EGYPT: Developing a business model for freight rail PPPs

The Egypt National Railway (ENR) plays a critical role in passenger transport in Egypt, serving about 270 million people annually, mostly low-income earners. The railway’s traffic density is also among the world’s highest—it transports 1.4 million passengers every week. In contrast, the railway plays a marginal role in freight. In 2016, it carried only 3 million tons, accounting for only 4 percent of the system’s traffic. In total, the system comprises 5,000 kilometers of track.

The transport sector is vital for connecting lagging regions to growth centers. By increasing connectivity, Egypt can meet the transportation demands of a growing population, provide better market access to the underserved, particularly in lagging regions, and provide the necessary routes for sourcing inputs and services and linking local and international markets.

Improving the efficiency of the railway network also supports the government’s commitment to climate change. The government is committed to reducing greenhouse gas emissions and has formulated its Intended Nationally Determined Contribution (INDC), which recognizes the importance of reducing emissions in the transport sector.

Resources to achieve these goals, however, are in short supply. The government is looking to the private sector to provide financing and managerial skills necessary to improve railway infrastructure, operations, and safety and increase its freight capability.

The investment needs are significant. If current trends continue, Egypt could face an infrastructure financing gap of $230 billion over the next 20 years. The transport sector alone accounts for $180 billion of this amount.

As part of its infrastructure development plan, the government of Egypt spent billions to develop ports on the Mediterranean, Red Sea, and the Suez Canal. It also plans to develop three multimodal dry ports and logistics zones. With support from EBRD, a PPP for a dry port in the Greater Cairo Metropolitan Area has already reached financial close. However, this dry port would have limited benefits if not accessible by rail.

The World Bank’s $440 million Railway Improvement and Safety for Egypt Project, approved in March 2021, aims to improve railway infrastructure, promote reforms that improve safety and service quality, and mobilize private sector investment.

PPIAF’s advisory services, implemented in collaboration with the Bank’s Transport Global Practice, supports ENR’s restructuring program and the government’s efforts to identify PPP opportunities in the railway sector. It helps government define opportunities for private sector participation in the rail sector and supports reforms that create an enabling environment to encourage private sector investment, exports, and job creation.

A pre-feasibility study of the sector identified a model for private sector participation for a freight railway line from the Alexandria Port to the dry port in the Greater Cairo Metropolitan Area. It also provided guidance on how best to maximize the operational efficiency of the railway line and highlighted the implications of the proposed changes in ENR’s institutional setup.

By providing an economically feasible alternative for shipping freight, the railway will encourage a shift away from trucks. This will generate considerable savings in greenhouse gas emissions, time, vehicle operating costs, road accidents, and road maintenance costs.

The PPIAF report also recommended that a private sector partner be selected through a transparent bidding process to operate and manage the line. The project, estimated at $287 million, is economically viable and has an internal economic rate of return of 39 percent. IFC is planning a full feasibility study as a next step.