WITH THE SUPPORT OF:

PPP for
CITIES
Specialist Centre
on PPP in Smart and
Sustainable Cities

PPP FOR CITIES CASE STUDIES

NEW CAIRO WASTEWATER

TREATMENT PLANT
PPP for
(EGYPT)
CITIES
Specialist Centre
on PPP in Smart and
Sustainable Cities

Jordi Salvador, Francesc Trillas,

Joan Enric Ricart & Miquel Rodríguez Planas

With the collaboration of Aqualia

November 2016
PPP FOR CITIES CASE STUDIES

NEW CAIRO WASTEWATER

TREATMENT PLANT (EGYPT)

Jordi Salvador, Francesc Trillas,

Joan Enric Ricart & Miquel Rodríguez Planas

With the collaboration of Aqualia

PPP FOR CITIES

The Specialist Centre on PPPs in Smart and Sustainable Cities (PPP for Cities) is a research,
innovation and advisory center that aims to provide public administrations throughout the world
with support in the organization, management and development of projects involving collaboration
between the public and private sectors in the smart cities arena.

It is also a partnership platform between companies and administrations from all over the world
where they can further explore the dynamics of public-private partnerships, create guides to good
practices and standards and design solutions to the issues facing cities.

The center is led by IESE Business School and is part of the United Nations’ International Centre of
Excellence on PPPs program. It has the support and sponsorship of Barcelona City Hall and other
public administrations and private companies.

This document was prepared by the Public-Private-Sector Research Center as a document of interest for the study of public private
partnerships rather than to illustrate either effective or ineffective handling of an administrative situation.
This document has been prepared with information supplied by FCC Aqualia.
No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any
means – electronic, mechanical, photocopying, recording, or otherwise – without the written permission of the author.
TABLE OF CONTENTS

Quick Facts 06

1. Background of the Project 08

2. Tender Process 09

3. The Project’s Internal Characteristics 11

3.1. Members of the Award-Winning Team 11

3.2. SPV Created for the Project 11

3.3. Finance and Funding 12

3.4. PPP Payment Method 12

3.5. Risk and Risk Mitigation 14

3.6. Technical Elements 15

3.7. Governance 16

4. The Project’s External Characteristics 17

4.1. Economic Conditions 17

4.2. Legal / Legislative Conditions 17

4.3. Social / Civil Conditions 17

4.4. Political Conditions 18

4.5. Environmental Conditions 18

5. Impacts of the Project 18

5.1. Administration 18

5.2. Residents 18

5.3. Environment 19

5.4. Award-Winning Companies 19

6. Assessments 19

6.1. PPP Methodology 19

6.2. United Nations’ Sustainable Development Goals 21

6.3. City Strategy 22

7. Conclusions 23

References 25

Appendix A. Financial Information 26

Appendix B. Water Inflow and Outflow 28

Appendix C. Timeline 29
Quick Facts

Highlights

Urban wastewater treatment plant with an average daily flow of up to 250,000 m³ per day. Capacity
to serve more than 1 million residents, the expected population increase of New Cairo at the time
the project was designed.
First successful public-private partnership (PPP) project in Egypt.

A drinking water shortage was identified as a pressing issue in Egypt’s environmental sustainability,
particularly in very densely populated areas. The existing wastewater treatment infrastructure
did not produce water with adequate levels of quality to enable the water to be used to irrigate
agricultural and urban green areas, forcing freshwater to be used instead. The government decided
to build new infrastructure to reuse urban wastewater for the purposes mentioned, thereby reducing
freshwater use. In addition, the project would reduce the water pollutants entering the River Nile.

Awards received by the project:

- Water Deal of the Year, awarded by Global Water Intelligence in 2010
- PPP African Deal of the Year, by Euromoney/Project Finance magazine in 2010
- Bronze Award – Middle East and North Africa, by Emerging Partnerships in 2013

Location: City of New Cairo, Egypt.

Characteristics of the PPP contract

Project type: Large-scale, greenfield urban wastewater treatment plant

Project capacity: Average daily flow of 250,000 m³ per day
Delivery mode: Design, build, finance, operate, transfer (DBFOT)
Private investment:*US$140 million
PPP contract value: **US$482 million for 20-year concession
Final cost: No change compared to the bid price
Expressions of interest request: October 2007
Bidding invitations: December 1, 2008
Publication of final tender documents: February 15, 2009
Bid submission deadline: March 31, 2009
Contract start: June 29, 2009 (Financial closure: February 3, 2010)
Contract end: June 28, 2029
Payment method: Payment based on a sewage treatment charge including a fixed payment
coverage (investment, debt, RoE and fixed operating cost) plus variable operating charge based on
volume of treated sewage (m³)
Duration: 20 years (construction two years & operation 18 years)
Contracting authority: New Urban Communities Authority (NUCA), www.newcities.gov.eg/english/
default.aspx

*
Investment in infrastructure construction.
**
Total cost of the New Cairo wastewaster treatment plant including operational costs over a 20 year period.

6 IESE Business School - New Cairo Wastewater Treatment Plant (Egypt)

 Award-winning company

Texto recuadro Award-winning consortium: Orasqualia for the Development of the Wastewater
Treatment Plant SAE (hereinafter referred to as “Orasqualia”)
Members: Aqualia New Europe (ANE) (50% share), www.aqualia.es & Orascom Construction
Industries SAE (OCI) (50% share), www.orascom.com
EPC* contractor: Aqualia Infraestructuras (50%), www.aqualia-infraestructuras.com & Orascom
Construction Industries (50%) www.orascom.com
O&M** contractor: Aqualia (50%) & Orascom Construction Industries (50%)
Lenders & lead arrangers: National Société Générale Bank SAE (NSGB), Commercial
International Bank (Egypt) SAE (CIB), Arab African International Bank SAE and Ahli United Bank
(Egypt) SAE
Advisory (NUCA): International Finance Corporation (financial and lead adviser), Parsons
Brinckerhoff (technical adviser), & Gide Loyrette Nouel (legal adviser)
Advisory (developer and lenders): Baker and McKenzie (Orasqualia) and Zulficar & Partners
(project lender)
Facility agent: National Société Générale Bank SAE (NSGB)
Security agent: Commercial International Bank (CIB)

*
Engineering, procurement and construction.
**
Operations and maintenance.

7 IESE Business School - New Cairo Wastewater Treatment Plant (Egypt)

1. Background of the Project The project was Egypt’s first successful public-private
partnership (PPP) project. 3 At that time, Egypt did not
In 2006, the government of Egypt adopted a new long- have a specific PPP law. Public procurement in Egypt
term policy to increase the involvement of private firms was regulated according to Tender Law No. 89 adopted
in the country’s economic development as a source of in 1998 (the public procurement law) and its executive
capital financing and know-how. The aim of the new regulations (secondary legislation).4
policy was to expand the much-needed investment in
It was not until August 2010 when the government
infrastructure within the country.
brought in a specific PPP law, Law No. 67, regulating
The New Urban Communities Authority (NUCA) was Partnership with the Private Sector in Infrastructure
the agency in charge of developing new areas and Projects, Services and Public Utilities, 5 that Egypt
redistributing the population far from the narrow strip adopted legislation to provide regulatory and legal
of the Nile valley. The authority led the New Cairo support to the parties involved.
Wastewater Treatment Plant (WWTP) project. The plant
The New Cairo Wastewater Treatment Plant (hereinafter
was designed to:
referred to as the “Project”) is a plant located in New
• Reduce the use of freshwater for tasks such as Cairo, a city created in the southeastern part of Cairo in
irrigating agricultural and urban green areas. 2000 in a former desert area, to ease problems deriving
from an overcrowded capital.
• Limit the volume of polluted water dumped into the
river with consequent negative effects on human One of the main challenges faced by the new city
health and the ecosystem. was the shortage of drinking water due to the harsh
environmental conditions.
Before the New Cairo plant was in operation, wastewater
was emptied into the river, which had significant The purpose of the urban wastewater plant was to treat
negative effects on the river’s ecosystem and public regular urban wastewater in New Cairo, Madinaty and
health. El Mostakbal.

The new infrastructure, as well as improving water The New Cairo WWTP operation has two main
treatment and increasing freshwater availability, will consequences:
allow the compost from the wastewater sludge to be
• An increase in the availability of drinking water
used as agricultural fertilizer.
(since treated water would be used for irrigation
The PPP project provided private investment capital, purposes instead of freshwater)
reducing the Egyptian government’s pressure on public
• A reduction in the environmental impact of the
finances.1 That said, it is important to recall that the
wastewater discharge into the River Nile (with a
government should include liabilities deriving from the
direct positive impact on human health and the
project in its balance sheet for payment commitments
river’s ecology).
during the whole project period. PPP frameworks
should not be used to hide government liabilities. The Project company, Orasqualia, was named after
the two shareholders of the special purpose vehicle
To promote the involvement of private companies,
(SPV) – Aqualia (replaced by Aqualia New Europe in
Egypt’s Ministry of Finance decided to establish the
February 2015) and Orascom Construction Industries
Public-Private Partnership Central Unit. 2
(subsequently renamed OC), each of the shareholders

1
As a basic rule, the PPP assets are to be classified in the partner’s balance sheet 3
IFC Advisory Services (2013). New Cairo Wastewater Treatment Plant Is Egypt’s
and not in the government balance sheet,only if certain stated conditions are First Public-Private Partnership. Stories of Impact series. June 2013. Available
met. European Commission (2014). Manual on Government Deficit and Debt – from: http://www.ifc.org/wps/wcm/connect/48e1bd0040f6e56c952bff25d54df
Implementation of ESA 2010. [Online]. Edition 2014. Luxembourg: Publications ab3/StoriesOfImpact_EgyptNewCairoWastewater.pdf?MOD=AJPERES
Office of the European Union, 2014. [4 November 2016]. Available from: http://
ec.europa.eu/eurostat/documents/3859598/5937189/KS-GQ-14-010-EN.PDF/ 4
European Bank for Reconstruction and Development (2012), Commercial
Laws of Egypt: An Assessment by the EBRD, October 2012. Available from:
2
The PPP Central Unit has no executive powers and it has limited influence http://www.ebrd.com/downloads/sector/legal/egypt.pdf
over decision-making bodies. Available from: www.pppcentralunit.mof.gov.eg/
Content/Home/Pages/Home_en.aspx 5
The law was passed more than one year after the New Cairo WWTP contract
was signed. Translation of the Law No. 67 for the year 2010. Promulgating the
law regulating Partnership with the Private Sector in Infrastructure Projects, Ser-
vices and Public Utilities. Available from: http://www.pppcentralunit.mof.gov.eg/
Content/Legislation/Documents/LawNo67fortheyear2010.pdf

8 IESE Business School - New Cairo Wastewater Treatment Plant (Egypt)

have 50% of the shares in the consortium. Aqualia The flow rate reached in the New Cairo WWTP was as
New Europe (ANE) is a joint venture between Aqualia follows:
(51%) and the European Bank for Reconstruction and
Development (EBRD) (49%). Table 1: Flow rate (m³ per day)

AVERAGE MINIMUM MAXIMUM

December 2013 34,648 25,944 44,496

December 2014 40,045 30,987 50,678

December 2015 38,899 30,462 43,059

* 33,625 26,525 41,160
June 2016

*Latest available data.

Source: Document provided by Orasqualia.

Source: Document provided by Aqualia.

To keep the plant in the right operating conditions
The construction process started in March 2010 and during the whole period at the current levels of inflow,
lasted for 26 months, until May 2012. The construction every four years Orasqualia changes the line it uses in
period finished with a delay of only two months despite the treatment process while at the same time it carries
the turbulent political situation of 2011. out the corresponding preventive maintenance work on
all six lines.
The subsequent delay in the operation period resulted
from problems deriving from the quality of the outflow
during the commissioning period. During this period,
2. Tender Process
NUCA did not accept, as is the common rule, any The government of Egypt invited companies to
discharge of water of a quality outside the parameters participate in a tender to design, finance, build and
established in the contract. operate the wastewater plant within a PPP framework
in which the private company would bear some of the
This situation forced Orasqualia to construct (at its own
associated risks.
cost) a 2 km pipe with a 1.3 m diameter from the New Cairo
WWTP to the Hassan Allam Wastewater Treatment Plant for The International Finance Corporation (IFC) of the
further treatment during the commissioning period. World Bank worked as an adviser to the Egyptian
government in the process.
Construction on the pipe lasted from April to June 2013,
which meant it was ready when the New Cairo WWTP During the prequalification phase, there were meetings
started to operate in July 2013. The plant managed to between the contracting authority (NUCA) and the
achieve the outflow in accordance with legal standards bidders in order to discuss the tender documents
after only three months of operations instead of the and suggest improvements to the tender design.
expected six months. Several suggestions made by the bidding companies
were accepted and added to the Amended Tender
The plant started its service in October 2013, 16
Documents.6 The procurement method of the New
months after construction finished. However, it was
Cairo WWTP was an international open tender with a
using only one biological treatment line out of the six
previous prequalification stage.
lines constructed (each of them with a capacity of
41,500 m3 per day). The reason was that the forecast The five qualified bidders were:
urban development for New Cairo did not materialize
due to several reasons including economic growth All firms participating in the tender had previous
moderations and political instability, which limited the experience in wastewater treatment plant PPPs.
sewage water inflows into the plant. Orasqualia, the SPV made up of Orascom and Aqualia,
was awarded the contract. The bidder ranked number
two was the Kuwaiti company Mohammed Abdulmohsin

6
Instructions to Bidders. Contract for the Availability and Operation of Watstewa-
ter treatment Plant in New Cairo through Public Private Partnership. February
15th, 2009 (hereinafter Instructions to bidders) and Contract for the Availability
and Operation of Wastewater treatment Plant in New Cairo through Public Pri-
vate Partnership. June 29th, 2009 (hereinafter PPP Agreement).

9 IESE Business School - New Cairo Wastewater Treatment Plant (Egypt)

Table 2: Qualified bidders

BIDDERS PREQUALIFIED CONSORTIA COUNTRY

Orascom Construction Industries Egypt

Bidder 1 Aqualia Spain

Aqualia Infraestructuras Spain

Mohammed Abdulmohsin Al-Kharafi & Sons Company

Bidder 2 Kuwait
(MAK Group)

Samcrete Egypt

Befesa CTA Spain

Bidder 3
Emasesa Spain

BDDC Bahrain

AAW Utilities Egypt

Bidder 4 Veolia Water France

Intech (International Environmental Technologies) Egypt

Metito Berlinwasser Germany & UAE

Metito Projects UAE

Bidder 5
ECG (Engineering Consultants Group) Egypt

Hassan Allam Sons Egypt

Source: PPP Central Unit, Egypt’s Ministry of Finance. Available from: http://www.pppcentralunit.mof.gov.eg/Content/Projects/Pages/New%20Cairo%20Wastewa-
ter%20Treatment%20Plant.aspx, last accessed November 2016.

Al-Kharafi & Sons Company (MAK Group). The latter, (130,000 m 3 per day), and design and construction
at the time of bidding, was already operating a sewage of the Bengbu WWTP in China’s Anhui province
treatment plant in Egypt with a capacity of 12,000 m 3 (100,000 m 3 per day).
per day at the resort development of Port Ghalib,
completed in 2003. • Orascom: Work on the Hamma Seawater
Desalination Plant in Algeria (200,000 m 3 per
The main two reasons for Orasqualia’s success were: day), the Greater Cairo Metro line 3 and El Ferdan
Double Swing Rail Bridge in Egypt.
• The technical proposal complied with all the
requirements of the instructions for bidders and Additionally, Orascom Construction’s deep knowledge
its quality was considered to be appropriate.7 and experience of the Egyptian market contributed to a
better project analysis and cost forecast.
• The consortium presented the lowest financial
proposal with a suitable financial structure.

It was thanks to the two SPV firms’ previous experience,

not only in Egypt but also in other countries, that both
conditions were achieved.

Examples of their expertise were:

• Aqualia: Design, construction and operation of the

Arroyo Culebro WWTP in Madrid (130,000 m 3 per
day), operation of the Oviedo WWTP (170,000 m3
day) and that of Río Lagares (Vigo, Spain)

7
This is structured as a “pass/fail” stage of the process with no specific scores. Source: Document provided by Aqualia.

10 IESE Business School - New Cairo Wastewater Treatment Plant (Egypt)

3. The Project’s Internal Orascom Construction Industries

Characteristics Orascom Construction Industries is an engineering and

construction contractor company founded in 1950 in
Egypt. Now the company is focused on infrastructure,
3.1. Members of the Award-Winning industrial and high-end commercial projects in the
Team Middle East, North Africa, the United States and the
Pacific Rim for public and private-sector clients.
Aqualia
The group is active in different business areas, being
Aqualia started its operations in 1980 and it is a the builder, owner and operator of infrastructure assets.
company within the FCC Group. The group’s three The company is focused on infrastructure investment
main business areas are environmental services, water opportunities “to provide recurring cash flows and
and infrastructure. growth” and secures “funding through nonrecourse
project financing, leveraging the group’s experience
Aqualia is the group’s water management company. and relationships with local and international financial
It has a presence in 21 countries, serving more than institutions.”
22.5 million people in more than 1,100 municipalities.
It has 7,764 employees as of September 2016. 3.2. SPV Created for the Project
The company is the leading company for full water cycle Orasqualia is the SPV created for the New Cairo WWTP
management in Spain, the third-largest such company project. Aqualia and Orascom Construction own it,
in Europe and the sixth worldwide. In 2015, Aqualia’s each of them holding 50% of the shares.
revenues amounted to €1.03 billion.
The figure below summarizes the links the SPV
Besides providing services in the municipal market, established with its partners.
Aqualia has significant experience and a track record in
the EPC and O&M sectors. It has successfully executed
more than 700 projects in these sectors in Europe,
Latin America, the Middle East and North Africa.

Figure 1: SPV structure

Aqualia New Europe SocGen, CIB

Orascom Construction Industries AAI & AUBE
FCC Aqualia
Orascom Construction Industries

Consortium Members
O&M Lenders and Lead Arrangers
Contractor

ORASQUALIA

Contracting
EPC Contractor
Authority

Aqualia infraestructuras New Urban Communities Authority

Orascom Construction Industries

Source: Document provided by Aqualia.

11 IESE Business School - New Cairo Wastewater Treatment Plant (Egypt)

3.3. Finance and Funding The banks acting as lenders were National Société
Générale Bank SAE (NSGB)12 (32.99%), Commercial
In 2006, the government asked the Public-Private International Bank (Egypt) SAE (CIB) (32.77%), Arab
Infrastructure Advisory Facility (PPIAF) for funding African International Bank SAE (17.12%) and Ahli
of $75,000 to prepare an assessment for the plant United Bank (Egypt) SAE (17.12%).
procurement method. PPIAF recommended the use of
a PPP framework to carry out the project. The banks had a step-in right and a pledge regarding
the SPV shares acknowledged in the PPP agreement by
Two of the main difficulties experienced by the all the parties involved under specific circumstances.
consortium were derived from the absence of a specific
PPP law (one was approved a year after financial The annual interest rate applicable to the first tranche
closing) and the limited experience of Egypt’s public of financing was the corridor rate for overnight deposits
administration in PPPs. announced by the Central Bank of Egypt two business
days before the start of each interest period plus
The New Cairo plant mobilized private investments three percentage points.
totaling $140 million.
The loan agreement included standard financial
The SPV was created on April 9, 2009, for the PPP covenants for the Project company (e.g., debt-service
agreement with registered capital in Egyptian pounds coverage ratio and debt-to-equity ratio maximum values
of E£250,000 ($45,704). The registered capital was and restrictions on the distribution of dividends at the
increased to E£5,250,000 ($952,813) on September Project company level).
17, 2009, and to E£59,250,000 ($10,871,560) on
December 3, 2009,8 to satisfy the debt-to-equity ratio 3.4. PPP Payment Method
required by banks as the debt increased.
Orasqualia issues a quarterly invoice for the wastewater
On December 31, 2010 the registered capital treatment service, the so-called sewage treatment
was 80,250,000 EGP9 (13,812,392.43 USD) with charge. The invoice is structured with four different
profits amounting 335.482 EGP (57,742.17USD). payment parameters:
On December 31, 2014 10 and 2015 the registered
1. Capacity charge – a fixed payment covering:
capital was 236,000,000 EGP (33,006,993.01 &
30,140,485.31 USD). a. Total investments made in the design,
construction and start-up of the plant and
The debt, structured as project finance without recourse, the capital expenditure required during the
amounted to E£566 million 11 ($103.47 million) in two operational period
tranches:
b. Debt service costs including interest payments
and any other fees stipulated in the financing
• E£550 million ($100.55 million) in the form of a agreement
long-term facility (15 years) to finance up to 70% of
the Project’s investment cost (EPC cost) (estimated c. Return on equity
at E£785.2 million, then worth $143.55 million).
d. Insurance premium for the required insurance
The remaining 30% was in equity of the SPV.
policies
• E£16 million ($2.93 million) in the form of 2. Fixed operating charge – a fixed payment covering
operation performance letters of guarantee to be the operating costs that are not volume-related
issued during the operation period.
3. Variable operating charge – covering variable
operating costs per cubic meter (m3) of effluent (with
the exception of the electricity consumption cost)

8
The exchange rate was E£5.47 to the U.S. dollar on April 10, 2009, E£5.51 on 4. Pass-through charge – reimbursement of the full
September 17, 2009, and E£5.45 on December 4, 2009. cost of electricity (up to a maximum electricity
9
The rate was E£5.81 to the dollar on December 30, 2010.
consumption proposed in the bid by the award-
winning consortium)
10
The rate was E£7.15 to the dollar on December 26, 2014, and E£7.83 to the
dollar on December 31, 2015.
Additionally, any applicable sales tax will be charged.
11
Financial closing was February 3, 2010. On February 5, 2010, the exchange
rate was E£5.47 to the dollar. On July 28, 2016, it was E£8.89. Source: Google
Finance. 12
Sold to Qatar National Bank by Société Générale on March 28, 2013.

12 IESE Business School - New Cairo Wastewater Treatment Plant (Egypt)

Table 3: Payment structure

Payment System Concept Details

Based on volume of
Variable operation charge
treated sewage (m3)
Indexed to inflation
(updated annually)
Fixed operating charge
(not volume related)

Based on availability Capacity carge

(Amortizations of total Outstanding debt indexed
invetsment and capex,
Debt service, RoE & to interest (every 3 years)
Insurance)

Source: PPP agreement.

Orasqualia won the bid with the following proposed values (baseline values for 250,000 m3 per day):

• Capacity charge (E£/quarter) = 31,272,591.25

• Fixed operating charge (E£/quarter) = 3,815,625

• Variable operating charge (E£/m3) = 0.0355

• Maximum electricity consumption (kWh/quarter) = 5,338,254

Table 4: Quarterly fixed payments

Capacity Charge (CCo)(EGP/quarter) 31,272,591.25

Fixed Operating Charge (FCo)(EGP/quarter) 3,815,625

Total quarterly fixed payments 35,088,216.25

Table 5: Variable over fixed revenue

FLOW AVERAGE DAYS QUARTERLY VARIABLE OPERATING % VARIABLE

TOTAL X M3 FIXED + VARIABLE
M3 PER DAY QUARTER FLOW CHARGE (VCO)(EGP/ M3) /TOTAL

Dec-13 34,648 120 4,157,760.0 0.0355 147,600.48 35,235,816.73 0.42%

Dec-14 40,045 120 4,805,400.00 0.0355 170,591.70 35,258,807.95 0.48%

Dec-15 38,899 120 4,667,880.00 0.0355 165,709.74 35,253,925.99 0.47%

Jun-16 33,625 120 4,035,000.00 0.0355 143,242.50 35,231,458.75 0.41%

13 IESE Business School - New Cairo Wastewater Treatment Plant (Egypt)

The low percentage of the variable revenues over the Land and space risk: NUCA obtained the land use
total revenues13 is result of the lack of capacity of the concession from the Egyptian army, which owns the
SPV to affect the plant’s service demand (water inflow). area surrounding the Cairo-Ain Sokhna highway.
There is a big fenced area around the New Cairo
The invoices are paid by the Egyptian government in WWTP assigned for the future expansion of the plant’s
Egyptian pounds, a currency that depreciated against wastewater treatment capacity.
the U.S. dollar by 56% from 2009 to 2016.14
Design and construction risk: This risk was assumed by
There are two indexing mechanisms to adjust the price the Engineering, Procurement and Construction (EPC)
paid by NUCA: joint venture composed of Aqualia Infraestructuras
and Orascom. Aqualia had previous experience of
1. Adjustment for inflation:15 Applicable on an annual
many large wastewater treatment plants: Arroyo del
basis to the fixed operating charge and the variable
Culebro (Spain), Salamanca (Spain), Bengbu (Anhui,
operating charge but not to the capacity charge.
China), and Peñasquito (Mexico). Orascom had wide
The capacity charge represents the main portion of
experience of big construction projects in Egypt. These
revenue for the SPV.
facts mitigated the risk that Orasqualia and consortium
2. Adjustment for interest rate changes: Applicable members assumed in this area.
every three years to reflect changes in Egyptian
Financing risk: This was assumed by Orasqualia, which
interest rates on borrowing in Egyptian pounds
managed to reach financial closing in seven months.
(applicable to the outstanding senior and
subordinated debt of the Project company). Inflation risk: The contract allowed for a partial annual
adjustment for inflation. While this was applicable to
the fixed operating charge and variable operating
3.5. Risk and Risk Mitigation charge components of the sewage treatment charge,
it was not applicable to the main source of revenues
As in any PPP project, a proper assessment of the risk
for the SPV, the capacity charge. The inflation risk was
was a critical issue for the success of the service. In
borne by both agents, Orasqualia & NUCA.
the literature, it is often said that the risk should be
transferred to the party that can deal best with it.

Table 6: Risk assignment

Risk category Assignment

Land and space NUCA

Design and construction EPC joint venture of Aqualia
Infraestructuras and Orascom
Financing Orasqualia
Inflation NUCA / Orasqualia
Interest rates Orasqualia
Forex Orasqualia
Creditworthiness NUCA
Operations and maintenance O&M joint venture of Aqualia and
Orascom

Supply of utilities NUCA

Demand NUCA
Performance Orasqualia
Politics NUCA / Orasqualia

13
Energy costs are not included.

14
The exchange rate was E£5.64 to the dollar on March 27, 2009, and E£8.80
on March 16, 2016 (−56.02%). Source: Google Finance.

15
Average consumer prices in Egypt have grown by 9.9% since 2010.

14 IESE Business School - New Cairo Wastewater Treatment Plant (Egypt)

Interest rates risk: Senior and subordinated debt was Performance risk: The performance indicators were
indexed to three-year certificates of deposit of four listed in the annexes as part of the contract. Quality
“reference” banks every three years.16 standards were defined according to Egyptian law.

Forex risk: At the time of signing the contract, the forex They were the basis on which payments were made
risk was not perceived as being any higher than in any to Orasqualia. The plant’s performance was the
other standard developing country. The risk, however, responsibility of Orasqualia.
turned out to be very significant when the political
instability started. Political risk: This was assumed by NUCA. Any issue
deriving from the plant’s construction or performance
• March 27, 2009: E£5.64 = $1 will be raised by residents with the political authorities
• February 5, 2010: E£5.47 = $1 (2.91% apreciation and may lead to political instability or complaints
of EGP against USD since March 2009) against the government.
• July 26, 2016: E£8.86 = $1 () (36.59% depreciation
of EGP against USD since March 2009)
• November 4, 201617: E£13.70 = $1 (63.77%
depreciation of EGP against USD since March
2009)

The cost of the local currency depreciation was

assumed by Orasqualia. As a result of that, it has been
difficult for the SPV companies to sell Egyptian pounds
in the international markets. The fact that the private
firm has to bear the foreign exchange risk can limit
not only the number of international bidders willing to Source: Document provided by Aqualia.
assume the risk, but also the access to cutting edge
technology by the administration.

Creditworthiness risk: A direct agreement stipulated 3.6. Technical Elements

that Egypt’s Ministry of Finance was to pay the sewage
treatment charge if NUCA could not pay it within 30 The biological treatment process used is conventional
days of the invoice date.18 and suitable for obtaining the quality requirements of
NUCA:
Operations and maintenance risk: This risk was
borne by the O&M joint venture formed by Aqualia • Pretreatment stage, a screening system, a
and Orascom. One of the main characteristics of degritting and degreasing unit and a flowmeter.
PPP contracts is that, by bundling construction and
• The primary (mechanical) treatment with decanters
maintenance, incentives are created to minimize the
is designed to remove gross, suspended and floating
total cost of both tasks.
solids from raw sewage. The so-called sedimentation
Supply of utilities: The nonnegligible electricity cost process is based on density differences.
would be paid as a pass-through by NUCA up to a
• The secondary (biological) treatment is designed
maximum established in the PPP agreement. The
to remove the dissolved organic matter that
electricity cost risk was limited due to the payment of
escapes primary treatment. This is achieved by
the electricity bill by NUCA.
microbes consuming the organic matter as food,
Demand risk: Despite one small part of the revenues of and converting it to carbon dioxide, water, and
the SPV depending on the volume of treated sewage, this energy for their own growth and reproduction.
risk was assumed almost entirely by NUCA as the SPV
• The third treatment uses a microscreening process
did not have any influence over water inflows (demand).
initially and later chloride treatment for disinfection.
16
Source: PPP agreement. • Sludge treatment consists of a gravity thickener
17
Egypt Central Bank devaluated the currency by 48% on November 3, 2016. and a flotation thickener tank, together with a high-
load anaerobic digester and a low-load digester.
18
Source: IFC and Orasqualia, “PPPs in the Water and Sanitation Sector: New
Cairo Wastewater Project,” October 21, 2014, Geneva.

15 IESE Business School - New Cairo Wastewater Treatment Plant (Egypt)

 • The biogas line has a gasholder and a torch. There creation of new urban centers to achieve community
is an auxiliary emergency fuel-generator system to stability and economic prosperity. NUCA is in
cover electricity demand in case of operational or charge of defending the public administration’s
source problems. interest. It is part of Egypt’s Ministry of  Housing,
Utilities and  Urban Development
The most important features of the New Cairo WWTP
are the following:19 • Orasqualia, the SPV that was awarded the
project to operate the New Cairo WWTP. The
• Water line including fine solids screening (four company’s shareholders are Aqualia and Orascom
automatic screens, 1.50 m wide and with a pass Construction Industries SAE (OCI) (with 50% of
of 6 mm), primary clarifiers (four units, 50 m in shares each).
diameter and 3.60 m high), biological reactor (six
units each with a volume of 14,580 m³), secondary • The PPP Central Unit: a unit within the Ministry of
settling tank (six units, 55 m in diameter and Finance that is charged by the government with
5 m high), microscreeing (10 textile mesh filters developing PPP practice and with playing a vital role
1,374.37m³/h) and disinfection by chlorine (two in the delivery of the initial projects. The unit’s lack
chambers with a volume of 1,395 m³). of executive powers may limit the independent role it
should have in the PPP in favor of the administration.
• Sludge line with primary sludge screening (2 + 1
rotary screens, each with a capacity of 110 m³ per • Committees: PPP governance committees composed
hour), thickening of primary sludge (three gravity of members of the administration and SPV to supervise
units, 16 m in diameter and 4.80 m high), thickening the correct functioning of the infrastructure and to
of excess sludge (three flotation thickeners, 15 m deal with eventual changes in the circumstances
in diameter and 3 m high), anaerobic digestion under which the contract was signed.
(four units, each with a volume of 12,076 m³), etc.
• Experts: an independent financial expert and an
• Auxiliary services with drinking water system, independent technical expert.
industrial/service water system, etc.
The PPP project established two governance committees to
• Electrical installations with a medium-voltage supervise how the project was functioning and to deal with
electrical line to Superconducting cable, unexpected situations that might arise during the contract.
transformer center, etc.
• Partnership Committee: this comprised senior
The plant has the following capacity: executives of NUCA and Orasqualia for amicable
dispute resolution. It had 10 members: five from the
• Mean daily flow: 250,000 m3 per day NUCA side – NUCA itself, the Construction Authority
for Potable Water and Wastewater, the Ministry of
• Peak daily flow: 312,000 m3 per day
Housing, Utilities and Urban Development, the PPP
• Peak instantaneous flow: 4 m3 per second Central Unit and the Egyptian Water Regulatory
Agency – and five others from the Orasqualia side.
After the treatment process, the outflow complies
with the limits set by Egyptian law and even with the • Performance Monitoring Committee: this was composed
European Union norm for wastewater even though the of three members. There was one representative each
water inflows are not always in accordance with the from NUCA and Orasqualia, as well as one of the experts
parameters established in the agreement. 20 depending on the nature of the project performance
being monitored. Additional representatives from
3.7. Governance NUCA, Orasqualia and the PPP Central Unit and a
representative from the Egyptian Water Regulatory
The main agents involved in the project are: Agency had the right to attend.

• The New Urban Communities Authority (NUCA), In the case of a dispute, if the Partnership Committee
the contracting authority, whose objective is the fails to reach an agreement, the matter will be referred
to the chair of NUCA and the chair of Orasqualia to
19
Orasqualia consortium technical bid. settle the dispute amicably. As a last resort, in case
they fail to reach an agreement, the dispute will be
20
More details about inflow and outflow water characteristics can be found in
Appendix B. submitted for arbitration in accordance with the rules

16 IESE Business School - New Cairo Wastewater Treatment Plant (Egypt)

applied by the Cairo Regional Center for International The economic reforms adopted since 2004 reduced
Commercial Arbitration.21 fiscal and monetary vulnerabilities, leaving some room
for maneuver regarding the macroeconomic policy
The main problem that the project had to overcome response. The government undertook a package of
related to the construction of a 2 km pipe. The issue additional expenditure (mainly on infrastructure) to
started when, during the commissioning period (from help support economic activity. The Central Bank of
May 2012 onward, after the completion of construction), Egypt “eased monetary policy appropriately, cutting
NUCA did not allow the New Cairo plant to offload policy rates four times by a cumulative 250 basis
partially treated or untreated water, despite this being points since early 2009. Economic performance
a regular practice for plants during the start-up period. during 2008-2009 was favorable.” The deficit target
(Nothing was mentioned in the contract about it.) NUCA was increased to 8.4% of GDP, “largely as a result
required Orasqualia to construct a pipe with a diameter of an expected cyclical deterioration in revenues.”
of 1.3 m and a length of 2 km to the next closest water
treatment plant (Hassan Allam WWTP) at Orasqualia’s 4.2. Legal / Legislative Conditions
own cost. The problem was solved through an amicable
agreement on November 24, 2013. At the time the contract was signed for the New Cairo
wastewater project, there was no specific PPP legal
4.The Project’s External framework in Egypt. The existing legislation for public
procurement was Tender Law No. 89, adopted in 1998.
Characteristics With the purpose of providing regulatory support,
the Egyptian government introduced a special law in
4.1. Economic Conditions22 August 2010, Law No. 67, regulating Partnership with
the Private Sector in Infrastructure Projects, Services
In 2008-2009, Egypt weathered the impact of the and Public Utilities.
global financial crisis relatively well due to its limited
direct exposure to the international financial products 4.3. Social / Civil Conditions
affected by the subprime crises and the country’s low
levels of financial integration. In the Human Development Index published by the
United Nations Development Program in 201523, Egypt

Figure 2: Egypt’s main economic indicators

20% 100%

90%
15%

80%

10%
70%

60%
5%

50%

0%
2008 2009 2010 2011 2012 2013 2014 2015 2016e 2017e 40%

30%
-5%

20%

-10%
10%

-15% 0%

Real GDP (%) Grl. gov. Borrowing (%) Consumer prices (%) Grl. Gov. Gross debt (right) (%GDP)

Source: Prepared by authors based on IMF (2016). World Economic Outlook. April 2016.

21
In recent years, it has become common in PPP contracts to choose 23
UNDP (2015). Human Development Report 2015. Work for Human
international arbitration centers such as Paris or Geneva to settle disputes to Development. Available from: http://hdr.undp.org/sites/default/files/2015_
avoid transferring the risk of legal disputes to the concessionaire. human_development_report.pdf

22
IMF (2009). Arab Republic of Egypt – IMF Staff Visit, Concluding Statement Cairo,
July 16, 2009. Available from: www.imf.org/external/np/ms/2009/071609.htm.

17 IESE Business School - New Cairo Wastewater Treatment Plant (Egypt)

was at position number 108 overall and third in the group eventually led the company to obtain the ISO
of “medium human development” countries. Since 2009 9001 and ISO 14001 certification in May 2015.
the country had fallen three places in the index.

4.4. Political Conditions 5. Impacts of the Project

The project’s impact has been mainly on three different
The political situation was affected by social and
agents:
political instability due to the protest that started on
January 25, 2011, in Cairo’s Tahrir Square. The protest
led onto what became known as the Egyptian revolution 5.1. Administration
or the January 25 revolution, which ended with
New Cairo has a successfully working new infrastructure
President Hosni Mubarak being ousted after almost 30
with cutting-edge technology constructed using private
years in power. Following elections in May and June
financing. The financial framework limited the pressure
2012, Mohamed Morsi, the leader of the Freedom and
on public finances during the construction years. 26 This
Justice Party, was sworn in on June 30 that year as
was challenging considering the political situation the
president of Egypt, a position that he held until July
country was going through. The administration also
3, 2013. General Abdel Fattah el-Sisi succeeded him
benefited from the transfer of the risk of certain parts of
(after interim president Adly Mansour), governing the
the project to the private operator, as previously stated.
country until now.
Additionally, with the new plant the country reduced
the consumption of freshwater by using treated water
4.5. Environmental Conditions to irrigate farming and urban green areas.
Environmental regulation in Egypt is based on Law
No. 4 of 1994 Promulgating the Environment Law (as 5.2. Residents
amended by Law No. 9 of 2009)24.
Residents benefited from the project mainly through
Orasqualia submitted a comprehensive environmental increased availability of freshwater. The reduction in
impact assessment (EIA) 25 in accordance with the pollutants dumped into the river led to improved public
environmental legislation (Law No. 4 of 1994 and health. Moreover, the better quality of water used for
executive regulation 338 of 1995) to the Egyptian farming not only increased the quality of products,
Environmental Affairs Agency and obtained approval with direct effects on human health, but might have
from it before the start of operations. increased agricultural productivity, fostering economic
growth in the region. In terms of employment, the plant
In 2013-2014, the Orasqualia O&M joint venture provided regular jobs for 63 permanent skilled workers
developed the environmental and social plan that directly, 60 of them being locals.

Table 8: Number of jobs associated with the plant *

New Cairo SPV 5 employees (two Egyptians)

Operations and maintenance 58 employees (100% Egyptians)

EPC (two-year construction period) 1,500 employees and 150 indirect jobs (100% Egyptians)

* Not all of the jobs are newly created posts.

24
Ministry of Enviroment. Eguphian Enviromental Affairs Agency. 2016. 26
The Egyptian government should, however, add the project’s financial
Enviromental Protection Law. [Online]. [Accessed November 2016]. Available commitments for the whole period to the balance sheet.
from: http://www.eeaa.gov.eg/en-us/laws/envlaw.aspx

25
An environmental impact assessment is a determination of the likely
environmental consequences of proposed projects or activities. The word
“impact” implies changes that can be either positive or negative from a
desirability standpoint.

18 IESE Business School - New Cairo Wastewater Treatment Plant (Egypt)

Lastly, there was also a design, construction and
operation know-how transfer from which Egyptian
6. Assessments
private firms could benefit. Additionally, Egypt citizens
could benefit from cutting-edge technology and reliable 6.1. PPP Methodology
operations to tackle environmental and water availability
The conditions related to the project are summarized in
problems at no additional cost. The wastewater
Table 9. The New Cairo WWTP is a very interesting PPP
collection and treatment cost is covered by the existing
that shows the importance of adapting governance for
water tariff, which did not increase as a result.
a very unstable political context.
The side effects of the plant’s construction were very
Three features of a good PPP are clearly present in the
limited due to the plant being located outside built-up
project:
urban areas.
• Competitive bidding.
5.3. Environment
• Bundling of construction with operations.
The plant enabled a reduction in the quantity of
pollutants (raw sewage) dumped into the River Nile. • Importing efficiency through an experienced
This improved the river’s water quality, which had multinational enterprise in alliance with a local
positive direct effects on ground pollution levels, operator. This has benefits not only for efficiency
fisheries, the river ecosystem and on human health. in general but also for public finances.

An estimated measure of the reduced river pollution According to Engel et al. (2014), the public finance
with the plant working at full capacity (as of 2016, it is gains of a PPP do not come from the fact that private
working at one-sixth of the total) would be as follows: funds are invested initially (they have to be recouped
later on) but from the fact that an efficient private
• 94 tons of BOD5 per day avoided27 operator can build and operate the project at a lower
cost, which reduces the tolls or public funds that are
• 105 tons of TSS per day avoided28 needed to cover the project cost.

• 135 tons of COD5 per day avoided29 • There is no cost-benefit analysis before the
competitive bidding, which is necessary to make
an objective and transparent assessment of the
5.4. Award-Winning Companies need for the project and of the advantages of a
PPP compared to traditional provision.
Aqualia had the opportunity to carry out the first
successful PPP project in Egypt, a regional political • The governance of the project is not first-best but
power in the MENA (Middle East and North Africa) the best possible given the political circumstances.
region. The project could be used in other countries In first-best governance, we would have primary
as a benchmark project to secure new contracts. Also, legislation that would protect investors and
for the Egyptian firm Orascom it was a challenge as the introduce transparency before the project was
New Cairo plant was its biggest wastewater treatment undertaken. And we would have a clear separation
plant at that time. of powers between the contracting unit (NUCA)
and the supervising units. However, in a second-
The New Cairo plant was a flagship project that could best world, it hardly seems inevitable in a very
be taken as a benchmark for future contract awards in volatile political context that the contractor would
other countries and for the market in general. find its investment protected in an “amicable”
relationship with the contracting unit. Similarly, if
the legislation protecting investment returns had
been approved prior to the start of the project,
perhaps the changes in regime would have seen
that legislation quickly overturned. The project
may have been something of a harbinger for the
27
BOD5 means five-day biological oxygen demand. law, with the project’s benefits possibly helping to
28
TSS means total suspended solids. secure the approval and stability of the legislation.
From a theoretical point of view, when a complete
29
COD5 means five-day chemical oxygen demand.

19 IESE Business School - New Cairo Wastewater Treatment Plant (Egypt)

Table 9: Conditions related to the selection and development of the Aqualia New Europe project

NEW CAIRO WASTEWATER TREATMENT PLANT

PPP METHODOLOGY EXISTING DETAILS

1. Procurement method & Bidding process

1.1. Value for Money analysis or CBA* No

1.2. Real Competition for the Contract Yes 5 Bidders

1.3. Tender evaluation committee Yes Internal

2. Contractual issues & incentives

2.1. Bundling Yes DBFOT

2.2. Quality verifiable Yes via outflow

2.3. Externalities Yes Positives

2.4. Duration 20 years

3. Risk, finance & payments

3.1. Construction & Operation Risk Transferred

3.2. Demand Risk Not transferred

3.3. Policy & Macroeconomic Risk Partially transferred ForEx

3.4. Payment Mechanism Usage + Availability

3.5. Special Purpose Vehicle (SPV)s Yes Aqualia New Europe & Orascom (50%)

4. Governance

4.1. Transparency Yes

4.2. Participatory decision-making process Not observed

External monitoring during tender and

4.3. International/External monitoring Partially
awarding (IFC) and operation (experts)

4.4. Legal framework Not at the beginning

4.5. Distribution of tasks Contracting NUCA

Monitoring compliance NUCA & PPP central unit

Renegotiation NUCA

Regulation NUCA

Operation & Quality NUCA

5. Building process

5.1. Cost Overrun Yes Pipe construction to nearest WWTP

5.2. Delayed deadlines Not observed

6. Potential Benefits

6.1. Possible Price Certainty Yes

6.2. Transfer of responsabilities to privates Yes

6.3. Scope & Incentives for innovation Yes

6.4. Savings in public payments Yes Unquantified

6.5. Life-cycle approach Yes

6.6. Incentive to be on time Yes

(*) Cost-Benefit Analysis

20 IESE Business School - New Cairo Wastewater Treatment Plant (Egypt)

 written contract is not feasible, a more “relational Of all the Sustainable Development Goals, number 6
contract” is inevitable and desirable if the project to be the one with which the New Cairo WWTP has
has a positive social value. the closest links. As a piece of infrastructure aimed at
ensuring the availability of freshwater and improving
• Risk sharing seems reasonable: many risks are sanitation systems, the New Cairo WWTP can be said
borne by the operator but demand and the political to be in line with the goal of clean water and sanitation.
risk are covered by the public sector because there That said, goals 3, 14 and 17 also seem to be greatly
is nothing that the contractor could do to manage implicated in the New Cairo plant’s construction, as will
these risks. be explained below.

• There may be room for improvement regarding the When looked at in detail, the New Cairo WWTP can
introduction of international arbitration. helpachieve most of the different targets for goal 6, such
as target 6.2, which is to “achieve access to adequate
and equitable sanitation and hygiene for all.” The plant
6.2. United Nations’ Sustainable can also help with target 6.3 by improving water quality
Development Goals through reduced dumping of untreated wastewater into
the river. The achievement of target 6.4, focused on
The New Cairo plant was also aligned with the United “water-use efficiency across all sectors,” looks possible
Nations’ Sustainable Development Goals30, as follows: as the New Cairo WWTP is designed to reuse wastewater

Table 10: United Nations’ Sustainable Development Goals

NEW CAIRO WASTEWATER TREATMENT PLANT

SUSTAINABLE DEVELOPMENT GOALS HIGH IMPACT MODERATE IMPACT

1. No Poverty ✓
2. Zero hunger ✓
3. Good Health & Well-being ✓
4. Quality Education

5. Gender Equality

6. Clean water & Sanitation ✓

7. Affordable & Clean Energy

8. Decent work & Economic growth ✓

9. Industry, Innovation & Infrastructure ✓
10. Reduced inequalities ✓
11. Sustainable cities & communities ✓
12. Responsible consumption & production

13. Climate action ✓

14. Life below water ✓
15. Life on land ✓
16. Peace, Justice & Strong Institutions

17. Partnership for the Goals ✓

30
United Nations (2016). Sustainable Development Goals. [Online]. [Accessed
4 November 2016]. Available from: http://www.un.org/sustainabledevelopment/

21 IESE Business School - New Cairo Wastewater Treatment Plant (Egypt)

to irrigate agricultural and urban green areas, avoiding analyzed. It can be deduced that greater availability
the use of freshwater for such purposes. Target 6.6 is and a higher quality of water for agricultural purposes
also reachable, thanks to the fact that the wastewater can improve agricultural productivity and, therefore,
plant can reduce severely the volume of polluted water more food (helping achieve goal 2). At the same time,
disposed of, as shown in sections 6.2 and 6.3 of this higher productivity can also increase farmers’ income
document (on the impacts of the project on residents (helping achieve goal 1).
and the environment).
Goals 8 (decent work and economic growth), 9
However, in addition to goal 6, other Sustainable (industry, innovation and infrastructure) and 10
Development Goals should be taken into account even (reduced inequalities) can also benefit from the project.
though they do not have such a direct connection with In the case of goal 8, as seen in section 6.2 (impact on
a wastewater treatment plant. For example, because residents), the plant has created regular jobs, which
of the activity of the wastewater plant, progress can be may lead to higher domestic consumption and help to
made on goal 3 (good health and well-being) thanks increase economic growth. For goal 9, it is clear that a
to the plant’s effects on public health – in particular, wastewater plant such as the one examined in this case
targets 3.1 to 3.3 and especially 3.9. All of these study helps with the building of resilient infrastructure.
targets are focused on reducing mortality rates and For goal 10, the creation of regular and stable jobs
disease, which can be reduced as the water outflow helps to reduce inequalities.
after treatment in the New Cairo WWTP is of much
better quality than what was dumped into the River Nile Finally, goal 11 (sustainable cities and communities)
before the plant existed. is partially achievable thanks to the WWTP, especially
through target 11.6, which aims to “reduce the adverse
Goal 13 on climate action and goals 14 and 15 on life per capita environmental impact of cities, including by
below water and on land would seem to benefit from the paying special attention to […] waste management.”
WWTP as less dumping of polluted water into the River
Nile will have direct consequences on the environment In summary, the New Cairo plant is a powerful tool to
and on the ecosystem protection. help achieve some of the Sustainable Development
Goals, especially those related to the environment
Finally, another attainable goal is goal 17 because and the economy, thanks to the increased productivity
of the framework under which the infrastructure was expected in agricultural activities and the regular jobs
designed, built and operated – that is, through a PPP. created31 in building and operating the infrastructure.
A detailed look at some of the targets of goal 17 shows
that the financial instruments used in this PPP helped 6.3. City Strategy
to achieve the following targets:
To consider the project’s impact on city development,
• 17.1: “strengthen domestic resource mobilization, we use the 10 dimensions of the Cities in Motion
including through international support to model32 and evaluate the impact for each dimension.
developing countries.”
As can be seen in Table 11, the project will have a big
• 17.3: “mobilize additional financial resources for impact on the human capital dimension. The project
developing countries from multiple sources.” will create many jobs (1,500 direct, 150 indirect)
during the construction period, jobs that will last for
• 17.4: “assist developing countries in attaining
two years and will help develop the talent pool in the
long-term debt sustainability.”
region. The number of jobs during the project’s total
• 17.17: the plant has clearly achieved its aim in this life cycle would be much fewer but still significant
respect, as this target’s purpose is to “encourage considering that they will be long-term jobs. As shown
and promote” effective public-private partnerships, in Table 8, the total number of jobs associated with
among other types of partnership. the plant are five for the SPV and 58 for the O&M joint
venture. Finally, more indirect jobs can be created by
The New Cairo WWTP can be considered as having the project’s economic impact.
a big impact on goals 3, 6, 13, 14, 15 and 17, but
the PPP also has an impact on other Sustainable The authors of this paper believe that the project will
Development Goals, although to a lesser extent. For help decrease inequalities in the region and this will
example, goal 1 (no poverty) and goal 2 (zero hunger) 31
Not necessarily net jobs created.
can be seen as achievable thanks to the infrastructure
32
Available from: http://citiesinmotion.iese.edu/indicecim/

22 IESE Business School - New Cairo Wastewater Treatment Plant (Egypt)

Table 11: Cities in Motion

NEW CAIRO WASTEWATER TREATMENT PLANT

SMART CITY EVALUATION HIGH IMPACT MODERATE IMPACT

1. Human capital ✓
2. Social cohesion ✓
3. Economy ✓
4. Public management ✓
5. Governance ✓
6. Mobility and transportation

7. Environment ✓
8. Urban planning ✓
9. International impact

10. Technology ✓

have a positive effect on social cohesion. A greater

impact on the economy is expected, resulting from
7. Conclusions
different factors. First, the transfer of cutting-edge The case of the New Cairo Wastewater Treatment Plant
technology increases the quality of the talent pool in is a very interesting PPP project as it brings qualitative
Cairo. Second, the project increases the efficiency and quantitative information about good practices on
of the water treatment, provides more drinking water PPP to implement in future collaborations between
and decreases prices while improving the overall public and private partners.
environment and in particular fishing opportunities. All
those factors may help attract new business, increase One of the first interesting elements is the very fact that
the efficiency of established companies and generate this project is the first successful PPP project in Egypt.
new business opportunities. Related to this is how the legislation was adapted. The
new Egyptian law on PPP adopted lessons learned from
Two dimensions a significant and big impact can be the New Cairo project.
seen are of course the environment and urban planning.
The environmental impact was discussed in the section Another fact of interest is the bidding process. External
evaluating the Sustainable Development Goals and is and international advisers helped plan the bidding
the key reason for the whole project. The plant can also process, and the autonomous PPP Central Unit was
be seen as having a big impact on urban planning as created inside the Ministry of Finance. Related to
the project forces city officials to think in a long-term the bidding process, there may be two areas for
way about the city’s infrastructure development. improvement: a previous cost-benefit analysis or a
value-for-money analysis, and a participatory process
Finally, a moderate impact can be seen on public in the design of the location and urban planning related
management because of the increased efficiency to the infrastructure. There are no signs that either of
in the provision of a public service, which water is – these tasks was performed before the bidding process.
both drinking water and nonpotable water. However,
the authors believe that the impact on governance The business strategy between the two firms that
will be much greater. There is an important lesson created the SPV is also interesting. Both firms are
associated with the success of such complex projects multinationals with competitive advantages that
where governance issues are very important. Public complement each other. Aqualia has a high level
and private partners should collaborate, develop a of technological knowledge concerning wastewater
legal environment and a context of trust to make this treatment and Orascom has in-depth knowledge of the
feasible. The relationships established and the trust Egyptian market. This complementarity of knowledge,
developed constitute a key capability when it comes to correctly managed inside the firms, would give them
facing similar projects in the future. higher added value for future projects.

23 IESE Business School - New Cairo Wastewater Treatment Plant (Egypt)

It was thanks to the strength and experience of the are 63 workers doing managerial and O&M tasks, while
companies involved in the project and the existence during the construction period around 1,500 workers
of the PPP Central Unit that the project managed to worked on the plant. Even the job creation during the
overcome the political situation that the country was construction process can be considered a positive
going through during the construction period. This sign in an economy in need of formal jobs as Egypt’s
success was achieved despite the PPP Central Unit’s economy was because, despite having only temporary
lack of executive powers. The political situation became contracts, those workers could gain experience for
very unstable, with three changes of president in a short future jobs. Elsewhere on the economic spectrum, it
period, with the profound consequences for government follows that an improved quality of the water emptied
strategy and daily administration that these events had. into the River Nile will give higher economic returns to
Despite the social and political instability experienced farmers, either in terms of performance or crop quality.
in Egypt during these years, the governance system
and the proactive attitude of the partners involved in Beyond the economic benefits, surely the most
the contract managed to move the project forward. As interesting benefit is the improved public health of the
is shown in the assessments section, it can be said people of New Cairo. As the data in Appendix B show,
that the existing governance model is not the first-best it is clear that the new plant will generate higher-quality
according to the theoretical models 33 but it seems to water.
be the most suitable considering Egypt’s institutional
In terms of achieving the United Nations’ Sustainable
framework and political reality. All of this led the project
Development Goals, the project is very interesting as it
to be the first successful PPP project in Egypt.
has a big impact on six goals 3, 6, 13, 14, 15 and 17,
Finally, from the point of view of the PPP methodology, some of them as important as good health and well-
the project has a correct payment mechanism, which being (goal 3) and climate action (goal 13).
ensures both financial stability for the private partner
Finally, the project is interesting because it puts the city
and revenue for the public partner. It should be
of New Cairo in a stronger position to deal with future
highlighted how both partners distributed the inflation,
challenges. The transfer of knowledge and technology
financial cost and foreign exchange-rate risks. While
that the project represents, with the resultant improved
the first two risks did not present any problems for any
water quality and therefore better quality of life for
of the partners, the same cannot be said of the foreign
residents, can make the city better able to attract talent
exchange risk. Orasqualia had to assume a high cost
and new business opportunities, while contributing
due to the Egyptian pound’s depreciation and this had
to fight against climate change. The project also
very negative consequences for the company’s balance
strengthens the governance of public administration,
sheet 34. That said, it is important to highlight that the
due to the fact that public administrations have acquired
complete transfer of foreign exchange risk to the firm
a high degree of knowledge during the bidding process,
may limit the number of international bidders and
including drafting the supervision contract for the works
consequently the technology transfer, particularly to
and their subsequent operation, and this knowledge
developing countries.
may contribute to future governance situations.
The project had several outcomes. On the one hand, it
In short, the New Cairo WWTP is a good people-first
is clear that the project allows the transfer of risk to the
PPP project. It must be shared with other public
private partner and, on the other hand, it guarantees
administrations and private actors who want to
revenue for the public authorities. The payment process
accomplish projects of a similar size.
ensures innovation in the search for improvements to
keep wastewater treatment costs at optimal levels.

Egyptian citizens benefited from both permanent and

temporary jobs. Regarding the permanent jobs, there

33
In a first-best governance model, there would be, as previously stated, a clear
separation of powers between the contracting unit (NUCA) and supervising
units.

34
Egyptian Pound dropped 48% after Egyptian Central Bank allowed
for the free float of the currency. Al Jazeera News And Agencies. 2016.
Egypt Central Bank devalues currency by 48 percent. Al Jazeera. Online].
3 November 2016. [Accessed 4 November 2016]. Available from: http://
www.aljazeera.com/news/2016/11/egypt-central-bank-devalues-currency-48-
percent-161103084641123.html

24 IESE Business School - New Cairo Wastewater Treatment Plant (Egypt)

References
- Carpintero, S., and Petersen, O.H. (2014). “Risk Allocation and Time-Delays in Public-Private
Partnership (PPP) Projects: The Experience of Wastewater Treatment Plants in Spain.” Working paper.
Available from: www.bristol.ac.uk/media-library/sites/sps/migrated/documents/helbypetersen.pdf

- Engel, E., Fischer, R.D., and Galetovic, A. (2014). The Economics of Public-Private Partnerships: A
Basic Guide. Cambridge, U.K.: Cambridge University Press.

- Hannoura, Atter Ezzat (PPP Central Unit director) (2013). “Public Private Partnership (PPP) and the
Egyptian Experience.” PPP Central Unit, Ministry of Finance, Egypt. Available from: www.mcit.gov.eg/
Upcont/Documents/20134151031MoF-%2011%20Apr%202013.pdf

- IFC Advisory Services (2013). New Cairo Wastewater Treatment Plant Is Egypt’s First Public-Private
Partnership. Available from: www.ifc.org/wps/wcm/connect/48e1bd0040f6e56c952bff25d54dfab3/
StoriesOfImpact_EgyptNewCairoWastewater.pdf?MOD=AJPERES

- IFC and Orasqualia (2014). PPPs in the Water and Sanitation Sector: New Cairo Wastewater Project.
October 21, 2014, Geneva, Switzerland. Available from: https://www.unece.org/fileadmin/DAM/ceci/
documents/2014/water_and_sanitation_October/Egypt_New_Cairo_wastewater_project.pdf

- IMF (2009). Arab Republic of Egypt – IMF Staff Visit, Concluding Statement. Cairo, July 16, 2009.
Available from: www.imf.org/external/np/ms/2009/071609.htm

- IMF(2016). World Economic Outlook. April 2016. Available from: http://www.imf.org/external/pubs/ft/

weo/2016/01/

- Massoud, A.A., and Willett, T.D. (2014). “Egypt’s Exchange Rate Regime Policy after the Float.”
International Journal of Social Science Studies, 2(4). Available from: http://redfame.com/journal/
index.php/ijsss/article/view/445/386

- Orascom Construction (2016). “Corporate Presentation.” January. Available from: www.orascom.com/

media/cms_page_media/45/Corporate%20Presentation_January%202016_o6KsC22.pdf

- Orascom Construction (2016). “FY [Financial Year] 2015 Results Presentation.” April 24. Available from:
www.orascom.com/media/cms_page_media/47/FY%202015%20Results%20Presentation_0j7HkLH.pdf

- Public-Private Partnership Central Unit (no date). “Contracted Projects: New Cairo Wastewater
Treatment Plant Project.” Available from: www.pppcentralunit.mof.gov.eg/Content/Projects/Pages/
New%20Cairo%20Wastewater%20Treatment%20Plant.aspx?mode=1

- Pérez-Feito, R. International Operations Director at Aqualia. 2016. Interviews with Jordi Salvador.
Madrid. España.

- United Nations. 2016. Sustainable Development Goals. [Online]. [Accessed 4 November 2016].
Available from: http://www.un.org/sustainabledevelopment/

- UNDP (2015). Human Development Report 2015. Work for Human Development. Available from:
http://hdr.undp.org/sites/default/files/2015_human_development_report.pdf

- Water-technology.net (no date). “New Cairo Wastewater Treatment Plant, Egypt.” Available from:
www.water-technology.net/projects/new-cairo-wastewater/

- World Bank (2013). PPIAF Assistance in Egypt. Washington, D.C.: Public-Private Infrastructure Advisory
Facility (PPIAF). Available from: http://documents.worldbank.org/curated/en/411651468026410086/
pdf/783220BRI0Box000Assistance0in0Egypt.pdf

25 IESE Business School - New Cairo Wastewater Treatment Plant (Egypt)

Appendix A. Financial Information

Aqualia Financial Information

26 IESE Business School - New Cairo Wastewater Treatment Plant (Egypt)

Appendix A. Financial Information

Orascom Construction Financial Information

Source: Orascom Construction, FY 2015 Results Presentation.

Source: Orascom Construction, FY 2015 Results Presentation.

27 IESE Business School - New Cairo Wastewater Treatment Plant (Egypt)

Appendix B. Water Inflow and Outflow

As can be observed in the table below, the parameters of the inflow water have not been always within the limits
established in the PPP agreement:

• Minimum concentrations of suspended solids (SS), BOD5 and COD

• Maximum concentration of oils and grease, and hydrogen sulfide

Inflows

Outflows

28 IESE Business School - New Cairo Wastewater Treatment Plant (Egypt)

Appendix C. Timeline

2006
Egyptian government’s new economic reform agenda: emphasis on the promotion of PPPs across infrastructure
sectors
June: PPP Central Unit was set up in the Ministry of Finance

2008
January: Public-Private Infrastructure Advisory Facility assistance program report

2009
Announcement of the New Cairo Wastewater Treatment Plant contract
June 29: Contract started

2010
February 4: Financial closure
February: Construction began
May: PPP law (Law No. 67 of 2010, regulating Partnership with the Private Sector in Infrastructure Projects,
Services, and Public Utilities)
December: Orasqualia had completed nearly 40% of the New Cairo plant

2011
January 25: Protest started at Cairo’s Tahrir Square
February 11: President Hosni Moubarak ousted

2012
February: Construction deadline
May: Construction finished
June 30: Mohamed Morsi sworn in as president of Egypt following elections in May and June

2013
July 3: General Abdel Fattah el-Sisi becomes new Egyptian president
October: The plant started operations after a three-month commissioning period

2029
June 28: The contract is due to end

29 IESE Business School - New Cairo Wastewater Treatment Plant (Egypt)

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