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  • Monday ,11 August 2014

Egypt’s Suez Canal Expansion Plan Raises Some Questions

By the Wall Street Journal

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Monday ,11 August 2014

Egypt’s Suez Canal Expansion Plan Raises Some Questions
The Suez Canal–one of the world’s vital trading routes–is set for the first major expansion in its 145-year history.
Egypt’s ambitious multi-billion-dollar plan, which could nearly double the waterway’s capacity to 97 passing ships a day by 2023, has been largely welcomed by shipping industry executives and economists, albeit with some skepticism.
Sure, the expansion will help relieve bottlenecks. The Suez Canal, which connects the Mediterranean with the Red Sea, can mostly only facilitate one-way traffic–either ships heading north or south–as it is too narrow at some points for vessels to cross both ways. The new canal is expected to solve this problem, cutting the waiting time for ships to three hours from 11 hours.
The waterway, however, won’t be deepened to allow fully-laden supertankers, which usually lighten their load–mostly crude oil–before passing through the canal, or do a much longer journey around Cape Agulhas in South Africa.
And can Egypt finish the project on schedule, and how will the cash-strapped country fund it?
Egypt’s President Abdel Fattah Al Sisi has set a one-year deadline from now to complete the 45-mile long parallel waterway. The original 101 mile-long canal took 10 years to build in the 1860s, at great human and financial cost.
“If no major dredging is involved to allow bigger ships to go through, the work could progress smoothly and swiftly,” said a senior executive of a European shipping company who asked not to be identified. “But a year’s time is very ambitious. I don’t think it can be done.”
Egypt also expects the new channel, which would alone cost about $4 billion, will earn the country more than $13 billion a year in toll fees by 2023, which is more than the $5 billion that the existing waterway earns in toll fees.
Mr. Sisi said the project won’t depend on foreign funding but instead would be financed through the offer of 500 million shares to Egyptians only. Bankers familiar with the matter said the government is expected to establish a joint-stock company and file for an initial public offering in September, but details of the share sale remain vague.
Standard Chartered noted that Egypt’s financial situation is a concern with public debt estimated at over 90% of GDP. “Raising funds for new investment projects outlined in the “development corridor” growth strategy remains a serious challenge,” said Sayem Ali, an economist at the bank.