Extension of the natural gas network: Connection of 1.5 million households in Egypt

Every year, Egypt consumes 4.4 MT of liquefied petroleum gas (LPG), the bulk of which is imported. LPG is destined for household consumption, but the supply for remote and poor areas is costly and not guaranteed. LPG subsidies weigh heavily on the State and the cost recovery rate is low. The Egyptian Government’s strategy is to phase out subsidies and secure access to energy for populations, in a country where there are still substantial natural gas reserves.

The Egypt Household Natural Gas Connection Project supports the priorities defined by the Egyptian Government to:

• reduce the weight of subsidies allocated for fossil fuels, while preserving the most vulnerable economic agents,
• improve the performance of the gas sector and (iii) improve access to clean and secure energy for populations.

The project fits in with this policy by replacing household LPG consumption with locally produced natural gas, which is cheaper, less polluting and less subsidized.

The project will contribute to financing infrastructure to connect 2.4 million households to the natural gas network in at least 11 governorates in Egypt, over a 4-year period. The complete mechanism will also comprise:

• Budget support for poor households for the payment of the cost of connection to the gas network.
• Technical assistance to EGAS for the institutional reform of the gas sector, including the creation of a regulator and the implementation of business management software.

The project contracting authority, EGAS, is responsible for planning, supervising and financing the project and is the owner of the assets being financed. The local distribution companies, which are delegated contracting authorities, are responsible for procurement and the implementation of works. The total project cost stands at EUR 1,710m. It is financed by loans for USD 500m from the World Bank, EUR 70m from AFD and a EUR 68m grant delegated to AFD by the European Union, which is mainly earmarked for the project’s institutional and social components.

The project contributes to the two objectives defined in the Country Intervention Framework by improving living conditions for populations and supporting sustainable growth in the productive sector. The expected impacts are:

• Access to energy for the population secured by the connection of 2.4 million households to natural gas.
• Reduction of the weight of subsidies on the State budget thanks to the lower level of subsidies for natural gas compared to LPG.
• Annual reduction of carbon emissions by some 500,000 tons thanks to the lower emission factor of natural gas.
• Reform of governance in the gas sector and creation of a regulator.