Dispute over arbitration location causes stumbling block for PV projects in Egypt

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Everything appeared to be moving in the right direction for PV deployment in Egypt, until a curious dispute over the arbitration venue for proposed projects put a spanner in the works. While not fatal to the projects yet, Egypt’s apparent reluctance to accept an arbitration venue in a neutral location is deeming the projects non-bankable for the lenders, and brings into question Egypt’s commitment to the projects as they stand.

The original driving force behind the development of PV projects within Egypt was the country’s government setting a target of 2 GW of solar PV to be installed in the coming years, in an attempt to meet its 20% renewable energy goal by 2020. In September 2014, Egyptian officials piqued the interest of PV project developers by announcing a feed-in tariff (FiT) of $0.1434 per kWh. However, this generous FiT was questioned over the following few months, as other emerging markets such as Dubai and Jordan offered rates that were significantly lower.

The Egyptian Electricity Transmission Company (EETC) assured potential investors that the initial FiT was viable, and, at the Egypt Economic Forum in March 2015, went on to promise plots for the projects and the issuance of subsequent Project Agreements – including Power Purchase Agreements. Many internationally renowned companies were involved in the projects, including Scatec Solar, EDF, First Solar, Neoen, Gestamp Renewable Co, and Martifier Solar.

Amendments to the arbitration venue

As promised by Egyptian officials, draft Project Agreements were issued to the companies, of which various amendments were suggested, resulting in a number of modified drafts being passed back and forth between April 2015 and March 2016. One of the key issues brought up for discussion during the amendments was the location of the arbitration venue, as the majority of lenders and developers were international companies, so asserted that the seat of arbitration be in a neutral country, while the original agreements had allocated the Cairo International Arbitration Centre as the arbitration venue.

In the final draft of the Project Agreement that was circulated in March 2016, there was the option of transferring the seat of arbitration to Geneva; however, the wording was slightly ambiguous. But once the full agreement was distributed to the developers in May, the EETC had once again allocated the Cairo International Arbitration Centre as the arbitration venue and excluded the possibility of international arbitration.

The official justification for this is that the Special Purpose Vehicles (SPVs) created to develop the projects is subject to Egyptian law and EETC is Egyptian. Yet, there is no law prohibiting Egyptian companies from agreeing to arbitration seats in different countries, which is what the international lenders and developers believe to be fair. As it stands, the Lenders’ Group has deemed the agreements non-bankable, and will refuse to sign them.

It is a curious move by the EETC, who seems to have added an unnecessary hurdle to the Project Agreements, which need to be completed financially by October 2016. It is possible that the Egyptian authorities are delaying the projects, or even pushing them to cancellation, so that they can introduce new FiTs after October 2016, however this is not substantiated.

Senior Analyst for solar research group IHS, Josefin Berg, told pv magazine that it is unlikely that the majority of the projects will be cancelled, but they may face delays. “We don’t see that Egypt would have any interest in cancelling the projects,” said Berg. “The projects need to reach financial close by October this year, and the clock is ticking. We project that the majority of projects will be delayed rather than cancelled.”