Information Note
Round Table
on
Implications of International Fuel Prices on the Feasibility of ENSAP
Hydropower Interconnection Projects
The Assignment:
As part of its 2008 Work Plan of the Institute of National Planning (INP), in its capacity as
a Participating Institution (PI) in the Socio-economic Development and Benefits Sharing
(SDBS) project of the Nile Basin Initiative (NBI), is requested to prepare a study on the
“Implications of International Fuel Prices on the Feasibility of ENSAP Hydropower
Interconnection Project”. The study is intended to provide support to the Eastern Nile
Technical Regional Office (ENTRO), the office in charge of the implementation of the
investment projects of the Eastern Nile Subsidiary Action Program (EN-SAP). A
preliminary inception-type first draft report was submitted on 31 May 2008. The
deadline of the main report is 30 September 2008. INP is committed to this deadline.
Background:
The ENSAP Hydropower Interconnection is one of the win-win benefits sharing
objectives of the ENSAP region and the NBI at large on the long run. Towards this end, a
comprehensive two phases “Eastern Nile Power Trade Program Study” is underway.
Phase one was concluded in December 2007. Phase two started in February 2008 and is
scheduled for completion in December 2008. The multi-million dollar study is conducted
by two international consultants assisted by three competent local consultants in Egypt,
Sudan and Ethiopia. Phase one revealed that the international fuel prices are governing
factor in deciding the profitability of the interconnection to Egypt. (see Concept Note
prepared by ENTRO, attached)
Bird’s-Eye View of Study Results (Phase I):
The study was based on the following forecasts:

Annual Energy Outlook of the Energy Information Administration of the USA for
the year 2006 (AEO-2006). This gives a year by year stream of forecasts for the
oil prices till the year 2030.


European Commission forecasts for the European and African markets for the
natural gas prices.
Coal prices were assumed constant at $ 63/ton.
Several technical combinations for the interconnection schemes were investigated. Two
options were singled out based on the minimum cost of their outputs. These could be
referred to as the 35 USD/MWh HPP and 40USD/MWh HPP options.
An economic analysis (?) for the above least-cost options revealed the following breakeven points and results:
For10% Discount Rate:
 Least cost option used is 35$/MWh
 Option is competitive when natural gas price in Egypt is in the range 5-5.5 $/M
BTU
 This value is exceeded in 2015
 If natural gas prices remains low, this target will not be achieved before 20252030
For 12% Discount Rate:
 Least cost option used is 40$/MWh
 Option is competitive when natural gas price in Egypt is in the range 6-6.2 $/M
BTU
 This value is exceeded in 2015
 If natural gas prices remains low, no profitability is expected from this option
even in 2030
Preliminary Views of INP
Eastern Nile Power Trade Program Study is a highly sophisticated study conducted by
two world class consultants and assisted by competent local ones. Technical
competency is out of question. However, though the fuel prices are governing factor in
the vital decisions concerning project acceptance, yet the consultant didn’t dwell much
on those forecasts. He resorted to single sources and adopted their forecasts which are
updated annually. Forecasts for 2006 didn’t take into account the significant
developments of 2007-2008 and the linkage with the food crisis. The forecast problem
lends itself to both qualitative as well as quantitative factors. Econometric models are
not adequate by themselves. The feasibility analysis was limited to a narrow concept.
Discount rates were applied without clear justification. Hence, it is believed that the
issue deserves a deeper investigation.
In view of the above, INP was confronted with the following question:
Within the given time and resources limitations how could INP meet its contractual
obligation and fulfils its mandate of supporting ENTRO in its undertaking??
INP Approach:
Upon deliberating on how best can we meet the above challenge, INP team arrived at
the conclusion of developing an analytical tool that would help ENTRO to better
understand the driving forces and mechanisms, if any, that influence and fix the fuel
prices both internationally and domestically in Egypt. This tool could be in the form of a
narrative text in addition to a Conceptual Model explaining how these forces interact
with each other. Towards this end and in addition to a synthesis of the host of
internationally available information on the subject particularly in view of the current
energy and food crisis, a panel of eminent experts covering the various angles of the
subject will be invited in their personal capacity to a Round Table discussion centered
around key queries and questions. Discussion will be structured in several iterations
according to relevant rules until a consensus is reached.
Outcome Envisaged from the Round Table:
The outcome envisaged from this round table could be outlined as follows:
1 Substantive knowledge that would enable INP team to build the intended
conceptual model.
2 Expert opinion on the future trends of the real prices of international fuel till the
year 2030 with particular emphasis on the price of the Egyptian natural gas and
justifications thereof.
3 A conclusion ascertaining or negating the results arrived at by the consultant and
hence the implication on the “feasibility” of the interconnection project
The natural gas prices indicated in the consultant’s results will be used as “bench marks”
for gauging the experts’ opinion. Would the values arrived at by those experts be above,
below or within those bench marks? This means that we implicitly adopt the decision
machinery applied by the consultant in his economic analysis. This satisfies an objective
condition for conducting meaningful comparison if other factors are kept the same.
Moreover, it saves the effort of going into details of such decision machinery where no
information about it is available.
Broad Agenda of the Round Table:
1 Understanding Eastern Nile Power Trade Program from national perspectives of
the involved countries. (1 hr)
2 Driving forces and future trends of the international fuel prices (3 hrs)
3 Future pricing of Egyptian natural gas and opportunity cost concept (!!)(2 hrs)
4 Implications of the above on the feasibility of interconnection.(2 hrs)
Date and Venue and Duration:
The Round table will be held for one day at 9:00 am on 21 July 2008 in Sonesta Hotel.
For any further information, please contact:
Dr. Ahmad M. Farahat
Mobile: 010 6425006
Ahmad.farahat@gmail.com