News Column

Mehleb charges 3 ministries, Central Bank with studying Suez Canal project funding: Finance Minister

August 17, 2014

Abdel Razek Al-Shuwekhi



Prime Minister Ibrahim Mehleb has commissioned three ministries along with the Central Bank of Egypt with establishing a working group to discuss mechanisms for financing the new Suez Canal project, said Finance Minister Hany Kadry.

The group includes the Finance Ministry, Investment Ministry, and Planning Ministry, and the Central Bank of Egypt (CBE) said Kadry. He added that "there is more than one way to finance the project, taking into account the security situation".

Investment Minister Ashraf Salman said in a press statement that excavation for the Suez Canal project will be financed through investment certificates issued by Egyptian banks.

The government intends to offer the certificates for a period of 5 years with 12% returns annually to be paid every three months.

"I do not expect the National Investment Bank to fund the plan in light of the government's choice to finance the project through investment certificates with a high 12% return rate," said former Investment Minister and current member of the Board of Directors of National Investment Bank Momtaz Al-Saeed.

Saeed said the bank was surprised by the government's decision to finance the project in this way. The bank had been considering a contribution to the funding if a company were established and listed on the stock market and non-Egyptians prohibited from the transactions.

Saeed does not expect the Suez Canal to suffer from competition with private projects in light of the high 12% returns rate.

The amount of funding required for the 72km Suez Canal project amounts to $4bn, while constructing 6 tunnels underneath the Canal will cost a further $4bn.

"Misr Iran Development Bank is considering helping to finance the project," said Ismail Hassan, head of the bank and former head of the Central Bank. He added that the decision to contribute to financing depends on a study of the conditions of certificates and the availability of bank liquidity.

Hassan said that funding through investment certificates forms a medium-term solution in light of positive indicators.

Regarding banks' and Egypt's ability to gather the necessary $8bn to carry out the project, Hassan said, "This depends on Central Bank studies regarding the availability of liquidity from Egyptians and banks.

"Investment certificates are the best way to fund the project," said Bassant Fahmy, bank financing adviser at Baraka Bank Egypt.

According to Fahmy, EGP 60bn is required to fund the first stage of the project and will be provided through contributions from banks and Egyptians.

Fahmy added that the state made financing available through deposits in dollars with 3% interest which incentivised Egyptians to contribute in return for the 1% given to banks.

"The state set the rate at 12% for the year and not every 3 months for a period of five years. This means that funding will go to the new Suez Canal project only," Fahmy said. He confirmed that this would allow trust to flourish between citizens and the state in the financing process for major projects.


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Source: Daily News Egypt


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