egypt - African Development Bank

ADB/BD/WP/2015/37
3 April 2015
AFRICAN DEVELOPMENT BANK
Prepared by: OITC
Original: English
Probable Date of Board Presentation
FOR CONSIDERATION
15 April 2015
MEMORANDUM
TO
:
THE BOARD OF DIRECTORS
FROM
:
Cecilia AKINTOMIDE
Secretary General
SUBJECT
:
EGYPT– SHARM EL-SHEIKH AIRPORT DEVELOPMENT PROJECT *
ADB LOAN OF USD 140 MILLION
TSF- MIC GRANT OF UA 1.2 MILLION
Please find attached the Appraisal Report relating to the above-mentioned
project.
The Technical Annexes will be distributed separately.
The Outcome of Negotiations and the draft Resolutions will be submitted to you
as addendum.
Attach:
Cc
:
The President
* Questions on this document should be referred to:
Mr. J. KOSLTER
Mr. A. OUMAROU
Mr. A. BABALOLA
Mr. A. OSMAN
SCCD : K.M
Regional Director
Sector Director
Manager
Team Leader
ORNA
OITC
OITC.2
OITC.2
Extension 2065
Extension 3075
Extension 2525
Extension 2625
AFRICAN DEVELOPMENT BANK
PROJECT:
SHARM EL-SHEIKH AIRPORT DEVELOPMENT PROJECT
COUNTRY:
EGYPT
PROJECT APPRAISAL REPORT
April 2015
Appraisal Team
Team Leader:
Mr. A. Osman Ali, Chief Transport Engineer, OITC.2
Team Members:
Mr. A. Algindy, Procurement Officer, EGFO/ ORPF.1
Ms. K. P. Ntoampe, Principal Environment Specialist, ONEC.3
Mr. A. Hilal, Economist, Consultant
M. S. Ennaifer, Chief Financial Management Specialist, ORNA
Ms. M. N. Tutt, Senior Transport Engineer, OITC.2
Mr. J. Nyirubutama, Chief Transport Economist, OITC.2
Mr. N. Kulemeka, Chief Socio-Economist, ONEC.3
Sector Director:
Mr. A. Oumarou, Director, OITC
Regional Director: Mr. J. Kolster, Director, ORNA
Sector Manager:
Mr. A. Babalola, Manager, OITC.2
Peer Reviewers
Mr. A. Karanga, Chief Transport Economist, OITC.1
Mr. T. Harada, Principal Transport Engineer, OITC.2
Mr. U. Duru, Principal Safeguards and Compliance Officer, ORQR.3
Mr. B. Aleobua, Principal Sanitation Engineer, OWAS.2
AFRICAN DEVELOPMENT BANK
EGYPT
SHARM EL-SHEIKH AIRPORT DEVELOPMENT PROJECT
APPRAISAL REPORT
OITC DEPARTMENT
April 2015
TABLE OF CONTENTS
Acronyms and Abbreviations
Loan Information
Project Summary
Results-Based Logical Framework
Project Implementation Schedule
1 – STRATEGIC THRUST & RATIONALE
1.1. PROJECT LINKAGES WITH COUNTRY STRATEGY & OBJECTIVES
1.2. RATIONALE FOR BANK’S INVOLVEMENT
1.3. DONOR COORDINATION
2 – PROJECT DESCRIPTION
2.1. PROJECT COMPONENTS
2.2. TECHNICAL SOLUTION RETAINED AND ALTERNATIVES
2.3. PROJECT TYPE
2.4. PROJECT COST AND FINANCING ARRANGEMENTS
2.5. PROJECT’S TARGET AREA AND POPULATION
2.6. PARTICIPATORY PROCESS
2.7. BANK GROUP EXPERIENCE, & LESSONS LEARNT
2.8. KEY PERFORMANCE INDICATORS
3 – PROJECT FEASIBILITY
3.1. ECONOMIC AND FINANCIAL PERFORMANCE
3.2. ENVIRONMENTAL AND SOCIAL IMPACTS
4 – IMPLEMENTATION
ii
iii
iv
v
vii
1
1
2
2
3
3
3
5
5
6
7
7
7
8
8
9
11
4.1. IMPLEMENTATION ARRANGEMENTS
4.2. MONITORING
4.3. GOVERNANCE
4.4. SUSTAINABILITY
4.5. RISK MANAGEMENT
4.6. KNOWLEDGE BUILDING
11
13
14
14
15
15
5 – LEGAL INSTRUMENTS AND AUTHORITY
15
5.1. LEGAL INSTRUMENT
5.2. CONDITIONS ASSOCIATED WITH BANK’S INTERVENTION
5.3. COMPLIANCE WITH BANK POLICIES
6 – RECOMMENDATION
Appendix I: Egypt’s Socio-Economic Indicators
Appendix II: ADB’s Portfolio in Egypt
Appendix III: Related Projects Financed By Donors
Appendix IV: Map of Project Area
Appendix V: Project Procurement Plan
15
15
16
16
Currency Equivalents
As of March 2015
UA
UA
USD
1.00
1.00
1.00
=
=
=
1.41 USD
10.72 EGP
7.62 EGP
Fiscal Year
July 1st – June 30th
Weights and Measures
1 metric tonne
=
2204 pounds (lbs)
1 metre (m)
=
3.28 feet (ft)
1 millimetre (mm)
=
0.03937 inch (“)
1 kilometre (km)
=
0.62 mile
i
Acronyms and Abbreviations
AfDB/ ADB
AFESD
CAO
CSP
DPG
EAC
ECAA
African Development Bank
Arab Fund for Economic and Social Development
Central Audition Organisation (Egypt)
Country Strategy Paper
Development Partners Group
Egyptian Airports Company
Egyptian Civil Aviation Authority
EHCAAN
EIB
EIRR
ESIA
ESMP
FDI
FIRR
GOE
ICB
IATA
ICAO
ICAA
JICA
MoCA
MoIC
mpax
NANSC
NDP
PIT
PPP
UA
USD
Egyptian Holding Company for Airports & Air Navigation
European Investment Bank
Economic Internal Rate of Return
Environmental and Social Impact Assessment
Environmental and Social Management Plan
Foreign Direct Investment
Financial Internal Rate of Return
Government of Egypt
International Competitive Bidding
International Air Transport Association
International Civil Aviation Organization
International Civil Aviation Authority
Japan International Cooperation Agency
Ministry of Civil Aviation
Ministry of International Cooperation
Million Passengers per Annum
National Air Navigation Services Company
National Development Plan
Project Implementation Team
Public-Private Partnership
Unit of Account
United States Dollar
ii
LOAN INFORMATION
Client’s information
BORROWER/ RECIPIENT: The Arab Republic of Egypt
EXECUTING AGENCY:
Egyptian Airports Company (EAC)
Financing Plan
Sources of financing
ADB
MIC Grant
IsDB
Government of Egypt (GOE)*
Total cost*
Amount (USD)
140.00 million
1.90 million
457.56 million
71.87 million
671.33 million
Instrument
Loan
Grant
Loan
Self-financing
* Excluding taxes.
ADB’s key financing information
Loan currency
Interest type
Base Rate (floating)
Contractual spread
Funding margin
Fees
Tenor
Grace period
FIRR, NPV (base case)
EIRR, NPV (base case)
US Dollar (USD)
Floating base rate with option to fix
6-month LIBOR
60 base points (bps)
Bank lending margin in relation to the 6month LIBOR. This margin is revised
every year on 1 January and 1 July.
None
20 Years
5 Years
17.7%, USD 542 million at 8.2%
25.82%, USD 785 million at 12%
Timeframe - Main Milestones
Concept Note approval
Project approval
Effectiveness
Completion Date
Closing Date
Last repayment
February 2015
April, 2015
June, 2015
June 2019
December 2019
December 2035
iii
Project Summary
Project overview
1. Sharm El-Sheikh Airport Development project consists of the development of a new terminal
building, a new runway, a new control tower and associated airfield, ancillary and electrical works,
within the current boundaries of Sharm El-Sheikh Airport in Egypt. The project will increase capacity
of the airport by an additional 10 million passengers per year (mpax) and 34 operations/hour, giving a
total capacity of 18 mpax and 68 operations/hour. The project will be implemented over 44 months,
and is estimated to cost around USD 671.3 million (excluding tax).
2. The direct beneficiaries of the project are the Egyptian economy, the Egyptian Airports Company
(EAC), the private sector in the tourism, aviation and services industries, travellers using the airport,
airline operators, Egypt’s labor force, and the Egyptian economy at large.
3. The project will remove a potential bottleneck in the movement of travellers, including tourists
into and out of Sharm El-Sheikh city, which yields large foreign currency revenues for the country. It
will therefore support economic growth by facilitating increase in tourist numbers, and will generate
additional direct and indirect job opportunities in the tourism sector, and the aviation sector. It will
also help increase the competitiveness of Egypt overall and provide large investment opportunities for
the private sector who will benefit from increased passenger flows and increased tourism activities.
The project will also pave the way for wider economic development of the Sharm El-Sheikh as well
as the surrounding areas and regions.
Needs assessment
4. Sharm El-Sheikh airport has been Egypt’s fastest growing airport, and is Africa’s third busiest, with
an average of 10% annual growth rate in traffic over the past 10 years (excluding year of revolution).
The total number of passengers using the airport has reached 8.2 million in 2010, which is above the
design capacity of the airport. These levels were much higher than the original forecasts, which
predicted that operation levels in the current airport facilities will utilise the full capacity of the airport
in 2015. Revised traffic growth forecasts and studies show that, even with the impact of the revolution
in early 2011, passenger traffic in Sharm El-Sheikh airport would reach 18.0 mpax by 2029.
Bank’s Added Value
5. The Bank’s involvement will assist the country in securing the required resources for the
development of its nationwide program for development of air transport capacities. The Bank added
value is in leveraging on its niche area and experience in delivering large infrastructure projects to
support the effective and smooth implementation of the project. It is also to be noted that this
operation will represent the first publicly-financed transport sector operation for the Bank in Egypt.
Once actively engaged in the sector, the Bank will be able to leverage on its position to engage more
in areas such as institutional capacity building, knowledge transfer and south-south cooperation in this
important sector.
Knowledge Management
7. The project includes a MIC Grant for establishing a regional Airports Centre of Excellence that
will capture all the knowledge and know-how delivered through this project and other ongoing airport
projects, in addition to providing airport planning and management skills.
iv
Results Based Logical Framework
Country and project name: EGYPT- Sharm El-Sheikh Airport Development Project
Purpose of the project : Develop a new terminal, runway and control tower at Sharm El-Sheikh International Airport
PERFORMANCE INDICATORS
RESULTS CHAIN
Indicator
(including CSI)
Baseline
Target
MEANS OF
VERIFICATION
RISKS/MITIGATION
MEASURES
Impact 1
Contributing to economic
growth by supporting the
services sector, including the
tourism industry
Share of tourism industry in
foreign currency receipts of
Egypt
13% in 2010
Impact 2
IMPACT
Employment generation, as a
result of increased tourism
activities
-Number
of
persons
employed in tourism and in
construction industries
-2.4 million in tourism.
-Number
of
annual
-3.25 million visitors to
passengers arriving at Sharm
Sharm El-Sheikh in 2014
El-Sheikh
(6.5 mpax)
Estimated figure of 20% by
2029. Figure will be revised
Government reports, including
following the issuing of the
Central Bank statistics
Country’s
7th
National
Development Plan (NDP)
-Additional 240,000 direct
and indirect jobs in tourism
and aviation by 2029 (direct:
700 permanently employed
in the new terminal, and 1500
employed in construction
during implementation). It is
estimated that 20-30% of
these will be held by women.
(Women employment at Sharm Central
Statistics
El-Sheikh airport and at the (tourism),
Reports
EAC’s other airports will be
enhanced by Sensitisation and
Project data by Egyptian
Training
on
Gender
Mainstreaming, provided by the Airports Company (EAC)
Airport Centre of Excellence –
indicators TBD during study)
-Nine (9) million visitors to
Sharm El-Sheikh by 2029 (18
mpax), and five (5) million
(10 mpax) by 2019 .
v
- Economic risk: Instability and
Government not implementing other
measures/ projects necessary for the
development of the tourism sector.
Likelihood: Low, considering the
impact of the industry on economy
and employment.
- Risk: Supporting infrastructure and
utilities supplies not available at the
time
of project
completion.
Mitigation: Proper coordination
adopted at early stages of project
design, between Executing Agency
and concerned utilities companies.
- Risk: Low passenger traffic. This
risk is assumed to be relatively low,
taking into consideration the recent
forecast studies. Sensitivity analysis
concludes that the project is viable
even with a 20% reduction in
passenger traffic.
OUTCOMES
OUTPUTS
Outcome
Increasing Egypt’s airport
capacities and removal of
infrastructure bottlenecks in
Sharm El-Sheikh
Operational capacity of air
transport facilities in Sharm
El-Sheikh*
New Terminal building, a new
runway , and a new control
tower
and
supporting
infrastructure at the Sharm ElSheikh International Airport,
with a capacity of 10 mpax, and
34 operations/ hour,
Terminal building, runway
airfield,
control
tower,
associated facilities and
supporting
infrastructure
constructed
to
design
standards
Strategy and action plan for the
development of the Airports
Centre of Excellence, and
recommendations for EAC
institutional progression.
Actual reports for the Action
Plan for centre development
&
recommendations
on
institutional
development.
***
Capacity of 8.0 mpax
Capacity of 34
operations/ hour
Capacity of 18.0 mpax, by
2016
Capacity of 68 operations/
hour
- 2 Terminal buildings
handling up to 8.0
mpax at actual level of
service equivalent to
IATA level C/D**,
and
- 3rd Terminal building
capable of handling a
minimum of 10 mpax at
IATA level B service,
constructed and operational
by 2016 and
- 1 runway with a
supporting services
runway ****
- third runway (3600m), to
ICAO’s code 4E constructed
and operational by 2016.
KEY ACTIVITIES
2.
3.
4.
5.
6.
7.
- Bank supervision reports
- Risk: Cost Overrun. The likelihood
of cost overrun occurring is
considered
moderate.
EAC’s
financial position can support such
overrun. Also, the sensitivity
analysis shows that with a 20%
increase in cost the project remains
viable.
- Project Completion Report
- Handing over certificates
-New control tower with all
associated facilities
COMPONENTS
1.
- EAC reports in conjunction
with IATA and ICAO
standards
INPUTS
Construction of new terminal building of 5 levels and 125,181 m² built-up area, with all associated equipment,
installations and all surrounding aprons and buildings
Construction of airfield works, including new (third) runway to ICAO’s code 4E, taxiways, and aprons
Construction of a control tower, administrative buildings and electrical installations and visual aids
Installation of air navigation systems.
Development of supporting infrastructure, including fire stations, fire-fighting vehicles, depots and others
Project Management and Supervision (including financial audit)
Establishment of Airports Centre of Excellence
(USD million)
Terminal building ………………………………..…397.88
Airfield Works ……………………………………..110.91
Control tower and facilities …………...……………28.26
Navigation systems ………………………..…….....14.78
Supporting infrastructure …………………..……..…7.37
Project Management & Supervision………...…...... 22.61
Airports Centre of Excellence ………………....……2.25
Contingencies ……………………….……...…… 87.27
Total
671.33
AfDB financing: USD 140 million Loan + USD 1.9 million Grant
IsDB financing: USD 457.56 million
GOE financing: USD 172.24 million (include tax payments)
* Other indicators related to increased airport revenues, and aeronautical benefits (such as time saving), were not considered as these are not prime objectives of the project.
** IATA levels of service, define specific parameters for airport operations. These include waiting and circulation areas per passenger, lengths of checking in queues, inspection
Room areas and level of comfort. Level A offers the maximum dimensions, and least delays, while level D offers the minimum with longer delays.
*** Indicators for the Centre and its success will be determined as part of the planned study
**** Parallel runways that cannot handle simultaneous operations due to short spacing (400 m).
vi
Project Implementation Schedule
ID
Task Name
Start
2014
Finish
Qtr 4
1
.
Fri 19/08/11
Fri 19/08/11
2
AfDB internal processing and approval
Mon 01/12/14
Wed 15/04/15
3
Loan Entry into Force
Fri 15/05/15
Thu 13/08/15
Procurment of contractors
Sun 01/11/15
Mon 30/11/15
Terminal Building
Wed 04/11/15
Sat 01/06/19
2015
Qtr 1
Qtr 2
Qtr 3
Qtr 4
2016
Qtr 1
4
5
6
7
8
9
Airfield
Tue 01/12/15
Thu 30/05/19
10
Mobilisation
Tue 01/12/15
Thu 31/12/15
11
Urbanisation and access works
Mon 04/01/16
Wed 04/05/16
12
Installation of electrical systems
Thu 05/05/16
Wed 28/06/17
13
Construction of tunnel
Thu 05/05/16
Wed 11/01/17
14
Construction of stand aprons and taxiways
Thu 05/05/16
Wed 19/04/17
15
Construction of new tolls and security stations
Thu 20/04/17
Wed 15/11/17
16
Construction of airside control points & fencing
Fri 01/01/16
Thu 20/04/17
17
Construction of new parking areas
Thu 20/04/17
Wed 15/11/17
18
Construction of new sewage treatment plant
Fri 17/11/17
Thu 01/11/18
19
Construction of runway
Thu 20/04/17
Wed 13/06/18
21
Construction of control tower complex
Fri 19/08/11
Fri 19/08/11
22
Mobilisation
Tue 01/12/15
Thu 31/12/15
23
Structural works
Mon 04/01/16
Mon 04/07/16
24
Architecural works
Tue 05/07/16
Mon 28/08/17
25
Development of structural facilities
Mon 09/05/16
Fri 12/01/18
26
Installation of systems and electronics
Mon 06/02/17
Fri 19/01/18
27
Testing period
Mon 22/01/18
Fri 17/08/18
Supporting Infrastructure and services
Mon 04/05/15
Fri 17/08/18
Testing and comissioning
Mon 03/06/19
Fri 12/07/19
20
28
29
30
31
vii
Qtr 2
Qtr 3
Qtr 4
2017
Qtr 1
Qtr 2
Qtr 3
Qtr 4
2018
Qtr 1
Qtr 2
Qtr 3
Qtr 4
2019
Qtr 1
Qtr 2
Qtr 3
Qtr 4
2020
Qtr 1
Qtr 2
REPORT AND RECOMMENDATION OF ADB GROUP MANAGEMENT TO THE BOARD OF
DIRECTORS ON PROPOSED LOAN AND A GRANT TO THE REPUBLIC OF EGYPT TO
FINANCE THE SHARM-EL SHEIKH AIRPORT DEVELOPMENT PROJECT
Management submits the present report and its recommendations on a proposed ADB loan of USD 140.0
million (equivalent to UA 99.3 million), and a MIC Technical Assistance Fund Grant of UA 1.2 million
(equivalent to USD 1.9 million) to the Arab Republic of Egypt for the financing of the Sharm El-Sheikh
Airport Development Project in Egypt.
1
STRATEGIC THRUST & RATIONALE
1.1.
Project linkages with country strategy and objectives
1.1.1. Egypt’s large geographical area and its reliance on economic sectors such as tourism, agriculture,
industry and services make it crucial to establish well-developed transport links, and systems. It was,
therefore, no surprise that the Government of Egypt’s (GOE) development plans have focused over the
decades on, amongst others, the development of transport infrastructure, as a mean to accelerate economic
growth. These objectives have been reflected in the previous National Devolvement Plans (NDP), which
ended in 2012, Egypt’s Vision 2022, and the 5-year macro-economic policy framework (2014/2015 to
2018/2019). At the Egypt Economic Development Conference, Sharm El-Sheikh in March 2015, GOE
launched the Strategic Development Strategy (SDS) entitled Egypt’s Vision 2030, which cites tourism
sector as a key strategic sector for investment and growth for medium term investment, as well as
investments in transport, logistics, and large scale infrastructure.
1.1.2. The air transport sub-sector is highly strategic for Egypt’s economic development and growth. It is
key for the country’s integration in the region and with the rest of the world. The sub-sector is
exceptionally important for the tourism industry, where around 80% of Egypt’s tourist traffics, (averaged
about 10.0 million visitors per year over the last 10 years), arrive through the country’s airports. Tourism
accounts for over 5% of Egypt’s GDP; with total revenues of over USD10.0 billion. The industry
employs about 12.6% of the labor force in Egypt. More importantly, the industry is an important source
of foreign currency receipts for the Egyptian economy. Within Egypt’s tourism scene, Sharm El-Sheikh
plays a major role, where over 30% of the country’s tourists, arrive and stay in the city. The Government
of Egypt is, accordingly, exerting efforts to develop further the tourism activities in Sharm El-Sheikh,
encouraged by current patterns of increase in tourist arrivals. The current airport capacity was identified
as one of the main obstacles to the sector development plans.
1.1.3. Sharm El-Sheikh airport has been Egypt’s fastest growing airport, with an average of 10% annual
growth rate in traffic over the past ten years (excluding the year of revolution) and 18% over the ten years
preceding the revolution, compared to an average of around 7% in Cairo International Airport. The airport
is the third busiest in Africa, up one position from 2009. The total number of passengers using the airport
has reached 8.2 million in 2010, which is above the design capacity of the airport. Figures were affected
by the revolution but witnessed a fast rebound of 21% growth in the year that followed revolution. The
subject project aims at providing the additionally required capacity to enable the airport handle the
forecasted growth in traffic, which are expected to reach 18 million passengers annually (mpax) by 2029.
1.1.4. The project is in perfect harmony with the country’s developmental objectives, as it will lead
ultimately to promotion of private sector development and improving the country’s competitiveness. The
airport will play a major role in assisting the country to achieve its ambitious tourism targets of 25 million
tourists by 2020 (likely to be revised). The Government is working through different channels to achieve
these targets with a clearly defined plan targeting all the various aspects, such as development of new
hotels, development of supporting infrastructure, and promoting an increased private sector engagement
in the tourism services sector.
1
1.2.
Rationale for Bank’s involvement
1.2.1. The Sharm El-Sheikh airport development project is part of an initiative targeting the development
of air transport capacities nationwide. This initiative requires large investments, with a large portion of
these being in foreign exchange. In light of this, the Bank involvement will assist the country in securing
the required resources for the development of its nationwide program. On the project level, the Bank
added value is in leveraging on the Bank’s niche area and experience in delivering large infrastructure
projects, which would enable the Bank to support the effective and smooth implementation of the project,
and relay international practices in areas such as project, environmental, procurement, and financial
management monitoring.
1.2.2. It is also to be noted that this operation will represent the first publicly-financed transport sector
operation for the Bank in Egypt, which will offer the Bank a good opportunity for further engagement in
this sector that is vital for the economic growth and development of Egypt. Once actively engaged in the
sector, the Bank will be able to leverage on its expertise and its position to coordinate with other donors,
to positively impact the development of the sector (including the air transport sub-sector), particularly in
areas such as institutional capacity building, knowledge transfer and south-south cooperation.
1.2.3. Strategically, the project is in line with the Bank’s Long Term Strategy, which calls for
investments into infrastructure, including transport, in an inclusive manner. The project is also in line
with the Bank’s 2012-2015 Interim Country Strategy Paper (CSP) for Egypt, which includes the
promotion of private sector development as a strategic pillar, with a sub objective of developing
infrastructure, including transport infrastructure. The interim CSP also makes specific reference to the
subject project.
1.3.
Development partners coordination
1.3.1. Various development partners are active in Egypt with operations covering a wide range of
sectors. In the transport sector these include the Arab Fund for Economic and Social Development
(AFESD), the World Bank (WB), the Islamic Development Bank (IsDB), the Japan International
Cooperation Agency (JICA), the European Union (EU), the Agence Française de Développement (AFD),
and the European Investment Bank (EIB). WB, AFESD, IsDB, EIB and JICA are particularly active in
the air transport sub-sector, where they financed and are currently financing the Cairo International
Airport Development project, the Hurghada International Airport expansion, the Sharm El-Sheikh airport
(subject) project, Egyptair fleet expansion and the Borj Al-Arab airport project, respectively.
1.3.2. At the Government level, the Ministry of International Cooperation (MoIC) coordinates between
the various sectors in terms of cooperation with international organization. At the technical level, the
various respective Ministries coordinate with the different donors and agencies through what is referred to
as the Development Partners Group (DPG), which is currently the main aid coordination and
harmonization instrument in Egypt. The DPG has different thematic sub-groups covering the different
sectors. The Transport DPG was established recently and held so far 3 meetings and the Bank has joined
the Group as a member. Table 1.1 shows the summary of donors’ involvement.
2
Table 1.1: Development Partners Involvement
Sector or
subsector
Size
GDP (13/14)
Exports
Labor Force ('14)
Transport sector
4.0%(e)
N/A
6.0%(e)
Players - Public Annual Expenditure (average) 2004-2014
in Air-Transport Subsector (donor-financed)
Government
Donors
USD 1,33 m
USD 1,73 m
[77.1%]
[56.5%]
WB
EIB
AFESD
IsDB
JICA
Level of Donor Coordination
Existence of Thematic Working Groups
Existence of SWAPs or Integrated Sector
Approaches
ADB's Involvement in donors coordination
2
PROJECT DESCRIPTION
2.1
Project components
40.2%
10.3%
13.5%
22%
4.0%
Yes
No
Member
2.1.1 The project will contribute towards increasing Egypt’s airport capacities, and removing an
infrastructure bottleneck at Sharm El-Sheikh airport by providing additional capacity there. At the sector
level, it aims at improving the competitiveness of air transport in the country. The estimated cost of the
project is USD 671.33 million, which covers the following components (table 2.1):
i-
Construction of a new terminal building, with all its associated facilities. This will be the third
terminal building in Sharm El-Sheikh Airport.
ii- Construction of airfield works, including a new 3,600 m runway, taxiway system, aprons, service
roads, and ancillary buildings.
iii- Construction of a control tower with all associated facilities and systems.
iv- Installation of electrical and navigation systems
vDeveloping supporting infrastructure;
vi- Project Supervision and management, including consulting services.
vii- Establishing an Airports Centre of Excellence
2.2
Technical solution retained and other alternatives explored
2.2.1 The subject project aims at expanding the capacity of existing airport facilities in Sharm ElSheikh. Various technical solutions were considered and analysed. These included either i) changes to the
interior set up of the existing terminals, ii) expansion of the terminals, iii) developing a new terminal or
iv) developing a new airport. The existing facilities have physical constraints that do not allow for neither
of the first two options to be considered, to provide a suitable capacity that can handle the anticipated
increase in passenger traffic (more than 100% increase). Regarding the option of developing a new
airport, this was not considered as the existing airport facilities are safely situated away from the city, and
the airport zone has adequate space for developing a new terminal building. Accordingly, the adopted
option was the development of a new terminal building with additional supporting navigation systems and
airfield works.
3
Table 2.1 Project components
N°
Components
Estimated cost
(USD mill)
Description of component
Construction of one building with 5 levels, and a capacity of 10 mpax.
The total built-up surface of the terminal is 125,181 m² (total area
206,000 m2). The facilities will include 92 go-through check-in
counters, 80 passport-control counters, 26 security-check points, 16 preboarding jet bridges, 15 passenger boarding bridges, 39 departure gates,
12 baggage carousel, 15,000 m2 of commercial space, 2,950 car park
positions.
Construction of new runway according to ICAO’s code 4E parameters,
with features upgradable to code F. It will have a length of 3,600 m, and
a width of 60 m. The new airfield will have one taxiway parallel to
runway, two taxiways connecting the new airfield to the existing, 15
contact stands, and 25 remote stands. Lighting will be standard CAT-I
and the foreseen instrumental approach will be CAT-I. The new apron
capacity will be set at around 34 operations per hour, pushing that of the
entire airport to a total of 68.
This includes the construction of a control tower with all associated
navigation control systems and equipment, electrical substations,
administrative buildings and a maintenance centre. Airfield Lighting
Control and Monitoring System (AFLCMS) shall be installed in the new
Air Traffic Control Tower and shall also cover all airfield lighting
substations, namely CCRPS-1 and CCRPS-2 and the Airfield Station,
namely ASEP.
Terminal
Building (No. 3)
397.88
Airfield works
110.91
3
Control Tower
and associated
facilities/
systems
28.26
4
Navigation
systems
14.78
This includes the installation of all air navigation systems, including
communication system, systems for coordination with ground operation
and other associated equipment.
5
Supporting
infrastructure
7.37
This component consists of all various supporting infrastructure and
systems such as fire stations and fire engines, security installations,
electrical and utility connections, upgrade of environmental systems,
erecting depots and storage areas.
6
Project
supervision &
management
22.61
This covers supervision and management of project activities and
includes consulting services for supervision of works, control activities,
expenses associated with the Project Implementation Team, as well as
technical and financial audit.
2.25
Includes the development of a strategy and implementation action plan
for the establishment of a centre that will serve EAC immediate and
long-term development needs, as well as developing its capacity to
become a centre for promoting and developing the field of airports
management at the national and regional levels.
87.27
Represents physical and price contingencies at 15% collectively
1
2
7
8
Total
Airports Centre
of Excellence
Contingencies
671.33
2.2.2 Regarding site location, the new terminal building was designed to be connected to the existing
facilities. This arrangement provides numerous economic advantages, such as savings associated with
using existing utilities supply networks serving the existing terminals. As for the size of the building this
is based on passenger traffic forecast, and is in accordance with the specifications and levels of service set
by the International Civil Aviation Organization (ICAO) and the International Air Transport Association
(IATA). The location of the new runway that will handle the additional passenger traffic was governed by
air safety, air navigation and social considerations, as well as by engineering aspects relating to ease of
access of landing planes to the new terminal building.
4
Table 2.2: Technical alternatives considered
Alternative
Changes to
interiors
Expansion of
terminal
New airport
2.3
Brief description
Reasons for rejection
Re-arrangement of the airports interior The magnitude of increase in traffic and hence required
set-up and improving facilities to expand increase capacities is much more than to be
capacity.
accommodated by this type of arrangement.
Extending and expanding existing Architectural & structural designs of existing terminals
structures
have limitations and do not enable such alternative.
Not economic as current airport area is safely adequate
Developing a new airport in new location
to accommodate the proposed development.
Project type
2.3.1 The project is a standalone operation, which represents the optimal approach for delivering a
project of this size and complexity.
2.4
Project cost and financing arrangements
2.4.1 The total cost of the project, including contingencies but excluding taxes, is estimated at USD
671.33 million (USD 771.70 million including tax). This cost is based on detailed analysis and
benchmarking against global unit prices and also prices obtained during recent competitive bidding for
similar works in Egypt. Physical contingencies have been estimated at 5% of the base cost. Provisions for
price escalation are estimated at 10%, and are based on the implementation schedule, taking into account
the rate of inflation of the sector. Table 2.2 below provides a summary of the project cost estimates.
Table 2.3: Project Cost Estimates by Components (excluding tax)
Components
Terminal Building
Airfield Works
Control Tower & facilities
Navigation systems
Supporting infrastructure.
Project Supervision
Base cost
Physical contingencies
Price escalation
Airports Centre
Total
F/C
294.72
45.51
18.37
9.61
0.00
22.61
390.82
20.36
40.73
1.90
451.91
L/C
103.16
65.40
9.89
5.17
7.37
0.00
199.69
8.73
17.45
0.35
225.87
Total
397.88
110.91
28.26
14.78
7.37
22.61
581.81
29.09
58.18
2.25
671.33
% foreign
74
41
65
65
0
100
67
70
70
84
67
2.4.2 The Bank’s financing will cover the cost of the airfield and control tower components, for a total
of USD 140 million (equivalent to UA 99.3 million), excluding taxes, but including physical
contingencies and price escalation. The Bank will also finance, through a MIC TAF Grant UA 1.2 million
(equivalent to USD 1.9 million), part of the cost of establishing the Airports Centre of Excellence and the
financial audit services. The Islamic Development Bank has already approved two loans totalling US$
457.56 to cover the costs of the terminal building. The ADB/ GOE co-financing ratio is set tentatively at
95%-5% for the Airfield contract and 57.9%-42.1% for the control tower contract.
2.4.3 The remaining amounts will be borne by the Government of Egypt. The estimated amount of
taxation is USD 104.0 million and this will be borne by EAC. Table 2.3 and Table 2.4 provide a summary
of the financing plan by source and by component. Table 2.5 presents the disbursement schedule of the
project by category.
5
Table 2.4: Source of Financing (in USD million)
Components
Category
Terminal building
Works
Airfield works
Works
Control tower & associated systems
Works
Navigation systems
Goods
Supporting infrastructure
Works
Project Management & Supervision
Services
Development of Airports Centre
Services
Total without tax
Taxation
Total
* Includes resources through both EAC and NANSC.
AfDB
121.17
18.83
1.91
141.91
141.91
GOE*
0.00
6.38
13.67
17.00
8.48
26.00
0.35
71.87
100.36
172.24
IsDB
457.56
457.56
457.56
Total
457.56
127.55
32.50
17.00
8.48
26.00
2.25
671.33
100.36
771.70
Table 2.5: Project Cost by Category of Expenditure (including contingencies)
USD million
Categories of
expenditure
Civil Works
Consulting services
Goods
Total
UA million
% Foreign
FC
LC
Total
FC
LC
Total
412.39
28.25
21.00
461.64
209.69
0.00
0.00
209.69
622.08
28.25
21.00
671.33
294.56
20.18
15.00
329.74
149.78
0.00
0.00
149.78
444.34
20.18
15.00
479.52
66.3
100.0
100.0
68.8
Table 2.6: Tentative expenditure schedule (including contingencies)
Item
Civil Works
Civil Works
Civil Works
Consulting services
Consulting services
Goods
Total cost
%
2.5
Source
ADB
GOE
IsDB
GOE
MIC TAF
GOE
2016
26.7
11.2
77.3
7.4
0.5
0.2
123.3
18%
2017
57.8
9.1
105.1
7.4
1.0
1.0
181.4
27%
USD million
2018
2019
41.4
14.1
6.3
2.0
163.9
111.3
7.4
3.8
0.4
0.0
0.0
16.0
219.4
147.2
33%
22%
Total
140.0
28.6
457.6
26.0
1.9
17.2
671.3
100%
Project’s target area and population
2.5.1 Sharm El-Sheikh is situated on the southern tip of the Sinai Peninsula, along the coast of the Gulf of
Aqaba on the Red Sea. The city’s main industry is tourism, with main attractions including a wide diversity
of coral reefs and long sandy beaches. The city also houses international forums and meetings. The
population of Sharm El-Sheikh is made up mainly of the tourism labor force. Its mainland geology is made
up of arid desert land, with some chains of mountains.
2.5.2 The major beneficiaries of the project are: (i) the Egyptian Holding Company for Airports and Air
Navigation (EHCAAN), a public establishment in charge of airports and air navigation system, and its
affiliates, namely EAC and National Air Navigation Services Company (NANSC), who will all benefit
from increased aeronautical (plane and passenger fees) and commercial revenues; (ii) airlines and users of
airports, who will benefit high levels of comfort, safety and security on both airside and landside due to
higher design standards; (iii) commercial and service companies for which new opportunities will be
provided within the airports; (iv) the tourism industry and handicraft sector who will benefit from
increased number of tourists and hence tourism activities; and (v) the local and national population who
will be the primary beneficiaries of the jobs created, notably those in the tourism, handicraft sector, retail
business, maintenance of public places, etc.
6
2.6
Participatory process for project identification, design, implementation
2.6.1 The identification of the Sharm El-Sheikh project was based on the strategic plan for the subsector. This was presented through a Masterplan, which took into account various aspects including
traffic studies. The detailed design of the project had incorporated, at the early stages, the input of
different Ministries and stakeholders, such as Ministry of Tourism, Ministry of Civil Aviation, Ministry
of Defence, and Ministry of Economic Development.
2.6.2 The design of the project is mainly guided by international standards and specifications (namely
ICAO and IATA standards). In addition, EAC holds regular meetings attended by the various airports
users, including operators, airlines companies, passengers’ representatives, etc. During these meetings
different concerns are raised regarding the use of existing airports. The feedback from these meetings is
integrated into the design of all new airport projects. At the locality level, two major public consultations
were held in Sharm El-Sheikh for the subject project, and these were attended by representatives of local
communities, civil society, private sector and Government entities.
2.6.3 All participants showed support to the new project, due to the large developmental impact it is
expected to generate for all segments of the society in Sham El-Sheikh. It was concluded in these
consultations that the project will result in a number of positive impacts on the natural and socioeconomic setting of the area. It was also established in these consultations that most of the components of
the project would pose only insignificant environmental risk. It is to be noted that runway and terminal
locations were carefully designed to ensure that future generated noise is minimal on the area adjacent to
the airport, most of which are tourist resorts.
2.7
Bank Group experience, and lessons learnt
2.7.1 To date, the Bank had approved only 3 operations in Egypt’s transport sector; a study on two
canals linking Cairo to the Mediterranean, a loan for the development of the Damietta Port (private sector
operation), and a Grant for the development of the Navigation Satellite project. The former two
operations have been cancelled (the port project could not reach financial close) and the latter was
completed.
2.7.2 Overall, Egypt enjoys relatively adequate planning, implementation and technical capacities in the
different sectors in which the Bank is currently engaged. These capacities have, to a great extent, been a
source of assurance to the international donors. While the Bank has not been active in the transport sector,
lessons learnt could be sought through the engagement of other donors in the sub-sector. These
demonstrated the existence of high capacities in the air transport sub-sector, with a high level of
commitment by the Government towards the development of the field and the realization of the
investment plans. These investments have in most cases been delivered in timely manner, and led to high
developmental impacts. Also, some of the lessons learnt from other donor’s participation in the transport
sector in Egypt include the need for a stronger and long-term dialogue engagement with the entities in the
sector to maximise development impacts.
2.7.3 At the technical level, traffic forecast in Sharm El-Sheikh grew at a rate higher than previously
anticipated, which led to the recently implemented terminal building reaching utilization of its maximum
capacity within three years. To prevent such scenario from re-occurring, EAC chose to have additional
capacity (above forecasts) in the new terminal to accommodate any additional traffic. Furthermore, the
design of the project, unlike the case of terminal 1, allows for future expansion. Further details are
included in Annex B.1.
2.8
Key performance indicators
2.8.1 The main performance indicators of the project are those associated with its operational level of
service. These indicators measure the quality and efficiency of various criteria as set up by ICAO and
IATA. Table 2.7 shows the existing measurements of these indicators and the targeted values. The table
also shows impact-level indicators, namely number of passengers and number of direct jobs created. The
7
measurement of these indicators is conducted on regular basis by EAC, who have full database of the
historical and current trends. The updating of these is conducted by a special unit within the CommercialOperation department of EAC. Some of these indicators will be reviewed at the opening of the airport
(the airport operation-related indicators) and the rest will be reviewed 5 and 10 years later, dates by which
the terminal building will operate at 50% and 100% capacity, respectively. During implementation, the
usual construction indicators (works completed) will be measured and assessed, through progress reports,
and in line with the civil works contract to be signed.
Table 2.7: Key Performance Indicators
No.
Output
1
2
Impact
1
2
Indicators
Level of service according to IATA
Operational capacity of runway (ops/hr)
Number of passengers per year (mpax)
Direct jobs generated (persons)
Current: 2014
C/D
43
6.5
500 (TB1&2)*
Target
A/B
68
18.0
700 (TB3)*
Target year
2019
2019
2029
2029
*500 are employed in the current terminals and additional 700 will be employed in the new terminal and airfield.
3
PROJECT FEASIBILITY
3
3.1
Economic and financial performance
3.1.1 The project is financially and economically viable, as indicated by the Project’s Economic Internal
Rate of Return (EIRR), and Financial Internal Rate of Return (FIRR); see table 3.1 below. The economic
and financial evaluations of airport projects were carried out through the cost-benefit approach. The cost
elements arising from the project are: (i) investment costs & maintenance that correspond mainly to the
construction costs of the new terminal, the airfield works and other related areas, as well as those of the
control tower and installation of navigation equipment, (ii) the benefits of the project are defined as
economic gains to Egypt from tourism and especially those related to tourism spending in the country and
the direct and indirect jobs created during the construction phase and after the commissioning of the new
terminal.
Table 3.1: Key economic and financial figures
EIRR (base case) 25.82%
NPV 785 USD million at 12 %
FIRR (base case)17.7%
NPV 542 USD million at 8.2%
3.1.2 The project will also generate other benefits typically associated with airport projects, such as
savings in passenger processing time and plane waiting time, particularly for the share of passengers who
currently use the existing facilities at lower levels of service, and who will be using the new terminal once
commissioned. However, as the main purpose of using the airport is tourism, these benefits were not
included in the analysis as they do not represent an objective of the project.
3.1.3 Some of the indirect economic and social benefits of the project include the positive impact on
private sector and Egypt’s competitiveness. These benefits were not quantified. The financial benefits of
the project from EAC’s perspective consist of incremental revenues from passenger charges, aircraft
services and commercial rents and concessions.
3.1.4 The assumptions that serve as the basis for the calculations of the FIRR and the EIRR are
provided in Annex B.7. The main assumptions are related to traffic forecast and the cost streams which
include investment cost; operations and maintenance (O&M) and reinvestment cost during the lifetime of
the project. The project is assumed to become operational in 2019 after the completion of the entire
works, with an economic life of 25 years and a 20% salvage value. By the time the new terminal attains
full capacity, it will be handling 10 million passengers per year (mpax).
3.1.5 Sensitivity analyses were conducted to test variations in several parameters. The analyses, which
are presented in Annex 7 show that despite the variations considered (i.e. despite tested reduction in
passenger traffic, and increase in project cost), the project remains economically and financially viable.
8
3.2
Environmental and Social impacts
Environment
3.2.1 The project is a large airport construction project and is accordingly categorized as environmental
category 1 as per the Bank procedures. The project’s Environmental and Social Impact Assessment
(ESIA) was completed in 2010 and its summary has been posted on the Bank’s website on the 3 rd August
2011, with an update carried out in 2014 and posted on 23rd February 2015, after being reviewed by the
Bank.
3.2.2 The environmental risks resulting from the execution of the project are grouped into two
categories; a) those occurring during construction, and b) those occurring during the operation of the
project. Risks in the first category include (i) safety risk to the public at or near construction sites (ii)
noise and emissions; (iii) soil removal, modification, mixing, compaction, loss, or contamination due to
construction activities and (iv) generation of dust and emissions due to construction activities. These
impacts will be short term, and will be managed by the contractor as per the mitigation measures
contained within the Environmental and Social Management Plan (ESMP) to ensure that the activities
meet the legal requirements of the Bank, in addition to those of the Government best practices. There is
also a risk of injury to the population working near the project site at the time of construction. This risk
can be mitigated by closing construction sites close to the public during the execution of the project.
3.2.3 Risks resulting from the operation of the airport include significant increase in noise levels
generated from the airport due to increase in air traffic. However, there is little possibility that the new
terminal and runway will generate noise to levels that would adversely affect the surrounding areas. This
risk can be mitigated by adopting and applying the ICAO standards for landing and takeoff procedures,
proper management of landing and take off at off-peak hours to minimize noise; and installation of new
permanent automatic noise monitoring system. Also, large amounts of solid waste will be generated from
the incoming flights and day-to-day operation of new building. Any temporary storage of waste on site
will be in bins that are fitted with lids to ensure no rainwater can enter, that no waste material will be
blown away by wind, and also so no vermin can access the waste. Waste receptacles will be made secure
to stop any opportunists from gaining access to the refuse. These will then be handled through set
procedures.
3.2.4 Collision between aircraft and birds present a main concern to airport operations. The subject
airport will adopt measures and have equipment to avoid bird collision, including requesting the planes to
fly at appropriate altitude and speed during landing and taking off, installation of proper equipment for
bird detection, optical scan of the runways before taking off and landing, monitoring bird numbers and
movements, and installation of air guns, and water channels net covers. The costs of all of the above
mitigation measures are built-in within the various components of the projects. When excluded these are
estimated to cost about USD 3.0 million. In terms of water and power consumption, the airport will be
supplied through existing water and energy networks.
3.2.5 If the suggested mitigation measures in the ESMP are closely followed, the project will result in
only some unavoidable environmental risks that are considered to be within the acceptable limits as set by
the Egyptian laws and regulations.
Climate change
3.2.6 Mitigation: The aviation industry does contribute to greenhouse gas emissions. However the
contribution of the industry is estimated globally to be around 2% of human-produced CO2 emissions.
Modern technologies incorporated by airplane manufacturers are helping to reduce unit emissions by
planes. The International Civil Aviation Authority (ICAA) is guiding international efforts on reducing
emissions by planes. In terms of airport facilities, the measures usually adopted to help reduce impact on
climate change include more use of low emission vehicles and equipment within the airport. They also
include more recycling of construction materials and waste and the production of green energy. This is in
addition to introducing charges to polluting aircrafts and participating in emission trade (Carbon Credit).
9
3.2.7 In Egypt, these measures are being piloted through the Ministry of Civil Aviation (MoCA). The
Ministry is working on a pilot project for the recycling of airport waste to subsequently produce clean
energy in Cairo International Airport. The EAC has a waste management plan that is geared towards
waste recycling at Sharm El-Sheik airport and this will go a long way in reducing the carbon footprint of
the airport. To further reduce the carbon foot print, the airport already has a finalised study regarding
20MW solar plant however it is awaiting funding and it is a long term goal. Also, the increase of airport
capacity will enhance the efficiency of airplane movement. It is especially expected to decrease the
waiting-time (circulation) in the sky around the airport for arrival, which has a big impact on the local air
quality.
3.2.8 Adaptation: Climate change in the area is expected to result in increased flooding and the
proposed project has been designed using maximum expected flooding in the area. The airfield will have
mechanisms such as quick infiltration system and other climate change adaptation measures. GHG
emissions are currently within international aviation limits and in 2016 the airport will introduce specific
emission monitoring per flight, machine and vehicle used at the airport. In addition, EAC has high
capabilities in asset maintenance, supported by healthy financial revenues, strong technical and institutional
capabilities. Assets that may be affected by extreme events such as excessive heating and drought, e.g.
drainage systems, pavements, and equipment will be subjected to regular maintenance.
Gender
3.2.9 The Sharm El-Sheikh airport development project will lead to increased tourism activities
nationwide, which in turn will provide increased nationwide job opportunities for women. In Egypt 60% of
employed women are working in the general services and commercial assistance field, a sizable share of
which is supported by, or relies on, the tourism industry. In the aviation industry, participation rates for
women are lower. However, the sub-sector is showing notable growth in female employment, particularly in
the EAC. This project includes the establishment of an Airport Centre of Excellence, which will target
increased participation of women in the industry, through dedicated courses on gender mainstreaming in the
sector.
3.2.10 The demographic patterns of Sharm El-Sheikh is largely that of a migrant work force, from other
parts of Egypt resulting in a relatively lower participation by women in tourism in Sharm El-Sheikh, where
more than two thirds of inhabitants (15 years old and over) are male. Possible changes to the zoning laws
in Sharm El-Sheikh and the planned establishment of a university in Sinai, will lead to a growth of social
facilities and services in the city, and consequently, to a more balanced available work force. The impact
of the airport extends to other parts in Egypt, where visitors arriving through the Sharm El-Sheikh airport,
also visit other parts of the country such as Luxor and Cairo. Women participation in the tourism sector in
these parts of the country is higher, and accordingly, the project will contribute to increase in women job
opportunities there too. It is estimated that women will fill 20-30% of the direct and indirect job opportunities
that will be created as a result of the project.
Social
3.2.11 Sharm El-Sheikh, as a growing city with all its natural assets, attracted new labors from all over
the country. Most of the population is working in the tourism, construction, health and education sectors.
The total number of inhabitants of Sharm El-Sheikh is about 35,000. The population has increased rapidly
with 16.9% annual increase over the past 20 years, mainly because of the fast growth of tourism sector.
Many Bedouin indigenous residents are employed in several tourism activities, such as desert tour
guiding, ranging of the National Parks of Nabq and Ras Mohamed, and hosting of Bedouin tents and
nights.
3.2.12 Sharm El-Sheikh is the biggest city in South Sinai Governorate. The unemployment rate in South
Sinai was 4.85% in 2006 according to the 2006/07 Census. This is much smaller than the national figure
for Egypt of 9.72% (in 2006), thanks to the tourism sector development. The project will have a major
10
positive impact in terms of job creation. Over 1500 persons will be employed during construction, mostly
Egyptians, and over 700 staff will operate the airport once completed. The most significant impact, however,
is the creation of indirect jobs, which are estimated at around 240,000 jobs, including in areas as far as Cairo,
Luxor and Aswan; destinations that will be visited by the Sharm El-Sheikh tourists.
3.2.13 Initiatives aimed at economic and social development of the local communities already exist in the
region. These initiatives generally target the development of Sinai’s population, with various donors
having participated in the past, and anticipated to continue in the future. Example of these include the
Regional Development Program (SSRDP), which was an integrated regional development programme in
the Governorate of South Sinai and is funded by the European Union for the protection of cultural and
natural resources, and enhancing the living conditions of local communities, particularly Bedouins. Other
examples include the “Assessment of the Nutritional Status of Bedouins in Non-Urban Areas in South
Sinai” program.
3.2.14 The Bank has consulted and agreed with other donors such as EBRD and JICA on future
collaboration on initiatives in South Sinai, aiming at developing the local population skills in tourism,
women artisanal know-how’s promotion and improving their likelihood.
3.2.15 Involuntary resettlement: There will be no resettlement. The project will be developed within
EAC fenced land and boundaries.
4
IMPLEMENTATION
4
4.1
Implementation arrangements
Executing Agency
4.1.1 The Executing Agency of the project will be the Egyptian Airports Company (EAC). EAC is an
affiliate of the Egyptian Holding Company for Airports and Air Navigation (EHCAAN), which is under
MoCA. EAC is in charge of 21 airports, two of which are managed under BOT concessions. Annex 6
shows further details on the sector and its institutional set-up. It is to be noted that the navigation systems,
under the project, will be implemented by the National Air Navigation Services Company (NANSC),
under a separate contract. EAC has developed technical and managerial capabilities to successfully
execute large airport projects, with the most recent example being the Sharm El-Sheikh Terminal 1
project and Hurghada International airport. The proposed project will represent the first engagement for
the Bank with EAC. Nevertheless, the company has had successful experiences of implementing projects
that were financed by international and regional donors such as AFESD, WB, and JICA.
4.1.2 It is to be noted that the new projects at Hurghada airport and Sharm El-Sheikh airport will add
considerable increase to traffic being handled by EAC. This is anticipated to be met with adequate
development in EAC’s operational capacity. The Bank will work closely with EAC to formulate capacity
building activities, and identify suitable financing mechanism that will help in addressing this issue. This
will be delivered through a consulting assignment, to be delivered by a specialised firm selected through a
competitive process (refer to Annex A.2 on Technical Assistance).
4.1.3 The project is anticipated to be implemented over 44 months, starting late 2015. Implementation
will be closely followed and managed by EAC, which has set up a Project Implementation Team (PIT).
The PIT is staffed by EAC professionals, and is led by a Project Manager. The team will also include
procurement specialist, monitoring officer, accounting/disbursement officer, safety compliance officer,
environmentalist, social expert as well as other technical staff. Reporting to the PIT, a reputable
consulting firm was hired and will be responsible for the supervision and coordination of the construction
works being carried out by the different contractors. The PIT will be responsible for coordinating the
contracts administered by EAC (Terminal building and airfield works), and those administered by
NANSC (control tower and associated facilities).
4.1.4 The project is at advanced stage of readiness for implementation, with the draft bidding
documents ready, the PIT formed, and the consulting firm already deployed,
11
4.1.5 The project will have a steering committee with direct and indirect representation from Ministries
and entities such as Civil Aviation, International Cooperation, Finance, Tourism, EHCAAN, EAC, and
the Egyptian Environmental Affairs Authority, etc. The committee will be chaired by EHCAAN (through
its CEO), and will meet on biannual basis, and when necessary. The main role of the committee is to
oversee the implementation of the project and the work of the PIT.
Provisions on procurement of goods, works and services
4.1.6 Acquisitions: All acquisitions of works, goods and consultant services, financed from the Bank
loan as part of this project will be conducted in accordance with the Rules and Procedures for
Procurement of Goods and Works (May 2008 Edition, updated in July 2012), Rules and Procedures for
the Use of Consultants (Edition May 2008, updated in July 2012) and the provisions of the loan
agreement.
4.1.7 The project will consist of 6 packages, the largest of which are as follows: First package, covers
“Contract A: Runway, and all other airfield works.” with an estimated cost of US$ 127.55 million will be
financed by the Bank and EAC. This package is in advance stage of progress, where the bidding
documents are prepared and will be sent to the bank for review soon after Bank loan approved. Second
Package, is “Contract B: Terminal building, surrounding aprons and accesses”, with a preliminary
estimated cost of US$ 457.56 million and anticipated to be financed by the Islamic Development Bank
(IsDB). Prequalification had already been completed and cleared by African Development bank (as part
of previous financing plan) and the Islamic development Bank has endorsed the results of evaluation. The
draft bidding documents were prepared based on the African Development Bank standard bidding
documents (International Competitive Bidding –ICB) for large works, latest version on the website. These
documents were also endorsed by IsDB. The third Package is “Contract C: Control tower and associated
facilities” with an estimated cost of US$ 32.5 million, which is proposed to be financed by the Bank and
EAC. Procurement of civil works will be carried out under International Competitive Bidding (ICB)
procedures, with post qualification. Preference for domestic contractors may be applied.
4.1.8 EAC is fully aware of the Bank rules and procedures. In particular, EAC is fully aware of the
International Competitive Bidding (ICB) procedures. The company, which has its own procurement
regulations, will follow procedures of the one envelope system for the procurement of the bids that will
be financed by the Bank. The Project Implementation Team (PIT) includes a qualified procurement
specialist fully acquainted with Bank procurement rules and procedures. In addition, The Egyptian
Airports Company (EAC) will be supported by the supervision consultant (Prointec, Bross Bob, & ACO),
which will assist, among other items, with the procurement activities.
4.1.9 The procurement risk of the project has been assessed and found Moderate. Considering the level
of procurement expertise of EAC and PM staff, previous procurement activities handled by EAC and the
organization and work environment of EAC. The following mitigation actions has been proposed: (i)
update during the launching mission the procurement knowledge of EAC team (as well as the PM
consultant) on Bank procurement specificities; (ii) Improvement of EAC filling system; (iii) impose a
Bank prior review to the package under its funds.
Financial Management
4.1.10 The financial management (FM) of the project will be based on the existing systems of the
Egyptian Airport Company (EAC). These systems were assessed in accordance with the Bank’s FM
policies and procedures and covered each FM component adequacy: budgeting, accounting, internal
control, treasury management/funds flow, financial reporting and external auditing. In assessing the FM
capacity of EAC, the team used the country fiduciary risk assessment conducted in 2013 based on the
most recent Public financial management diagnostics (such as the 2009 Public Expenditure and Financial
Accountability Assessment Report and the Observance of Standards and Codes (ROSC) report) and the
2014 audit report for EAC. The assessment concluded that the current applicable FM systems are well
12
developed and capable of managing the project resources with an overall “Moderate” risk level. Some
mitigating measures are required to enable these systems to meet the Bank requirements on project
reporting and auditing.
4.1.11 The EAC has well experienced and qualified staff under the Financial Sector, which has the
overall responsibility on the financial management of the Company. The EAC has experience with similar
projects financed by other donors and good budgeting and treasury systems. Project expenses will be
included in EAC annual budget approved by the Board and monitored by the budgeting Committee. The
EAC has performing internal control systems with clear segregation of duties and monthly reconciliation
of bank accounts, stocks and fixed assets. All financial transactions of the project will benefit from exante controls performed by Internal Audit on the procurement process, and pre-payment controls before
contractors’ payments by the Financial Sector. The EAC will assign two competent and experienced
accountants to handle the day-to-day financial activities of the Project and ensure timely recording of all
project transactions. EAC has a semi-automated accounting system managing the General Ledger. The
financial reporting, stocks & fixed assets, Payables & Receivables are currently managed manually on
Excel, which might generate inefficiencies recording errors. Therefore, it was decided that the accounting
software which has been successfully used for the World Bank project is also used for the current project.
Using this software, EAC will prepare and submit to the Bank semi-annual project financial reports and
audited annual financial statements covering the entire project components and sources of funds.
4.1.12 Audit arrangement: EAC financial statements are audited by the Central Auditing Organisation,
which is the Egyptian supreme audit institution. The audits are submitted on time and conducted in
compliance with Egyptian Auditing Standards which are compliant with the international standards on
Auditing (ISA). As the independence of the auditor is not compliant with the INTOSAI standards on
independence, it has been agreed that an independent private-sector auditor acceptable to the Bank should
audit the project financial statements based on the Bank standard TOR for audit of pr
oject.
In
addition to the project audited financial statements, the EAC will provide the Bank with its annual
Company audit report performed by the CAO. The audit reports shall be submitted to the Bank within six
months after the end of each fiscal year.
4.1.13 Disbursement: As the Bank finances a limited number of contracts (two civil works contracts and
a consulting contract under the MIC grant), the direct payment method of disbursement will be used to
disburse funds in accordance with the Bank disbursement rules. Therefore, the Bank will directly transfer
money to contractors based on payment instructions received from the EAC. EAC will complete the
relevant forms and submit the duly authorized payment requests to the Bank by clearly indicating the
amount/currency, the name and bank details of the payee; and attaching all the relevant supporting
documents, including certified payment certificates and contracts.
4.2
Monitoring
4.2.1 The EAC will be responsible for monitoring and evaluation of the project. The international firm
Aéroports De Paris (ADP) was appointed by EAC in the past (contract completed) as a strategic advisor
to advise on various aspects including monitoring and evaluation. As a result, the EAC currently has
adequate monitoring capacities. During project implementation, EAC will provide to the Bank quarterly
progress reports monitoring the various aspects of implementation. During operation of the airport the
EAC specialized unit, under its Commercial Department will monitor all the various performance
indicators highlighted earlier.
4.2.2 The PIT will have a monitoring officer, who will undertake monitoring and evaluation activities.
An environmentalist will also be assigned as part of the PIT, to be responsible for the monitoring of the
implementation of the ESMP. Similarly, the team’s disbursement officer will monitor disbursements and
accounts of the project. Also, the Bank will provide close monitoring and evaluation of the project during
implementation through regular follow-up, review and supervision missions. The implementation
monitoring timeframe is shown in Table 4.1.
13
Table 4.1: Implementation Monitoring Timeframe
Timeframe
4.3
Milestone
Monitoring process /feedback
Q4 - 2015
Procurement of Civil Works Completed
Procurement Plan
Q4 – 2015
Project Launching
Progress Report
Q1 – 2017
50% of Civil Works completed mid-term review
Midterm Review & Progress Report
Q4– 2017
Substantial completion of civil works
Supervision and Progress Report
Governance
4.3.1 The institutional set-up of the aviation sub-sector is highlighted in Annex A.1. Law No. 28 of
1981, and its amendment, provides the general framework governing the civil aviation sector in Egypt.
The Ministry of Civil Aviation (MoCA) is entrusted with all responsibilities pertaining to air transport
and airports. The Ministry oversees, amongst others, EHCAAN, an affiliate of whom is the Egyptian
Airports Company (EAC). The sub-sector has gone through successful reforms that helped transform the
field in Egypt. The governance system has witnessed notable improvements, developing further its
transparency, planning and management capacities.
4.3.2 EAC manages and operates all airports in Egypt except Cairo, Marsa Alam and Al Alamein,
totalling 22 airports. The company has a ten-member Board of Directors (one member without voting
rights) who is responsible for the operational and financial management affairs of the company. Its
responsibilities include the setting up of strategic goals and policies for the company as well as
monitoring the performance in executing these policies and strategies.
4.3.3 The Board is composed of representatives from MoCA, the Ministry of Tourism, the Banking
sector, the air force, airport security, and ports security, two members from management, the company’s
labour union and the Chairman, who is also the Chief Executive Officer of the Company. This Board
composition reflects the commitment of the Government to the development of the sector and ensuring
transparency within it. EAC’s major investment plans have to be approved by EHCAAN Board. The
Egyptian Civil Aviation Authority (ECAA) which reports to the MoCA regulates air transport.
4.4
Sustainability
4.4.1 Upon project completion, Sharm El-Sheikh airport will become EAC’s largest airport and largest
source of revenue (through aeronautical and commercial fees), and hence the company’s most important
asset. Not only will this ensure high level of commitment to the maintenance, and hence sustainability, of
the airport, but it will also help in availing funds for the maintenance and expansion of other airports
operated by EAC. Several of EAC-managed airports have undergone major rehabilitation and
modernisation work over recent years, which will reduce maintenance financial burdens on the company
and enable larger growth of its profits over the years to come.
4.4.2 Overall, the resources devoted by EAC to the maintenance of installations are substantial. The
financial analysis of EAC accounts shows that these recurrent costs are effectively financed each year. It
also shows that the new maintenance requirements as a result of the development and modernization of
airports under the responsibility of EAC are systematically covered in EAC’s budget as part of the
operating expenses. In 2014, EAC spent US$ 38.0 million on maintenance (excluding upgrade
operations), with the planned figure for 2015 being US$ 54.0 million.
4.4.3 The issue of physical sustainability is also addressed through the technical documents of the
project, with special emphasis being put on the quality of aeronautical equipment to be procured, the
quality of the construction materials for the air terminal, as well as proven qualifications and experience
of the contractors, suppliers and consulting firms responsible for the control and supervision of works. It
is also to be noted that two other factors will further ensure the sustainability of the project and these are
the requirement to comply with ICAO safety standards, and the covenants of the operation and
maintenance contracts that will be put in place by EAC for private sector participation.
14
4.5
Risk management
4.5.1 The following have been identified as potential risks for the implementation of the project and the
attainment of its development objectives. Economic risk: Instability and Government not implementing
other measures/ projects necessary for the development of the tourism sector. The likelihood of this risk is
low, considering the impact of the industry on economy and employment (cited as strategic sector in
Government’s development plan).
4.5.2 Supporting infrastructure and systems: the risk that supporting infrastructure (e.g. access roads)
and water and power supplies may not be available at the time of project completion is very low. To
mitigate against this, EAC has begun early coordination and put in place arrangements with the concerned
authorities to ensure that the supporting infrastructure and the required supplies are ready well in advance
of project completion. These authorities have confirmed commencement of works at their end to meet
targets associated with the development of the project.
4.5.3 Traffic risk: There is a risk that fewer passengers will use the airport than anticipated, which
would affect the economic effectiveness of the project. This risk is assumed to be relatively low, taking
into consideration the recent traffic analyses. Also, sensitivity analyses concluded that the project is
viable even with a 20% reduction in passenger traffic.
4.5.4 Cost Overrun: the likelihood of cost overrun occurring is considered moderate. However, based on
the assessment of EAC’s financial position, the company can cover such overrun. In terms of economic
impact, the sensitivity analysis shows that with a 20% increase in cost the project remains viable. Also,
adequate contingencies have been incorporated in the estimated project cost.
4.6
Knowledge building
4.6.1 Most of the equipment to be procured are relatively sophisticated electronic equipment, requiring
adequate training by the suppliers of the users. The technical staff concerned will receive targeted training
that will enable them broaden their knowledge in the management and efficient use of the new equipment.
With regard to training and knowledge development, the establishment of the Airports Centre of
excellence, will play a major role in developing human resources on the national level in the areas of
airports planning and management. The centre will also act as a regional training center that will boost
south-south cooperation efforts that aim at utilizing the advancement Egypt has achieved in the area of air
transportation. In addition, the centre will act as a platform for exchange of knowledge and best practices
between EAC and its counterparts in the region.
5
LEGAL INSTRUMENTS AND AUTHORITY
5.1
Legal instrument
5.1.1
The legal instrument for the project used is an ADB loan which will be given to the Arab
Republic of Egypt and the proceeds of the loans will be on-lent to EAC. This is in line with the
Bank previous operations in Egypt (in Energy sector in particular), and as per the agreed
arrangement between the Bank and Egypt. There will also be a MIC Grant Agreement signed
with Egypt for the development of the Airports Development Centre.
5.2
Conditions associated with Bank’s intervention
5.2.1
Conditions Precedent to Entry into Force of the Loan Agreements: The entry into force of
the Loan Agreements shall be subject to the fulfilment by the Borrower of the provisions of
Section 12.01 of the General Conditions Applicable to Loans and Guarantee Agreements of the
ADB.
5.2.2
Conditions Precedent to Entry into Force of the MIC Grant Letter of Agreement: The
Letter of Agreement shall enter into force upon signature by the parties thereto.
15
5.2.3
Conditions Precedent to First Disbursement of the Loan: The first disbursement of the loan
shall be subject to Borrower having submitted to the Bank, an on-lending and/ or subsidiary
agreement between the Borrower and the Executing Agency, in form and substance acceptable to
the Bank..
5.2.4
Conditions Precedent to First Disbursement of the MIC Grant: The obligation of the Bank to
make the first disbursement of the MIC Grant shall be conditional upon entry into force of the
Letter of Agreement in accordance with Section 5.2.2 above.
5.2.5
Other Conditions: The borrower shall cause the Executing Agency to a) implement the project
in compliance with national legislations and in accordance with the Environmental and Social
Management Plan (ESMP) and submit to the Bank Quarterly Progress Reports; b) notify the
Bank of the Project Implementation Team (PIT) with acceptable composition and qualifications.
The Borrower shall establish a Project Steering Committee, and shall notify the Bank of its
functions and composition.
5.3
Compliance with Bank Policies
5.3.1
6
This project complies with all applicable Bank policies.
RECOMMENDATION
Management recommends that the Board of Directors approve the proposed ADB loan of USD 140.0
million, and MIC Grant of UA 1.2 million, to the Arab Republic of Egypt to finance the project described
in this report subject to the conditions stipulated in this report.
16
APPENDIX I: EGYPT SOCIO-ECONOMIC INDICATOR
I
APPENDIX II: AFDB PORTFOLIO IN EGYPT (31 MARCH 2015)
Project
Source
Approval
Age (mnth)
Closing Date
Amount
Disbursed
Suez Thermal Power Plant
ADB-L
15-Dec-10
26
31-Dec-16
349.6
32.9%
Ain Sokhuna Thermal Power
ADB-L
22-Dec-08
63
30-Jun-15
286.1
70.6%
Abu Qir 1300 MW Steam Power
ADB-L
14-Nov-07
75
30-June-15
212.8
93%
Study on Integration of Wind Energy
MIC TAF
16-May-11
21
31-Dec-15
0.49
18.4%
Study on Improvement of Power Efficiency
MIC TAF
16-May-11
19
31-Dec-15
0.49
8.2%
CTF
29-Nov-11
20
31-Dec-14
0.65
33.8%
CTF Project Preparation Grant for Kom-Ombo
CTF Project Preparation Grant for Suez Gulf Wind
CTF
29-Nov-11
27
31-Dec-14
0.64
34.4%
Egyptian Refining Company
ADB Priv
17-Mar-10
30
15-May-16
129.44
53.3%
Egyptian Refining Company sub convention loan
ADB Priv
17-Mar-10
30
15-May-16
16.18
100.0%
996.39
60.3%
RIEEP-Rural Income and Economic Enhancement
ADB-L
13-Jan-10
50
31-Dec-15
44.5
100%
RIEEP
FAPA
5-Feb-10
47
31-Dec-15
0.6
52%
RIEEP
57
31-Dec-15
Sub-Total – Power (8)
MIC TAF
13-Jan-10
Social Audit to improve governance in social
TFT
28-Jun-13
Support to Parliament: Building Capacity &
MENA TF
11-Jun-14
30-Sep-17
Sub-Total – Social (5)
MSE Support Project Loan (2nd LOC to NBE)
ADB-L
12-Oct-05
73
31-Dec-12
Sub-Total - Finance (1)
Gabel El-Asfar Wastewater Treatment Plant
0.6
33.3%
0.12
0.0%
1.91
0.0%
47.73
94.3%
127.1
100.0%
127.1
100.0%
ADB-L
7-Oct-09
66
31-Dec-15
46.90
24.1%
Study Nubaria and Ismailia Canals Rehab
AWF
18-Oct-07
73
31-Dec-14
1.70
82.4%
Monitoring of Water MDG in N. Africa
AWF
27-Apr-10
46
31-Dec-14
1.70
100.0%
MIC TAF
31-Oct-11
Helwan PPP
30-Jun-15
Sub-Total – Water & Sanitation (4)
Statistical Bldg Programme (SCB II)
MIC TAF
20-May-11
24
Franchising Sector Support Program
ADB-L
25-Feb-09
54
56
Franchising Sector Support Program
0.6
29.0%
50.90
28.6%
30-Jun-15
0.6
100%
31-Dec-15
25.4
20.9%
FAPA
13-Apr-09
31-Dec-14
0.59
100.0%
Industrial Waste Management & SME
MENA TF
20-Feb-13
30-Mar-16
1.29
12.4%
Support to Micro, Small & Medium Enterprises
MENA TF
20-Feb-13
30-Sep-16
1.29
20.2%
IPPF
4-Mar-13
30-Jun-15
0.98
10.2%
Transaction Advisory services for NAVISAT
Effective & transparent delivery of justice
MENA TF
11-Jun-14
31-Aug-17
1.57
0.0%
Egypt International Economic Conference
MIC TAF
19 Nov 14
30 Dec 15
0.39
0
31.72
21.8%
Sub-Total – Multi Sector (8)
Masterplan for Rehabil Struct Nile
MIC TAF
10-Nov-09
42
31-Dec-15
0.6
50.0%
Masterplan for Rehabil Struct Nile
AWF
3-Nov-09
42
31-Dec-15
1.2
70.0%
ADB Priv
21-May-97
176
31-Dec-01
Sub-Total – Agriculture & Irrigation (2)
Windsor Garden City Hotel, Hurghada
Sub-Total – Industry (1)
SUBTOTAL: 29
1.8
63.3%
9.1
100.0%
9.1
100.0%
1,265.31
63.6%
II
APPENDIX III: RELATED FINANCED BY DONORS
Donor
Project
AFESD
Development of
Hurghada International
Airport
AFESD
EIB
EIB
EIB
Approval
Date
2006
Development of
Hurghada International
2006
Airport
EGYPTAIR:
Modernisation of
19-Jul-97
aircraft fleet
EGYPTAIR II:
Acquisition of Airbus 22-Dec-04
aircraft for fleet renewal
Air Traffic Control
July 2012
Upgrade Egypt
IsDB
Sharm El-Sheikh
project
JICA
Borg El Arab
international Airport
Modernization Project
Feb-15
30-Mar-05
Closing
Date
Donor
GOE
(m USD) (m USD)
N/A
121.127
N/A
50.00
N/A
84.750
N/A
336.000
Objectives: (1) To improve the air transport service of passengers and freight through Hurghada
International Airport to meet the increasing demand. Components: (1) Construction of the Terminal,
96.902
building and Parking. (2) Construction of runway, Taxi-way, Apron and Service Roads. (3) Consultancy
Services including preparation of technical studies, design, tender documents and project supervision.
---
N/A
457.56
52.109
WB
Airports development
project
30-Mar-04 30-Jun-09
335.000
WB
Airports Dev
Additional Financing
24-Apr-08
40.000
WB
Cairo airport
development projectTB2
N/A
23-Feb-10 30-Nov-15
280.000
Objectives:. To help financing the costs associated with cost overruns with the construction
Objectives: To contribute to providing the airline with the capacity required to meet the expected growth
in demand. Components: Acquisition of 4 Airbus A321-200 medium range aircraft, the necessary
ground equipment, initial spare parts provisioning, 3 spare engines and training.
Objectives: To contribute to the modernisation of EgyptAir’s fleet, leading to lower operating costs and
564.000 improved service quality. Components: Acquisition of 7 Airbus A330-200 with corresponding spare
engines as part of EgyptAir fleet renewal programme.
---
€ 50
million
N/A
Description
Upgrading of Egyptian air traffic control facilities
-
Objectives: (1) To increase the capacity of the Sharm El-Sheikh airport from 8 mpax to 18 mpax.
Components: civil works to construct the new terminal building of the airport.
Objectives: (1) To strengthen the air passenger and cargo handling capacity of the existing airport in
response to this growing demand for air transport; (2) and improve convenience and safety.
56.512
Components: (1) Construction of an air terminal (2) Improvements in related facilities at this airport,
including the apron and the taxiway
Objectives: (1) To eliminate capacity bottlenecks to traffic growth; (2) raise the service quality of the
Cairo International Airport and Sham El-Sheikh Airport; (3) and promote efficient private participation in
239.000 airport management and service. Components: (1) Construction of a third terminal at Cairo International
Airport and enabling works. (2) Constructs a new terminal at Sharm El-Sheikh Airport and enabling
works. (3) Improvement of sector operations and environmental management.
Objectives: To help financing the costs associated with cost overruns with the construction of the
27.300 Terminal 3 (TB3) at Cairo International Airport.
Objectives: To assist the Government of Egypt to: (i) enhance the quality of airport services through an
increase in the capacity of Cairo International Airport, and (ii) strengthen air transport in Egypt.
156.000
Components: (1) Rehabilitation and expansion of the TB2 at Cairo International Airport. (2) Technical
assistance and studies
III
APPENDIX IV: PROJECT MAP
Inset image: The new project is shown in dark lines. Existing facilities are shown in light color.
Computer generated image of the new terminal building, and airfield
IV