Will Egypt ever go nuclear?

When asked about the deadline for the end of negotiations with Russian company Rosatom for the construction of Egypt's first nuclear power plant (NPP), Egypt's Energy Minister Mohamed Shaker replied: "I can't talk about it, there's a media gag order"!

On February 9, Egypt's top prosecutor issued a media gag on the "Dabaa case" thus banning reporting of any news about the construction of the NPP.

The gag order didn't explain what the Dabaa case is, but with the fact that only a few weeks before the order, the official news agency published another gag order, without mentioning its source, on anything related to the project, it became very clear that what the prosecution meant by the "case" is simply everything.

The lack of transparency following the gag order made a group of NGOs issue a joint statement announcing their concern about the absence of sufficient information about the project.

In their statement they cited the long ignored Egyptian constitution, which stipulates "the right to access information".

Describing the gag order as a step "that lacks any legal base", they also called upon the government to respect the "principles of transparency".

As usual, the government ignored calls for transparency and freedom of information.

All this comes amid growing and continuous speculation that the negotiations with the Russian side is on the verge of collapsing due to the difficult economic climate on both sides.

All this comes amid growing and continuous speculation that the negotiations with the Russian side is on the verge of collapsing due to the difficult economic climate on both sides

In late December 2015, Shaker told a news conference in Cairo that the final agreement with Russia’s Rosatom State Atomic Energy Corporation on the construction of NPP in Dabaa will be completed in mid-January 2016.

To date, nothing has been signed.

Flagging enthusiasm

The enthusiasm by which the Egyptian state started the negotiations a year ago is not reflected on the ground.

Egypt's President Abdel Fattah al-Sisi and Russian President Vladimir Putin signed a memorandum of understanding in February 2015 during the latter's visit to Egypt.

Both the signing of the MoD and the initial agreement that was signed after tough negotiations on November 19 of the same year, were highly saluted by both the government and the media as a break through that adds more sparkle to Sisi's image.

According to the initial agreement, the plant will be built in the Mediterranean coast area of Dabaa (about 130 kilometres south of Cairo), and will be one of the largest joint projects between Russia and Egypt since the High Dam.

The initial agreement defines that from the $30 billion total cost of the project, the Russian government would provide 85 percent ($25.5 billion) as loan, according to reports in the Russian media, and Egypt will have to provide the remaining 15 percent (4.5 billion).

Russia will also provide the loan in instalments from 2016 to 2018, while Egypt will have to repay over a 22-year period.

The first repayment is scheduled for 2029, at an annual interest rate of three percent.

The initial agreement that was signed after tough negotiations were highly saluted by both the government and the media as a break through that adds more sparkle to Sisi's image

A precarious economic situation

Since mid-2015, life was not a bed of roses for the two countries.

Both economies have gone from bad to worse, creating a tightened credit environment for Egypt.

Since the start of 2016, it has become apparent that Egypt is suffering its worst economic crisis since Sisi became president in June 2014.

The country’s foreign currency reserves are less than half of what they were before the January 2011 revolution, threatening Egypt’s ability to pay for food, fuel and debts owed to International Oil Companies; the currency crisis is escalating; the public finances are weak, with the central government budget posting a deficit of 11.8 percent of GDP in FY 2015, and the central government debt continues to increase.

All this means that the country's economy is, the least to say, "mired in intense uncertainty," as The Financial Times described it.

As a result of this crisis, Egypt's credit risk has grown by 36 percent since Sisi was elected, according to a Bloomberg report.

Since the start of 2016, it has become apparent that Egypt is suffering its worst economic crisis since Sisi became president in June 2014

For instance, last June, German industrial group Siemens signed an 8 billion-euro-deal with Egypt to supply gas and wind power plants.

The deal is financed by a consortium of German banks and underwritten by German credit insurance agency Euler Hermes.

In November, after tough negotiations with the Egyptian side, the German agency acquired 14 percent of the loan as an insurance charge.

"For Russia’s battered economy, 2016 already looks miserable," a Bloomberg report says.  

"The ruble has slumped to record lows as oil prices have fallen 11 percent since January, to around $30 a barrel. The government, which gets nearly half its revenue from oil and gas, is scrambling to plug a 1.5 trillion-ruble ($19.2 billion) hole in its budget,” the report adds.

Meanwhile, in September 2015, the portfolio of Rosatom’s foreign orders included contracts for the construction of 30 nuclear power units in 12 countries, with another 10 power units still being negotiated.

"The company’s portfolio of foreign orders for a 10-year period to end 2015 exceeded $110 billion, compared with US$101.4 billion at the end of 2011," according to the company's website.

Ninety percent of this portfolio will be financed by the Russian government, according to the Build-Own-Operate (BOO) approach.

This simply means that Rosatom will be stuck for at least 35 years with any country that signs a deal with it.

With difficult economic climate, Russia has soured fiscal balances is reconsidering the amount the Russian state allocates to its nuclear industry, raising doubts about whether Russia can meet its nuclear power plants export commitments to potential new customers.

Indeed, because of its financial exposure, and also its worries about the stability of the Egyptian regime, Russia is under more pressure to assess whether the deal with Egypt can actually be completed under previous conditions.

According to Egyptian diplomatic leaks, during loan negotiations, Russia demanded that the percentage of financing provided by the Egyptian side, must be 25 percent instead of 15 present, as was agreed at the beginning, especially in light of the size of the loan.

Russia, according to these sources also demanded an increase in the interest rate to more than three percent.

These new conditions are so difficult for the Egyptian government under the escalating economic crisis.  

Interestingly, in his speech to launch Egypt’s Sustainable Development Strategy: 2030 Vision last week, Sisi completely ignored the Dabaa project

Interestingly, in his speech to launch Egypt’s Sustainable Development Strategy: 2030 Vision last week, Sisi completely ignored the Dabaa project.

The president who, last week, gave his longest speech since he came to power, said that what was accomplished in 18 months under his rule exceeds all accomplishments in the past 20 years.

However neither the president nor the 2030 Vision document mentioned the Dabaa nuclear plant once.

This silence could not be construed as an indication that the future of the project is secure.

Rather, it is a reflection of the prevailing uncertainty surrounding the negotiations with the Russian side, or even failure.

Ibrahim AlSahary is an economist and former executive chief editor of Egypt Independent.

Opinions expressed in this article remain those of the author and do not necessarily represent those of The New Arab, its editorial board or staff.