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Fossil fuel consumption subsidies bounced back strongly in 2018

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Authors: Wataru Matsumura and Zakia Adam*

Higher average oil prices in 2018 pushed up the value of global fossil fuel consumption subsidies back up toward levels last seen in 2014, underscoring the incomplete nature of the pricing reforms undertaken in recent years, according to new data from the IEA.

The new data for 2018 show a one-third increase in the estimated value of these subsidies, to more than $400 billion. The estimates for oil, gas and fossil-fuelled electricity have all increased significantly, reflecting the higher price for fuels (which, in the presence of an artificially low end-user price, increases the estimated value of the subsidy). The continued prevalence of these subsidies – more than double the estimated subsidies to renewables – greatly complicates the task of achieving an early peak in global emissions.

The 2018 data sees oil return as the most heavily subsidised energy carrier, expanding its share in the total to more than 40%. In 2016, electricity briefly became the sector with the largest subsidy bill.

Fossil fuel consumption subsidies are in place across a range of countries. These subsidies lower the price of fossil fuels, or of fossil-fuel based electricity, to end-consumers, often as a way of pursuing social policy objectives.

There can be good reasons for governments to make energy more affordable, particularly for the poorest and most vulnerable groups. But many subsidies are poorly targeted, disproportionally benefiting wealthier segments of the population that use much more of the subsidised fuel. Such untargeted subsidy policies encourage wasteful consumption, pushing up emissions and straining government budgets.

Recent years have seen multiple examples of pricing reforms, underpinned by lower oil prices that created a political opportunity among oil-importing countries and a fiscal necessity among exporters. Reforms typically focused on gasoline and diesel pricing, and in some cases also on LPG, natural gas and electricity tariffs. IEA price data (shown below for gasoline) show clearly the wide range of end-user prices across countries – the lowest prices found among countries that subsidise consumption.

The nature of pricing reforms undertaken in recent years differ depending on the sector and on national circumstances, but fall into three broad categories:

  • Complete price liberalisation, typically for the main transport fuels, as for example in India, Mexico, Thailand and Tunisia.
  • Introduction of a mechanism for regular, automatic adjustment of prices in line with international prices. China has such a system for oil prices, and similar mechanisms were also introduced in Indonesia, Malaysia, Jordan, Cote d’Ivoire and Oman.
  • A schedule of reforms to regulated prices, often with a view to aligning them with cost-recovery or market-based prices. This was the most common type of reform in the Middle East and North Africa, where prices for oil products, natural gas, water and/or electricity were raised in Saudi Arabia, Kuwait, Qatar, Bahrain and the United Arab Emirates. There were also increases in regulated electricity prices elsewhere, as for example in Indonesia.

These price reforms were often accompanied by the introduction of more targeted programmes of support for vulnerable groups. They also brought significant financial savings to the governments concerned, allowing these resources to be deployed to other development or policy priorities.

However, in 2018 the oil price trended higher for much of the year before falling back in the last quarter. This became a major source of strain in countries where consumers were newly exposed to rising retail prices, particularly where national currencies were losing value against the US dollar at the same time.

The rise in retail prices created broader pressure to revisit some of the pricing reforms.

  • Some countries with fully liberalised prices sought ways to dampen the effects on consumers, for example via reductions in other taxes and duties (as in India) or via implicit price interventions through state-owned oil and gas companies.
  • Upward fuel price adjustments were postponed in some countries that had committed to follow international price movements but retained some administrative discretion over the level and timing of any changes. This was the case in Indonesia, Malaysia and Jordan.
  • In fully regulated price environments, the reform schedule was in some cases pushed back or watered down.

Shielding consumers from short-term changes in international fossil fuel prices comes at a fiscal and environmental cost. It also diminishes the potential for higher prices to curb demand and bring the market into balance.

The different reform pathways since 2015 can be separated out into the various components of the change in subsidy values. Pricing reforms over the last three years brought substantial dividends, estimated at 36 billion dollars in total. This represents either a direct easing of the strain on public finances (via reduced public expenditures on subsidies) or additional revenue accruing to resource-rich countries (by reclaiming more of the value that was previously being foregone because of under-pricing).

Notable reductions in oil-related consumption subsidies over this period were observed in many countries in the Middle East, including Saudi Arabia, the UAE, Qatar and Bahrain, as well as in Colombia and Pakistan. Ukraine saw the largest fall in subsidies for natural gas. Subsidies to fossil fuel-based electricity consumption were substantially lower over this period in Russia, Argentina, Indonesia, Pakistan, Turkmenistan and in parts of the Middle East.

However, these falls were outweighed by two other factors: a widening gap between prevailing prices and market-based pricing in many countries (exacerbated in some cases by depreciation of the domestic currencies against the dollar); and increased consumption of subsidised energy.

The largest increases in consumption subsidies for oil products were in Indonesia, Iran, Egypt and Venezuela. In the latter case, a collapsing currency meant that gasoline and diesel sales (where available) were essentially free in dollar terms. Iran also saw the largest increase in natural gas subsidies, and – together with Venezuela, Mexico, Egypt and China – was among those seeing the most significant increase in subsidies to fossil fuel-based electricity.

Committing political capital to subsidy reform remains tough, especially if international prices are volatile. But phasing out fossil fuel consumption subsidies remains a pillar of sound energy policy. Especially when part of a broader suite of supportive policy measures, pricing reform is pivotal for a more robust, secure and sustainable energy sector over the long term.

Industries and households are more likely to opt for energy-efficient equipment, vehicles and appliances. Investors in a range of energy technologies, especially clean technologies, see a better case to commit their capital. That is why the IEA continues to be a strong supporter of efforts to phase out inefficient fossil fuel consumption subsidies.

*Zakia Adam, WEO Energy Analyst

IEA

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Energy

Covid-19 Impact on Africa’s Energy Sectors: Challenges and Opportunities

MD Staff

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African ministers representing around two-thirds of the continent’s energy consumption, 60% of GDP and nearly half of its population met with global energy leaders via videoconference on 30 June 2020. As Africa’s energy sector faces the dual impacts of the Covid-19 pandemic and global economic recession, participants agreed that sound government policies and enhanced investment are more important and necessary than ever to enhance the continent’s economic transformation; ensure sufficient, affordable, reliable energy for all citizens; and drive inclusive, just and sustainable, energy transitions.

2020 started as a year of optimism across Africa’s energy sector. But continued energy progress is now uncertain, as Africa – like the rest of the world – faces the wide-ranging impacts of the Covid-19 crisis. The International Monetary Fund expects sub-Saharan Africa to enter into recession for the first time in 25 years as a result of the coronavirus crisis, with growth falling to -3.2% in 2020 from 3.1% in 2019. Many African economies also have limited fiscal capacity and are heavily indebted, undermining their ability to absorb these economic shocks. The energy sector has not been spared.

Electricity – Participants welcomed the good progress made in many African countries in recent years, including accelerating growth in renewable energy and increasing access to electricity, but expressed concern that the Covid-19 pandemic and global economic shocks are testing the resilience of the energy sector in countries across Africa. The Covid-19 crisis has severely impacted progress on energy access and lockdown measures have put off-grid developments at risk and weakened the financial health of decentralized service providers. Confinement policies and the consequent drop in energy demand in some countries is increasing pressure on power systems, calling into further question the financial health of state-owned utilities that were already under financial stress.

Oil and Gas – Participants also noted that the disruption to global oil and gas markets has delivered a sudden and sharp drop in export revenue, increasing fiscal pressures on key producer economies across the continent. As a result, new investments may face delay or cancellation in the post Covid-19 global and energy sector financial environment. Continued uncertainty could create new risks, compounding security and sustainability challenges in the longer term. At the same time, lower oil prices could make access to clean fuels and modern cooking ones more affordable, as liquid petroleum gas prices (LPG) are 40% lower that 2019, but also considerably more volatile. Expansion of LPG services could create new jobs in manufacturing, transport, bottling, distribution as well as retail. Also, the importance of securing the African energy supply through modern and larger storage capacities over the continent was noted.

Sustainable, Inclusive Transitions – Participants also underscored the importance of supporting Africa’s energy transitions. This includes strengthening the enabling environment for investment, both in infrastructure and all relevant technologies, and continuing to prioritise attainment of the Sustainable Development Goals while ensuring just and inclusive outcomes. The importance of strengthening and developing local capacity and capabilities, especially through training, was also largely emphasized by many Ministers. Finally, participants welcomed the IEA sustainable recovery plan to help guide governments – including in Africa — through and beyond the crisis.   

Key conclusions – Participants stressed the following top recommendations going forward:

  • An efficient secure, affordable and sustainable power sector is vital to Africa’s economic recovery and transformation, and its ability to enhance resiliency to other challenges over time. 
  • Enhancing investments in new grids, (national and mini-grids) and in the off-grid sector as well as in generation facilities are essential to ensure a resilient and reliable power sector that can drive economic recovery.
  • Setting bold energy sector priorities and plans today can enable much-needed investments to stimulate broader economic growth tomorrow, including creating employment opportunities, supporting new skill development, unleashing the creativity of African entrepreneurs across the African continent and creating wealth.
  • Africa’s oil and gas exporters, who have been severely impacted by the crisis, can seize the opportunity to re-evaluate their strategies to generate the most value and jobs across their economies and to promote broader economic diversification.
  • To secure energy supplies and development in many Africa countries, increase oil storage capacities and product stocks; upgrade refineries to produce higher quality products that are less polluting; and build local capacity and skills through training.
  • Low oil prices, in particular liquid petroleum gas (LPG), could open the door to advance clean cooking access; LPG services could also create jobs.
  • Maintaining focus on universal access to electricity and modern cooking is essential, especially in Africa; African governments and other partners should continue to work together to ensure progress toward SDG7.
  • Enhanced regional and international cooperation can play an important role in helping to build robust, affordable, sustainable and resilient energy systems across the continent.

The outcomes of this ministerial roundtable will be shared with key global decision-makers, governments, international financial institution, business leaders including for the IEA Clean Energy Transitions Summit on 9 July 2020 and AUC-IEA Ministerial Forum in South Africa in November 2020. The outcomes will also help guide and inform the IEA’s increasing efforts in Africa, including helping to inform key decision-makers from governments, companies, investors and organizations. 

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From Russia with Gas: Dynamics of Nord Stream 2

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Nord Stream 2 is one of the latest gas pipeline projects of Russia, which seeks to export gas to Europe through the Baltic Sea. After the successful experience from Nord Stream, European companies agreed to build the second version with the Russian partner Gazprom in 2017. Since then, the pipeline has been in limelight because of US threat of sanctions as they fear Russian involvement will endanger European security. However, the European Union (EU) members who are participating in the pipeline project have differed from the American view and have already initiated the construction process. The dynamics of the Nord Stream 2 is very much relevant to the contemporary European geopolitical affairs, and hence a rational analysis is the need of the hour.

Energy concerns in Europe

The EU has called for its members to expand the diversity of their gas supply options and liberalize the energy market, so as to avoid monopoly and sole dependency on a single player, for example the US which has significantly increased their gas sales in Europe since the last decade. According to the ‘Quarterly Report on European Gas Markets’, the American share of gas exports has increased with 9% in the last quarter of 2019, while Norway dropped with 8%. It is widely anticipated that Norway will export less gas in the next 20 years, therefore EU members and especially Germany have been looking for other natural gas suppliers to the fulfill the 30% domestic shortage.

Pivot to Russia

The United States is one of the major gas exporters to Europe, but its expensive Liquefied Natural Gas (LNG) can fill only 7-8% of the total energy shortage. For that reason, European countries started diversifying their partners, and to their rescue came Russia which has some of the world’s largest oil and gas fields. Gazprom, one of the largest state-owned energy companies of Russia is now regarded as the largest natural gas exporter to the European Market. In 2018, Gazprom’s gas exports to Europe recorded the highest growth at 201.9 billion cubic meters.

According to the fact sheet on Nord Stream 2, from the perspective of the EU there are numerous benefits which can be achieved from the pipeline project. The project has already provided a lot of jobs to the European community and has also involved local shipping companies like the Blue Water Shipping, a Danish logistics company which has obtained a contract of 40 million euros to transport the pipes for the construction of the Nord Stream 2 pipeline.

American Sanctions and European reactions

The US administration had appealed to Germany to back out from all dealings with the major shareholder Gazprom, as they were seeking to impose sanctions on their activities. However, Germany rejected the idea of sanctions and even called out for a joint European defence against draconian American measures, and accused the Washington for interfering in the internal affairs of European countries, since the sanctions also threatened the European companies involved in the pipeline. Niels Annen, the German Minister of State at the Federal Foreign Office, had made some remarks relating to the U.S. sanctions: “If we want to maintain strong unity of purpose in dealing with Russia, extraterritorial and unintended consequences of US sanctions on European companies must be avoided”.

Nevertheless, Washington still argues that imposing sanctions is a justified measure toward “protecting Ukrainian interests”, since it is alleged that the Nord Stream 2 would replace the dependency on Ukrainian gas exports. However, the reality of sanctions is something different. First, the legislation made by the United States Congress Committee has not been proceeded yet, and while the pipeline is expected to be completed by the end of 2020, therefore it is the European companies which will face the wrath of the sanctions, without actually stopping the construction process of the pipeline.

Another major argument which the Washington has used to justify the sanctions is a peculiar concern that Moscow may take advantage of energy-dependent Germany, and can use gas exports as a “raw material blackmail”, by giving threats of limiting the exports if Berlin doesn’t agree with the political positions of the Kremlin. However, this is actually a win-win situation both for Russia and Germany, where Germany will be able to satisfy the growing domestic demands of energy and for Russia the income from the gas will help in soothing its fluctuating economy.

The Danish factor

To begin the construction phase of the Nord Stream 2 without any legal hurdles, a request to all Baltic and Nordic countries was sent in April 2017. At the outset, Denmark hesitated to allow because of some internal political concerns, however it later approved when another request was sent for an alternative route, but a more expensive one, which would be built south of the Bornholm Island. Finally in 2019, the Danish Energy Agency granted Nord Stream 2 a construction permit for the South-Eastern Route, which would stretch 147 kilometres in the Danish Exclusive Economic Zone (EEZ).

According to Hans Mouritzen, Senior Researcher at Danish Institute for International Studies (DIIS), it was highly recommended to approve of the pipeline going through Danish waters, south of the island, Bornholm. A pipeline drawn north of Bornholm would delay the project with 3 to 4 months and the extra expenses would be around $114 million, a bill that would be for European consumers to pay, had Denmark not agreed to the request.

Future Possibilities

The future scenario of Nord Stream 2 can go one in two ways from a European point of view. First, by being a part of NATO, European countries will be compelled to act in accordance with the multilateral agreements and thereby granting the US their global sovereignty, where they will be able to control and manipulate the economic cooperation between Europe and Russia, and Washington will not miss any opportunity to jeopardize the operations of Nord Stream 2. With the possibility of increased cooperation towards the US and decreased cooperation with Russia, the European countries will have more to lose in the long run.

In the second scenario, Europe cooperating more closely with Russia will bring additional trade opportunities in numerous areas, where Nord Stream 2 is just the beginning. Bringing economic stability to Russia will benefit in thwarting unilateral hegemonic interests of a single country in the world order. Pending that the US keeps Ukraine as a hostage of justice by sanctioning Russia, it vehemently prevents Europe and Russia to develop closer ties. While it is difficult to even imagine the US withdrawing sanctions from Russia, nevertheless it is possible to imagine that European countries will not abide by the external pressures. A better trading balance between Russia and the US in contemporary times will heal the historical wounds of Europe.

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Energy

An Insight into Egypt-Russian Cooperation on Nuclear Power

Kester Kenn Klomegah

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Last October 2019, during the first Russia-Africa Summit, Russian President Vladimir Putin and Egyptian President Abdel Fattah al-Sisi reaffirmed commitment to scale-up cooperation in various economic sectors and particularly expedite work on the special industrial zone and the construction of proposed four nuclear power plants, raising hopes for an increased power supply in Egypt.

Seated in a sizeable conference hall on October 23, Putin told the Egyptian delegation: “As for our bilateral relations, we continue to implement ambitious projects that have been coordinated by us, including a nuclear power plant and an industrial zone in Egypt. We are working very actively in these areas, and we are planning to invest $190 million in infrastructure development projects and to attract up to $7 billion.”

In his response, Abdel Fattah el-Sisi warmly expressed gratitude for holding the first Russia-Africa Summit, added that relations have had a long history in many fields and spheres, starting with Russia’s support to the liberation movement, its contributions helped many African countries to attain practical results based on mutually beneficial cooperation in Africa.

“I would like to point out that we view Russia as a reliable partner of the African continent. We hope very much that Russia will be working in Africa in all spheres and fields, including in that of the development, as well as in the financing of infrastructure projects on the continent and in particular in energy and road construction,” the Egyptian leader told Putin.

Egypt attaches great importance in its relations with Russia. But what is particularly important for their bilateral relations, Abdel el-Sisi assertively reminded: “I would like to assure you of our high appreciation of our bilateral relations, which are developing in various formats, especially after we signed a comprehensive cooperation agreement. We sincerely hope that our relations will continue to develop in all fields and spheres.”

“As for the nuclear power plant, we set a high value on our bilateral cooperation. We strongly hope that all topics related to this project will be settled without delay so that we can start implementing the project in accordance with the signed contract. Mr President, we hope that the Russian side will provide support to nuclear energy facilities in Egypt so that we can work and act in accordance with the approved schedule,” he added, in conclusion.

Related Russian ministries, departments and agencies are, usually, tasked to coordinate and implement bilateral agreements. In the case of nuclear power, State Atomic Energy Corporation is the main player. According to the description made available on its website, State Atomiс Energy Corporation, popular referred to as Rosatom, is a global leader in nuclear technologies and nuclear energy. It is established 2007 [a non-profit entity type] and headquartered in Moscow.

In fact, Rosatom has shown business interest in Africa. Over the past two decades, at least, it has signed agreements that promised construction of nuclear energy plants and training of specialists for these countries. The Director General, Alexey Likhachev, emphasized these points at the Russia-Africa Summit that Rosatom has already been cooperating with more than 20 African countries, in particular, building the largest “El-Dabaa” NPP in Egypt with an installed capacity of 4.8 GW.

While still there in Sochi, Alexey Likhachev noted that more reliable, affordable and stable energy is the basic condition for achieving sustainable development goals. “We can make a qualitative breakthrough in Africa in terms of technological development and the use of nuclear technology in the next few years,” he said during one of the plenary sessions.

According to Reuters, the Egyptian Electricity and Renewable Energy Minister Mohamed Shaker said earlier at the International Atomic Energy Agency’s ministerial conference that Russia had asked for $12 billion for the nuclear plants, a reliable solution for energy deficit. In this regard, the development of nuclear energy is important for Egypt.

“We made significant strides in the preparation of all strategic agreements [regarding the construction of a NPP in Egypt] with our strategic partner, Russia. We have also completed all technical, financial and legal aspects,” he said.

Shaker said that Egypt decided to build an NPP due to the need to redress the energy balance to reduce emissions of greenhouse gases and to save hydrocarbons which the country has earmarked for petrochemicals. “We have few traditional sources of electricity generation. The potential of hydro energy is gradually waning. Following the adoption of a special plan to cut greenhouse gas emissions we stopped using coal plants, however, energy consumption will grow,” according to the Minister.

It raises many questions about practical implementation of the several [paperwork] nuclear agreements that were signed with African countries. According to historical documents from the Ministry of Foreign Affairs and information from published media reports, specifically about Egypt, the proposed Russian nuclear plants has a long history, at dating back to Soviet days.

Nuclear deals with Russia

Egypt has been considering the use of nuclear energy for decades. The Nuclear Power Plants Authority [NPPA] was established in 1976, and in 1983 the El Dabaa site on the Mediterranean coast was selected.

Egypt’s nuclear plans, however, were shelved after the Chernobyl accident. However, in 2006, Egypt announced it would revive its civilian nuclear power program, and build a 1,000 MW nuclear power station at El Dabaa. Its estimated cost, at the time, was $12.5 billion, and the plans were to do the construction with the help of foreign investors. In March 2008, Egypt signed an agreement with Russia on the peaceful uses of nuclear energy.

Early February 2015, President Putin and President Abdel Fattah el-Sisi signed an agreement to set up a nuclear plant in Dabaa, on the Mediterranean coast west of the port city of Alexandria, where a research reactor has stood for years. The deal was signed after a comprehensive bilateral discussion held and both expressed high hopes that Russia would help construct the country’s first nuclear facility.

Interfax news agency reported that Sergei Kiriyenko, the Head of the Rosatom state corporation, had presented to the authorities in Egypt, Russia’s proposals on construction of the first nuclear power plant in that country. The proposal is for construction of four power blocks, each with 1,200 megawatts of capacity.

Rosatom and Egypt’s Electricity and Energy Ministry signed the agreement on development of the nuclear plant construction project in February 2015. The project assumes that Russia will provide an intergovernmental loan to Egypt. Commercial contracts would be concluded once the intergovernmental agreements on construction of the facility and on the loan were signed.

In assertive remarks carried by local Russian news agencies, Kiriyenko said at that time that the technical and commercial details of the project were not finalized, but envisaged the new technology with strong safety measures taken into account. That included the lessons learned during the March 2011 Fukushima disaster in Japan, as well as a loan requested by the Egyptian government for the project construction.

Russia and Egypt Courtship

Interestingly, Egypt’s dreams of building nuclear plant has spanned several years, with agreement that was signed [as far back in March 2008] during an official visit to the Kremlin by the ousted Egyptian President Hosni Mubarak, and then through another former Egyptian leader Mohammed Morsi who discussed the same nuclear project with Putin in April 2013 in Sochi, southern Russia.

Mohammed Morsi had sought $4.8 billion loan from International Monetary Fund [IMF], and had also asked for an unspecified amount of loan from Russia to build the nuclear power plant. He hoped Russia would accelerate and expedite efforts, and provide financial backing for the project during his political administration. 

The same year, following the revolutionary events and after a wave of mass anti-government actions, the army ousted the Moslem Brotherhood and their leader Mohammed Morsi, resulting in postponing or suspending the nuclear construction agreement. Since July 2013, Abdel Fattah el-Sisi has been in power after removing Morsi from office.

It is well-known fact that Egypt had long ties with the former Soviet Union. Those bilateral diplomatic ties resulted in several development projects in late 1950s including the building of the Aswan dam. During the Soviet times, many specialists were trained for Egypt. Hosni Mubarak, a former pilot, received training in what is now Kyrgyzstan, and further studied at the Soviet Military Academy in Moscow in the 1960s.

Egypt, first, began its nuclear program in 1954 and in 1961, acquired a 2-megawatt research reactor, built by the Soviet Union. Plans to expand the site have been decades in the making but repeatedly fell through. In 2010, that reactor suffered a breakdown, though no radiation was reported to have leaked out.

Renewable Energy Sources

Egypt is classified as having a high power system size [24,700 MW installed generation capacity in 2010 with more than 40 grid-connected plants]. As of 2010, 99% of the Egyptian population has access to electricity.

Since the early 2000s, power outage rates and durations, as well as distribution system losses, have trended downwards indicating that distribution companies have improved their overall customer service quality over the past decade; however, Egypt has seen a great weakening in its supply security. The power system’s generation reserve capacity declined from 20% in the early 2000s to 10% by the 2010s.

The weakening of Egypt’s supply security has caused widespread social issues in the 2010s. To deal with the extremely high demand for electricity, rolling blackouts and power cuts were implemented throughout the summer of 2012 causing great tension between the government and the people of Egypt.

Egypt has Renewable energy projects. The current energy strategy in Egypt [adopted by the Supreme Council of Energy in February 2008] is to increase renewable energy generation up to 20% of the total mix by 2020. The energy mix includes the use of hydropower, solar wind and nuclear.

Hydropower – The majority of Egypt’s electricity supply generated from thermal and hydropower stations. There are four main hydroelectric generating stations currently operating in Egypt. Experts have questioned why Egypt could not maximize the use of the river Nile that stretches 6.695 kilometers, especially for agricultural, industrial and generating energy for the region.

Solar – Egypt has a high solar availability as a result of hot desert climate.

Wind – Egypt has a high potential for wind energy, especially in the Red Sea coast area. As of 2006, 230 MW of wind energy was installed, and again 430 MW of wind power was installed in 2009.

In March 2015, British Petroleum [BP] signed a $12 billion deal to develop natural gas in Egypt intended for sale in the domestic market starting in 2017. Egypt is an important non-OPEC energy producer. It has the sixth largest proved oil reserves in Africa. Over half of these reserves are offshore reserves. Although Egypt is not a member of OPEC, it is a member of the Organization of Arab Petroleum Exporting Countries.

Swinging for Nuclear Power

Nuclear experts have also shown some concern. Lack of electricity supply is a huge restraint on African economies and specifically for Egypt, nuclear power could be an excellent source of large-scale grid electricity. Nuclear is not expensive compared with other energy sources. But for African countries to develop nuclear power, the governments must first establish the necessary legal and regulatory framework.

The project must comply with all international standards and regulation on nuclear power. Africa has a shortage of skills for nuclear power. However, Africa has a shortage of skill for any energy technology, so developing nuclear power would necessarily mean increasing African skills, which is in itself a good thing.

Despite the long technical negotiation process, the current Egyptian leadership, indeed, shows high optimism toward adoption of nuclear power as an important and indispensable source of energy that will underpin sustainable growth of the economy in the country. The four blocks of the nuclear power plant will cost about $20 billion, according a website report of the Egyptian Ministry of Electricity and Renewable Energy.

Apparently, experts expect that such mega-projects would have thorough discussion in parliament, financing sources broadly identified and approved by the government. Egypt has yet to make an official announcement of the tender for the contract to build its nuclear plants. Media reports have also revealed that nuclear companies from China, the United States, France, South Korea and Japan seek to take part in international tender.

Egypt’s Economic Potentials

With over 100 million inhabitants, Egypt is the most populous country in North Africa, popular referred to as Maghreb region and part of the Arab World. Egypt is the third most populous country after Nigeria and Ethiopia in Africa. About half of Egypt’s residents live in urban areas, with most spread across the densely populated centers of greater Cairo, Alexandria and other major cities along the Nile Delta.

The economy has been transforming from one based upon agriculture to an economy with more emphasis on services sector, for example its fast-growing tourism and hospitality, and to some extent manufacturing. It has experienced a fall in Foreign Direct Investment [FDI] to the country.

Egypt’s economy mainly relies on sources of income: tourism, remittances from Egyptians working abroad and revenues from the Suez Canal. Egypt has received United States foreign aid [an average of $2.2 billion per year], and is the third-largest recipient of such funds from the United States.

Remittances, money earned by Egyptians [estimated 2.7 million] living abroad and sent home, reached a record $21 billion in 2012, according to the World Bank.  Tourism is one of the most important sectors in Egypt’s economy. More than 15.8 million tourists [2018] visited Egypt, providing revenues of nearly $11 billion. The tourism sector employs about 12% of Egypt’s workforce.

With one of the largest and most diversified economies in the Middle East, which is projected to become one of the largest in the world in the 21st century, Egypt has the third largest economy in Africa. Egypt is a founding member of the United Nations, the Non-Aligned Movement, the Arab League, the Organization of Islamic Cooperation and the African Union.

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