International arbitration is now on offer, but there doubts over how it will work and the payment terms are decidedly less attractive.
It is very unlikely that any of the projects awarded in Round 1 will reach financial close by the deadline of 27 October. This is largely due to concerns among potential backers over currency risk and the lack of international arbitration.
While the government has announced that the seat of arbitration for Round 2 will be offshore, doubts remain.
"From the information we have so far it seems to be local arbitration followed by a right of appeal to have an international process," said Rob McNabb, partner at Eversheds law firm. The government appears intent on addressing the issue, but "we still need a bit of detail to say for certain", he said.
There is no doubt over the drop in tariffs, however. The starting rate for 2,500 operating hours, for example has been cut from US$114.8/MWh (€103/MWh) in Round 1 to $79.6/MWh In Round 2.
At the same time, 40% of the tariff will now be converted at an exchange rate of EGP 8.88 to the dollar, with the remaining 60% at the rate available when the payment is due. In Found 1 the figures were 30% of EGP 7.15, and 70% at the rate available on the due date.
To be eligible for Round 2, 40% of funding must come from Egyptian sources and 40% of components must be sourced locally. In Round 1 the threshold for both funding and components was 30%.
Developers are still weighing up their response. Some developers believe they can achieve better results elsewhere, given the risks involved, while other feel they can make it work.
Enel Green Power has already decided to withdraw. "The Enel group has been reviewing its business development opportunities in Egypt, and we are not going to take part in the second round of the FIT programme because conditions are not in line with the group’s growth targets," the company said.
The multinational banks are also assessing the situation. The International Finance Corporation (IFC), for example, which did not participate in Round 1, is "evaluating how to support the private sector participation in the second round of the FIT programme", said spokesperson Frederick Jones.
Developers pre-qualified under Round 1 can apply to terminate their projects by 27 October, and then re-apply under Round 2. New applicants will nly be admitted if the 2GW target is not achieved.
Time will tell how many will re-apply, but having failed to secure any projects in Round 1, the stakes are high. "It is important for Egypt to deliver on Round 2. If not, it will lead to wider market concerns," said McNabb.
