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BUMPER TO BUMPER
Cairo’s new communities were designed to relieve some of the population pressure on Egypt’s capital. But as these communities have grown over the years, pressure has increased on the tenuous road network that connects them to central Cairo. Solving the problem requires massive investment in new roads and public transportation, an expense the government acknowledges it can’t afford alone. But is the private sector willing to foot the bill?
BY GEOFFREY CRAIG
Cairo’s satellite communities are supposed to offer a pleasant lifestyle with plenty of fresh air and open space. But people living and working in these mushrooming developments complain that they spend more time snarled in traffic than relaxing at home. The 15-kilometer trip from the satellite city of Sheikh Zayed to Lebanon Square in Mohandiseen, for instance, can take up to 90 minutes. And commuters must then fight traffic inside Cairo before finally reaching their offices.
Commuting twice a day, five days a week, can be unnerving, say residents living on the outskirts of the capital. “I like the fact that it is quiet and clean,” says British Council employee Layla El-Roz, referring to her neighborhood in Sheikh Zayed, where she has lived for the last seven years. “But the traffic has definitely gotten worse. There are days when I have to cancel appointments because I know I won’t be able to make it there on time.”
It seems that building villas and office parks was easier than providing the transportation infrastructure to support these developments. Truck routes were poorly planned, factories were never connected to railways and a limited bus service was provided only as an afterthought. Even the handful of roads connecting the capital and the new communities have proven inadequate.
Despite these inefficiencies, Cairo’s satellite cities continue to support a large presence of industrial facilities. In recent years, a large number of IT firms, educational institutions and residential communities have been built. Traffic is now moving in both directions – residents of the new communities commuting to their offices in Cairo, while Cairo residents are taking jobs and enrolling in schools in the new communities. The connector roads were never designed for this volume, and traffic grinds to a halt during rush hours.
The traffic bottlenecks are only likely to worsen as the population grows. Approximately 1.2 million people live in the eight satellite cities surrounding Cairo. That figure is expected to reach 6.8 million by 2022, according to the Ministry of Housing. “You’re complaining today, but wait until 2022 and see what the complaints are going to be like,” Minister of Housing Ahmed Maghrabi said during an AmCham luncheon last July. “We have to do something [quickly]. This is not a choice; this is not something that we can wait on, we must move now because we’re going to encounter very serious problems if we do nothing.”
While the solution might seem obvious – build more roads, light railways and expand the metro – the reality is far more complicated. Large-scale infrastructure projects carry an enormous price tag. It costs about LE 1 million to build a one-kilometer stretch of highway, and about 50 times that for a rail line. By the government’s own admission, it cannot afford to pay for every project that is needed.
Buddy up
Historically, the government awarded public infrastructure contracts to public and private contractors, paying the contractor to build the project, which the state would in turn own and manage. As infrastructure projects invariably carry enormous capital costs, the government could sap its limited budget on a single project.
If, instead, the government could find a private partner willing to carry the massive capital costs of building infrastructure, it would free up its budget to spread over many different projects.
But why would a private partner pump millions of pounds into building a road or railway? Because it sees profit in it, of course, says Mounir El Zahid, managing director of HSBC Egypt. “The private sector is in business to make money,” he says.
Recognizing this basic reality, the Nazif government has been courting investors with an enticing proposal – a public-private partnership (PPP) in which a private firm or consortium builds, operates and maintains a public infrastructure project, and, in return, retains a portion of the operating revenue. In PPPs, the government saves on capital costs, while the private sector stands to make long-term profits.
“Capital expenditures for infrastructure projects are very high,” says Rania Zayed, director of the PPP Central Unit at the Ministry of Finance. “Instead of getting soft loans from the World Bank and multinational organizations, we’d rather have a party from the private sector come and run a project. This way, we benefit from economies of scale, efficiencies of management, and proper maintenance and operation.”
The PPP model has a long track record around the world and encompasses a number of different partnership arrangements including build-operate-transfer (BOT), build-own-operate-transfer (BOOT) and long-term-lease agreement (ILTA). Some of these have been applied in Egypt since the early 1990s to projects related to airports, seaports and office parks, to name a few. In that sense, the latest push to promote PPPs in the transport sector does not signal a policy shift as much as cement a trend already under way.
It is typical, Zayed says, for governments with a PPP policy to focus on the transport sector. These tenders easily attract investors, with revenue streams, such as billboards, tolls, station commercialization and train fares. “Investors will not put their money in unless they are going to achieve a return on their investment,” she acknowledges.
The government will tender those projects that are commercially viable, while ponying up the capital to carry out the rest. “Not all projects are good investment opportunities for a PPP,” Zayed says. “So if the project is not a good investment opportunity, it’s the government’s responsibility.”
Road projects with high traffic generally are good candidates for PPP projects, according to Minister of Transport Mohamed Mansour, who figures the break-even point for a toll road is 30,000 vehicles per day. Less-trafficked roads may need subsidization.
Railroads are a more complicated story. They carry a lot of socioeconomic baggage as people expect that ticket prices on commuter lines will be steeply discounted. The better opportunity, say experts, is for the private sector to build and manage railway lines designed for high-end passengers, who will be drawn to the railway by its convenience and comfort, rather than its budget price. This requires a modern fleet with good service, something the private sector is more likely to provide. A high-end commuter line could also serve freight traffic.
A similar opportunity exists to build and manage a fleet of buses that serve the satellite cities. A private company could fill a niche by running a bus line that offers riders amenities in exchange for paying higher fares.
Blueprint to alleviate traffic
The master plan for Greater Cairo’s transport system (2002-12), drawn up by a team of Japanese consultants commissioned by the Ministry of Transport, provided a blueprint for Greater Cairo transport. It also served as a wake-up call. Unless additional measures were taken, the average car trip from home to work in Greater Cairo would increase from 37 minutes in 2002 to more than 100 minutes in 2022, it said.
The plan’s prescription was to move away from a “roads only” approach towards a more holistic view of the transport system, utilizing public transportation and finding ways to remove cars from the road. There was simply no way to build enough roads to offset the growth of Greater Cairo’s population, forecast to rise from 14 million to 20 million by 2022, it stressed.
The selection process begins with the transport ministry, which shortlists proposals and forwards its recommendations to the PPP Central Unit. “We first get a clear picture of future demand [in terms of commuters], and then figure out the appropriate method to meet this demand,” explains Hassan Selim, vice chairman of the Transport Planning Authority (TPA). “We come up with a list of projects in the short, medium and long term... then we present various alternatives, such as widening the road or building a light rail. Some things the government will do, of course, other things are good for PPPs, and maybe other projects will require extra incentives for the private sector.”
Many of the ongoing and proposed transport projects in Greater Cairo evolved as a result of the 2002 study. Several are under way that will serve the satellite cities (see sidebar, page 58). While the plan stressed the need to boost pubic transport, it also recognized that a well-maintained and planned road network was still important.
In particular, the study flagged the need to relieve congestion on the 26th of July Corridor from Lebanon Square to Sixth of October City, the main artery from Cairo to the satellite cities west of Cairo. Currently, work crews are upgrading the road surface of the median so that the road can be eventually be widened. They are also smoothing the road surface on the existing lanes.
Safwan Khedr, a professor of construction engineering at the American University in Cairo (AUC), says the renovation work was necessitated by the shoddy construction methods used when the road was originally built. The 26-kilometer road was not properly compacted, and that led to an uneven surface. “Usually when we build embankments – we start with the original soil and then compact the embankments in layers – each layer would have to be tested that it was properly compacted. This is a basic standard procedure we teach our students in their junior year, [but it] was not done because everyone was in a hurry.”
It was inevitable, he says, that the road would eventually need substantial repairs. But other roads are in bad shape not because they were improperly built, but because they have not been properly maintained. “Any road must be maintained strategically. I can’t just build a road and forget about it,” he says. “Flexible roads are designed for 10 to 20 years. If it’s concrete it can go up to 20 years. But if you want to extend the life beyond the 20 years – then maintenance must be performed, because if not the thing has got to be replaced.”
Lack of maintenance has been a problem on the Ring Road, a 95-kilometer loop around Cairo that serves the satellite cities in east and west Cairo. There has been too much traffic and not enough routine maintenance, such as filling cracks and fixing ruts. The result is an uneven surface that endangers drivers.
The Ministry of Transport is seeking a private partner willing to invest about LE 1.5 billion to upgrade the road conditions and make it into a proper freeway. With 80,000 vehicles per day, the road gives a private partner the potential to generate revenues from toll fees, advertising concessions and commercial service areas.
Another problem with the Ring Road is that the loop was never completed in Giza due to objections from UNESCO for passing too close to the Pyramids, a World Heritage site. The route was modified to bypass the Giza Plateau, and will instead snake its way north of the Mariotiya Canal. Work has already begun on the segment and construction is slated to finish by summer of 2009, before being tendered as a PPP.
By then, the Ring Road will be served by another road being built, dubbed the Saft Al Laban Corridor, which will run from the Tharwat Bridge to the Ring Road. It is expected to be operational by summer 2009, and should take about 30 percent of the traffic away from the 26th of July Corridor.
Despite all the road building, there will still be a lot of congestion. “Improving the road network is never enough,” says Khedr. “You can never build enough roads because that would assume that Cairo stops growing. As long as Cairo is growing vertically and horizontally in terms of the density of population and the area they are living on, you’re never going to have enough roads.”
This is due to organic growth, but also because new roads generate more traffic. The solution, therefore, is more mass transit. “Since a ‘more roads solution’ alone cannot keep up with the demand, more serious road congestion will take place everywhere without another optimal solution,” the 2002-22 master plan noted.
That solution, planners say, is more mass transit. First up on the Ministry of Transport’s agenda is a rail line to run between Ain Shams and 10th of Ramadan to be offered as a PPP project. The 39-kilometer railway would provide passenger and freight service between Cairo and El Obour and El Sherouk. Rail transport is very efficient as mass transport both in terms of cost, and the volume of commuters and freight it can transfer, says Khedr.
But the railway must include connection service to other modes of transportation such as private cars or buses, he says. “Intermodal transport is supposed to be an inherent part of any railway you build, because a railway by its nature is not as flexible as the highway. It’s not a complete system to take only railway [transport] because it doesn’t take you door-to-door. So complementary modes of transportation, basically a parking lot and private cars, are supposed to be an inherent part of a railway design.”
A public bus network, which combined with shared taxis and microbuses, make up the predominant share of trips to the satellite cities, according to a recent UNDP report on sustainable transport. The report found, however, that existing modes of public transport suffered from a bad reputation. “[It] is basically seen as transportation for the low-income population and those people who can afford to buy a private car are moving to use it for their daily mobility needs,” the report said.
Likewise, transport service within the new cities relies heavily on the informal sector, the report said, such as pick-up trucks retrofitted for passengers. “The residents are dissatisfied with those services, but obliged to use them in the absence of better alternatives. Again, this results in that as soon as the people who can afford to buy a car, they are going to start to use it instead of public transportation.”
To address this shortcoming, there is also a UNDP initiative to establish a luxury bus service between Cairo and the satellite cities. The service would include three express lines, connecting Sixth of October, Sheikh Zayed, Media Production City, Dreamland and Tahrir Square. The plan has the backing of the housing ministry, which would provide land for bus terminals, and is looking for private sector investment.
Delineating control
Investors seem intrigued by the opportunities to get involved in large transport projects. There are some outstanding issues, however, that need to be resolved before signing up, such as the absence of a single regulatory body that oversees all transport projects. A sole regulator is “the backbone of PPP,” Zayed says. Its absence “scares away investors, or they price risks so high that the costs of the project are extremely high.”
Investors must know that their investment is safeguarded, she says. “Before inviting a private sector company to come and invest in transportation, we have to create this regulatory form. We have to secure that no one will come and compete alongside his project... The investor has spent millions and millions, and he built his revenue stream based on a certain [amount of] traffic.”
A regulator should be given authority to veto proposals that overlap with existing services. Giving the example of a tender for a light rail project to connect Cairo to one of its satellite cities, Zayed explains: “Nobody could go ahead and do a transport project in Greater Cairo without the approval of the regulatory body, so if the Cairo Transit Authority comes along and [wants to] run something parallel to the light rail line, the regulator will tell them ‘no,’ there is already a railway line here.”
Another issue, says HSBC’s El Zahid, is whether the government is prepared to relinquish operational control on infrastructure projects. As the private party will assume the financial risk, it must have the authority to manage the entire operation. “If the private sector is running a railway, it must be in control of the stations, the garages, the management, and maintenance of the locomotives, engines and rolling stock,” he says. “The government can’t ask the private sector to drive, and then put them in the rear seat.”
One big question is whether the operator will be forced to cap train fares. The ticket price is a big component of total revenues and helps offset the high maintenance costs of railways compared to roads, but riders aren’t accustomed to paying full prices. “The railway has historically been thought of as a subsidized good,” a local investor told Business Monthly. “Many passengers who have limited incomes rely on railways because they don’t have cars. If you add supply but keep subsidizing the price, then you’ve only made the problem worse. It will be a challenge to change people’s mindsets. What will be their reaction if they aren’t charged a subsidized price?”
Whether an operator can charge the full fare will impact, in part, a project’s feasibility. Companies will study the costs and benefits carefully beforehand. But there is always the possibility that a project may fail. And if that happens, what next?
El Zahid says his bank sees a lot of potential in PPPs, while noting there are a few legal issues that must be cleared up first. It would be helpful to see how courts handle commercial disputes arising from PPPs, such as when a borrower defaults. El Zahid believes PPP contracts should, therefore, have a “step-in” clause to guarantee that the bank has some recourse available.
“What if the private sector fails to perform?” El Zahid asks. “Where do you stand with the debt? The step-in clause would be built in the loan documents drafted between the banks and borrower. As lending banks, we should be allowed and given the opportunity to structure mutually workable loan documents. That could take care of the sort of balanced relationship between the banks and the borrowers. We can’t just give the money and then sit back.”
A typical loan for a PPP transport project would run over LE 1 billion, according to El Zahid, which a bank would then syndicate to others. The fact that Egyptians banks have recently completed even bigger transactions for telecom companies, upwards of LE 4 billion to LE 5 billion, has prepared them well for other large-trophy deals, he says. “I think the local banking sector, including international banks such as HSBC, is very well equipped to cater to large PPP deals because we have the liquidity and know-how.”
The political will exists to move the PPP projects forward, El Zahid says. Indeed, the government believes that PPPs present a “win-win” situation, solving a serious infrastructure shortage at little cost. With a budget strapped for cash and no viable alternative, everyone is hoping this isn’t just wishful thinking.
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SATELLITE NETWORKING
When the first satellite city was built in 1977, transportation was simply an afterthought, recalls Hassan Selim, vice chairman of the Transport Planning Authority. “There wasn’t anyone living in the new communities yet, so transportation was not planned. Maybe some people depended on private minibuses or bus lines.”
The lack of public transportation was a problem for the early residents, many of whom didn’t have a car of their own. The satellite cities were originally envisioned as places for people with low- and middle-income backgrounds. Yet without access to a metro line, light rail or even a bus system, towns felt like remote outposts rather than self-sufficient communities. Arguably, as a result, they never accomplished their goal of creating new, sustainable population centers distinct from downtown Cairo.
Likewise, an inadequate transport system has hampered commercial growth. Cairo’s new communities became home to a number of industrial projects, from automobile plants to factories for building materials and carpets. Missing from this equation, however, was a multimodal transport network in which goods move seamlessly between seaports, railways, freeways and river ports, experts say. Instead, companies relied solely on trucking to move their goods, which is one of the most expensive transport options.
Over the years, a more robust road network has developed, such as the Ring Road, or the beltway that loops around Greater Cairo. The 26th of July Corridor from Lebanon Square in Mohandiseen to Sixth of October is now the main artery serving satellite cities in west Cairo.
At the same time, the satellite cities experienced a revival in the mid-1990s as private developers began building upscale villas and residential compounds targeting wealthy individuals. For this segment of the population, which tended to own cars anyway, the lack of public transport wasn’t a problem. However, existing roads were not built to accommodate the current number of cars, experts say, resulting in daily gridlock.
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