Suez canal expansion contract signed

Both ENDS, 23 October 2014

On 18 October it was reported that the Egyptian authorities signed a contract with an international consortium of dredging companies to expand the Suez canal[1]. The consortium includes the two main Dutch dredging companies: Royal Boskalis Westminster and Van Oord, as well as the Jan de Nul Group from Belgium and the National Marine Dredging Company (NMDC) of Abu Dhabi. The total contract values an amount of US$ 1.5 billion. Each of the two Dutch parties involved are reportedly entitled to an equal share of US$ 375 million[2]. Apparently the consortium defeated a Chinese consortium that competed for this deal.

The expansion works include the dredging of a 75 km long new parallel canal as well as the widening and deepening of existing stretches. Thus the capacity of the canal is supposed to be doubled, allowing for an increase of revenues from the waterway of US$ 5 billion to US$ 13.5 billion. However some economists express serious doubts about these optimistic figures, as they largely depend on the cost of capital required for this investment, as well as developments in global trade. The project is a flagship project of the new Egyptian President Abdel Fattah al Sisi, who came to power last year following a military coup he led as army general. He ordered the project to be finished by August 2015, which means that all the work has to be completed in a record breaking short period. Due to this the dredging consortium is currently rushing to bring at least 17 cutting dredgers in from all over the world as quickly as they can.

The project will largely be financed by bonds that have been sold to Egyptian citizens only. Additional project finance may have been made available from Arabian Gulf States. The Dutch dredging companies taking part in the consortium are said to have negotiated an advanced payment of 15% of their share in the project to avoid payment defaults similar to previous experiences in Egypt[1]. Despite these arrangements however, also ECA-cover by Atradius DSB is foreseen as part of the deal. The CEO of Boskalis – Mr. Berdowski – expressed confidence that this should not be a problem[2].

Nevertheless one already should take note of serious concerns that provide grounds to question whether this project should at all be eligible for a cover from Atradius DSB. Early September the English newspaper The Guardian reported that already thousands of people have been evicted for this project without compensation, while a total of 5.000 houses would be under threat of eviction[3]. Evicted villagers have simply been told that they had no right to live in the area, and some persons who protested the army making this claim have been arrested already. Also major concerns have already been raised on environmental impacts such as groundwater problems due to the absence of necessary research that should precede implementation[4].

For any Cat A project Atradius DSB would be required to publish an EIA for a public consultation period of at least 30 days before deciding on the export credit insurance application. In light of the tight timeline for the project ordered by President Al Sisi, it will be worthwhile to monitor how Atradius DSB will handle the announced application for this project. It may prove another test case for how Atradius DSB will balance its mission to support Dutch companies abroad with its duty to protect the environment and the people affected by this project.

Briefings & reports from ECA watch members