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Egypt and Germany Seal EUR 54 million Debt Swap Agreement to Facilitate Green Energy Transition

June 26, 2023
Zafarana Wind Farm, Suez, Egypt – September 1, 2020. REUTERS/Amr Abdallah Dalsh

The German Development Bank (KfW), on behalf of the German Federal Ministry for Economic Cooperation and Development (BMZ), signed a debt swap agreement worth EUR 54 million (EGP 1.8 billion) with the Ministry of International Cooperation, the Ministry of Electricity and Renewable Energy, and the Central Bank of Egypt.

This agreement exempts Egypt from repaying debts amounting to EUR 54 million (EGP 1.8 billion) owed to Germany, enabling it to allocate the funds towards bolstering the transition to green energy in Egypt instead.

A press release issued by the German Embassy in Cairo stated that the German government had pledged during the COP27 International Climate Conference in Sharm El-Sheikh in November 2022 to make a significant contribution to Egypt’s “Nexus of Water, Food, and Energy” (NWFE) initiative.

In line with this commitment, Germany has agreed to provide a total financing package of over EUR 250 million (EGP 8.4 billion) for the same purpose, including debt relief as well as concessional grants and loans.

NWFE is a multi-billion dollar food and agriculture initiative presented by the Government of Egypt at COP 27 in November 2022 that aims to facilitate the shift from inefficient fossil fuel capacity and the consumption of natural gas to environmentally sustainable and renewable energy alternatives.

The current debt swap, which falls under the energy pillar of NWFE, aims to support the Egyptian government in achieving its goal of producing 42 percent of electricity from renewable energy sources by 2030 through financing the investments that pave the way for this initiative.

The financing is dedicated to developing the transmission network to integrate renewable energies into the power grid and enhance its capacity, particularly through the establishment of two substations and the connection of two wind farms (Amunet Farm and Red Sea Wind Farm) with a capacity of 500 megawatts each to the national transmission network. According to the press release, the projects will be implemented in collaboration with the Egyptian Electricity Transmission Company.

The debt swap agreement between Germany and Egypt has been an ongoing collaboration, with the current phase marking its third iteration following a renewal agreement reached in October 2022.

Under the second phase of the debt swap program, which commenced in August 2021, Germany allocated a substantial amount of EUR 41 million (EGP 1.38 billion) designated to support the Comprehensive Technical Education Reform Initiative (TCTI) in Egypt. These funds were instrumental in implementing a range of development projects aimed at enhancing the technical and vocational education sectors in the country.

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