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Points on Russia’s loan to Egypt

Cooling towers of a nuclear power plant [file photo]
Cooling towers of a nuclear power plant [file photo]

The coup-led government in Egypt signed an agreement accepting a $25 billion Russian loan to establish a nuclear plant in El Dabaa, Egypt. The terms of the agreement had remained a secret until they were published in the Official Gazette last Thursday. I have a number of points regarding this that can be summarised as follows:

First, do we, in Egypt, need to establish a nuclear plant at the present time, especially after Al-Sisi signed an agreement with Germany’s Siemens last year, making it the largest deal in Egypt’s history, worth €8 billion, i.e. about $10 billion? The agreement was regarding generating power from the wind and natural gas. It is believed that this will increase electricity production by 50 per cent and will lead to increasing Egypt’s capabilities in the electric power sector to 16.4 gigawatts. This means that the Siemens agreement is sufficient to cover Egypt’s electricity needs, so why invest in the electricity sector again?

Secondly, three new electricity power plants, operating with 14.4 gigawatts, will begin operations during the 2016-2017 fiscal year according to the Ministry of Finance’s latest statement. The ministry also announced that it spent about $935 million during 2015 and 2016 on power plant expansion projects. This means that the expenditure in the electricity sector was larger than the salaries expenditure in Egypt, meaning that the electricity sector received more funds than other sectors, such as health, education, roads and bridges. So, why is there a need to spend money on the nuclear power project at the moment?

Third, the cost of the project will exceed $30 billion, which is higher than the cost of any other competing project. We haven’t heard about any international bid being proposed in order for us to reach this price for the establishment of the reactor, so there is absolutely no transparency in this operation. In addition to this, the Russian side signed the agreement only 20 days after the Russian plane incident, meaning it was a bribe to make Russia overlook the catastrophe.

Fourth, the Russian loan to Egypt, valued at $25 billion, alone, is equivalent to over half of Egypt’s foreign debt, as its debt has reached nearly $48 billion. Egypt will receive the loan in instalments, which will end in 2028, and this will restrict the state and future generations, paralysing anyone trying to reform the state if Al-Sisi’s rule is eliminated. This may also drive the Russians to interfere in Egypt’s financial affairs.

Fifth, it seems to me that after the French plane incident, Al-Sisi’s government is being closed in on. Al-Sisi no longer has any cards to play at all, the country is witnessing unprecedented popular division. In addition to this, thousands of people are willing to get rid of Al-Sisi at any cost, while the economic decisions are now dependent on factors outside the Egyptian economy. Now, all of Egypt’s economic strength falls in the face of the policies adopted at the moment regarding the management of economic affairs.

Sixth, the finance minister told parliament that the government’s debt will increased, reaching $338 billion during the fiscal year that will start at the beginning of next July. The debt has reached tragic levels, almost equalling production. If the Russian loan is also added to the foreign debt, it will undoubtedly become even more of a burden on the economy as a whole.

Seventh, the Official Gazette’s Thursday issue statesd the president’s decision number 484 of 2015 regarding the approval of the agreement signed by the two governments, which stipulates that “in the event the interest is not paid within 10 days of the due date, it will increase by 150 per cent. And in the event the principal loan or the interest or both are not paid within 10 days of the due date, they are increased by 120 per cent. The Russian side has the right to suspend other uses of the loan in the event the late arrears or their interests are not paid within 90 days.”

Did you notice how any late repayment of the loan or interest will incur 150 per cent additional interest? How can such an unfair condition be accepted?

Independent countries try hard to take advantage of their resources in the best way possible in order to reap the fruits of economic growth. This is because proper use of resources means an increase in production, which, in turn, leads to the increase in salaries and consumption. This will then lead to an increase in the businessmen’s profits, thus raising production once again. Countries try their best not to take foreign loans and have foreign debt, as they negatively influence the country’s decision makers. Every day I am more convinced that Al-Sisi has only come to restrict Egypt and to hinder its development. Egypt will continue to suffer and pay the price for its actions for many years until everyone finally realises the crimes being committed against the country.

 

Translated from Arabi21, 23 May 2016.

The views expressed in this article belong to the author and do not necessarily reflect the editorial policy of Middle East Monitor.

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