Egypt Natural Gas Connection Project

Egypt Natural Gas Connection Project

Project ID: NIF-South-56

Egypt has long been a major producer of natural gas, and efforts are underway to intensify exploration and extraction to meet growing demand especially for electricity and industrial production. Until now, however, many residential customers have used imported bottled gas rather than domestically-produced mains gas, despite the increased hazards and higher environmental cost associated with bottled gas. Three main reasons explain this: connections were rarely available outside major cities; connection charges were costly, especially for poorer households; and fuel subsidies, particularly high for bottled gas, made this an economically sensible option.

A strong and resilient gas sector is vital to Egypt’s energy security, as well as to its economy. The Government of Egypt is engaged in sector reforms to progressively remove price distortions and make the sector more competitive, transparent and sustainable. In parallel, it has launched a major campaign to connect 17 million households to the natural gas network by 2030, roughly 800 000 connections a year.

The EU is supporting Egypt’s reform efforts and the Egypt Natural Gas Connection project provides a huge boost to the connection campaign. The project blends loans from the Agence Française de Développement (AFD, lead financial institution), World Bank and Kuwait Fund for Arab Economic Development, with grants from the NIF, to connect 2.4 million households in 11 predominantly rural governorates over a 4-year period. Egypt’s own commitment to the initiative is evident, with a contribution to total project costs of almost 50%.

The bulk of the NIF grant will be used to fund discounts on initial connection charges for poor and disadvantaged families, cutting the cost to them by about half. The targeting methodology is based on extensive field research and willingness to pay surveys, and checks are in place to ensure only needy families can access these discounts.

NIF funds will also be used to strengthen the Egyptian Natural Gas Holding Company (EGAS) by introducing an Enterprise Resource Planning (ERP) system to improve financial management and transparency and advanced modelling tools to help forecast production and demand. The NIF grant also supports further institutional reforms, including the establishment of a gas regulator.

The overall aim is to improve access to safer, more reliable and better quality energy services while increasing Egypt’s energy security and alleviating the strain on public finances. Investment by AFD and their partners enables EGAS to meet its ambitious roll-out targets, while the NIF funding also adds an important pro-poor dimension to the initiative. An efficiently managed gas sector and reduced energy subsidies will allow the Government to allocate more of its resources to improving vital public services. Businesses will benefit from a more reliable, better quality service. Finally, people living in areas previously not served by mains gas will enjoy a safer, more environmentally friendly source of energy, with up-front charges affordable even for poorer households thanks to the NIF.