inturn provides ARETO with budgetary funds for capital investment. As a result,.ARETO's investment programs and works have been mainly dictated by availabilityof funds, and these have been far from adequate. This piecemeal arrangementalso distorts the capital structure of ARETO, which in turn increases ARETO'sdebt burden and debt service. Compounding this is the fact that ARETO'stariffs have not been changed since 1966 despite domestic price inflation. 2/The unit revenue per Direct Exchange Lines (DEL) has also been low. ARETO wasable to contribute only about 18 percent of its capital investment to a rela-tively modest investment program during the 1973-76 period. As with othergovernment organizations, ARETO is required to absorb personnel over and aboveits needs because of the Government's mandatory employment policy.

5. Investment under the Five-Year Plan (1978-82)

17.97 The 1978-82 Plan appropriates around LE480 million for investmentin telecommunications, of which the Government's share is 96 percent. As ashare of total public investment, telecommunications is expected to receivearound 4.5 percent. This is considerable and is indicative of the importancethe Government currently assigns to developing the country's infrastructure.

1/ In 1973, 1974, and 1975, Egypt invested respectively an estimated 0.19,0.18, and 0.39 percent of GDP in telecommunications through ARETO. Incontrast, a tabulation of forty-four developing countries by the Telecom-munication Union revealed that in 1972 three-fourths of the countriesinvested more than 0.4 percent of GDP in telecommunications, over one-half more than 0.6 percent, and one-fourth more than 1.0 percent.

2/ The only exception is annual rentals for telex, which were increased inJuly 1976.

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E. Water and Sewerage

1. Water Resources

17.98 The predominant source of water for Egypt is the Nile River, whichprovides an assured supply of some 55 billion cubic meters of water each year.Increasing demands on the Nile--principally for agriculture, which accountsfor 95 percent of water use--has called into question the continuing adequacyof this source, and the Government has requested the World Bank to act asexecuting agency for a UNDP-financed Master Plan for Water Resources and Uses.

This study is already under way. It will provide a long-term perspective forwater resource development in the context of which local potable water needs

can be realistically evaluated.

17.99 Potable water is drawn from two sources: artesian wells or directly

from the Nile and irrigation canals. South of Cairo, artesian water is usually

of good quality although it sometimes contains iron and manganese salts. To

the north of Cairo and in the Fayoun Depression, artesian water is characteris-

tically brackish and may require filtration and blending with sweeter surfacewater. Artesian water in the coastal areas of the Delta is generally not

suitable for human consumption, and communities depend entirely on surfacewater. The recent discovery of apparently substantial groundwater reservesin the Qattara region has yet to be evaluated.

2. Institutional Arrangements

(a) Water

17.100 Provision of drinking water in Egypt is the responsibility of fourpublic institutions. In Cairo and Alexandria, separate authorities that began

operations as private utility companies in the 19th century are now responsibleto the local Governor. The Canal Zone cities of Port Said, Ismailia, and Suezare served by the Suez Canal Authority. Water production and supply in allother Governorates, both urban and rural, is the responsibility of the General

Authority for Potable Water (GOPW). Operations and maintenance of the facil-ities are generally carried out in townships by the local municipal authoritiesand in villages and rural areas by the GOPW itself.

(b) Sewerage

17.101 The responsibility for the provision of sewerage services through-out Egypt lies with the General Authority for Sewerage and Sanitary Drainage(GOSSD). The Authority designs, constructs, and maintains sewerage and drain-age facilities in all towns, including the maintenance of the Alexandria andCairo sewerage systems. Its technical services are made available to the Gov-ernorates, which operate and maintain provincial sewerage and drainage systems.In addition to Cairo, Alexandria, and the Canal Zone cities, ten cities inLower Egypt and four cities in Upper Egypt have sewerage systems. Drainagesystems without any form of treatment facilities exist in another twelve Delta

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towns. All the authorities in the water supply and sewerage sector are super-

vised by the Ministry of Housing and Reconstruction ('1SLAR). Within MOHAR,the Advisory Committee on Reconstruction (ACR) is responsible for long-range

planning of infrastructure.

3. Sector Constraints and Policies

17.102 A draft World Health Organization-World Bank Water supply andsewerage sector report, which was presented to the Government in July 1977,

estimates that between 10 and 20 percent of the urban population, accountingfor about 45 percent of the country's total population, is not adequatelyserved with safe water; in the rural areas more than 50 percent of the popula-tion fall into this category. This implies that about 14 million inhabitants

(i.e., 37 percent of the total population) lack access to safe public watersupplies. The potable water distribution systems are often old, underde-

signed, and losses through leakage are substantial. Poor plumbing and wasteat the public standpipes also cause heavy losses. Consequently, only about 60

percent of total water production capacity is available for consumption.Furthermore, excessive Central Government involvement in planning and program

implementation has stifled local accountability and initiative. Water tariffs

are low and 65 percent of the revenues generated revert to the central budget,

from which funds for new construction and operating costs must be obtained bythe authorities. To improve the situation, new effective organizations must

be created, operating procedures changed, investments must be increasedsubstantially, and qualified staff has to be trained.

17.103 The Government is fully aware of these shortcomings, and sub-

stantial funds have been allocated for the planning period 1976-85. Thisincludes LE545 million ($1.4 billion) for water and LE358 million ($916

million) for sewerage. This is an amb tious program, which can only be

implemented effectively if there are major organizational changes and

increased training. The WHO/IBRD sector report therefore recommends thedecentralization of GOPW into effective regional authorities with integrated

rural and urban responsibilities. A similar approach would later be adoptedfor GOSSD.

17.104 In an effort to try to solve the problems of urban development, anumber of important studies have been commissioned or completed by the Govern-ment. Among those studies, a UNDP financed Master Plan for the Suez CanalZone cities has been completed. On the basis of this plan, the United StatesAgency for International Development (USAID) is identifying high prioritywater supply and sewerage components as part of a Suez Canal rehabilitationand expansion program. Similarly, USAID is supporting (i) water supply master

plan studies for Cairo and Alexandria examining needs to the ye-ar 2000, (ii)master plan sewerage studies in Alexandria, and (iii) a management and tariff

study for six Egyptian cities. In addition, a number of bilateral and multi-lateral agencies are providing financial assistance for other studies andspecific projects in the water supply and sewerage sector. The AdvisoryCommittee on Reconstruction (ACR), the agency in the Government responsiblefor long range infrastructure planning, has supervisory responsibility for allinvestment proposals for water and sewerage and coordination of the associated

studies.

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17.105 While the needs of water supply and sewerage in Cairo, Alexandriaand the Suez Zone are already being addressed, very little has yet been doneto help the rural areas and secondary provincial cities that have populationsbetween 5,000 and 500,000 inhabitants. The Government has therefore invitedthe Bank/IDA to help prepare a regional water supply project by granting anengineering and technical assistance credit in December 1977. It will involvethe preparation of a priority project for possible World Bank financing aswell as research related to appropriate technical standards, financial poli-cies, and institutional arrangements for a viable water supply policy for therural areas and secondary cities. The data and recommendations from thesestudies should also be useful in the preparation of additional water supplyprojects suitable for external financing. These measures are essential toimprove the quality and increase the supply of water for the 21 millionpeople living outside the major cities, many of whom face conditions of urbanor rural poverty.