TOGY talks to
Infrastructure for Egypt’s growthJuly 23, 2019
Hassan Allam, group CEO of Hassan Allam Holding, talks to TOGY about why Egypt is becoming more attractive as an investment destination and opportunities created for engineering and construction firms by the rise of gas and renewables in the country. Hassan Allam Holding is engaged in engineering, construction and infrastructure development.
What is Egypt’s recent progress in boosting its attractiveness for investment?
We’ve had to weather numerous political headwinds in recent years, but are now entering a phase of stability for the entire economic and political landscape. This stability has been reflected positively in the construction industry, which is now steadily recovering, and set to benefit further as the clear economic policy agenda of the Egyptian government continues attracting foreign investment.
In recent years, Egypt has been able to position itself as an attractive destination, leveraging its access to global and regional markets and our existing infrastructure, energy and transport capabilities.
Today, following several significant discoveries, we have an abundant supply of natural gas, which will be used not only for power production but will allow the country to create a petrochemicals and chemicals industry, helping to increase exports that will in return bring in foreign currency to support further economic growth.
With our energy now being generated by an increasingly diverse set of sources, including renewable energy, coal, nuclear, gas-based power plants, heavy fuel-based power plants and hydropower, we can begin to use our natural resources to produce other products.
What has been your recent engagement in renewable energy?
We are highly involved in renewable energy both on the engineering and construction side and as a utility investor and developer. Hassan Allam Holding is made up of 10 companies. One of them is an engineering and construction business engaged in activities ranging from building power plants to constructing some of the largest and most important national infrastructure projects.
As the Egyptian renewables sector develops and expands, it has created many opportunities for construction companies like ours to participate in building the necessary infrastructure to support the sector’s expansion.
Through our joint venture with Lightsource BP, we both invest in and directly build solar plants while also selling electricity to both the private sector and the government. By investing in the power plants and making our returns from the tariffs, we are able to offer very attractive tariffs and remove the capex requirement from our clients’ books. As part of our agreement, clients are required to buy electricity from us for a specified amount of time, a type of agreement which is becoming increasingly popular in Egypt.
We specialise in both renewable and conventional power plants such as the one we are building in Luxor on an IPP basis in partnership with ACWA Power. This will be Egypt’s largest IPP, with construction expected to begin in 2020. We have a large pipeline of projects over the next six months that will add to our renewables activities.
Regarding Egypt’s gas self-sufficiency, what opportunities does this milestone offer?
Egypt has gone through several years of infrastructure building and renewal, and we participated heavily on that front. Now it’s time to industrialise and monetise this. With all the recent discoveries and Egypt’s self-sufficiency status, power is no longer an issue, which is opening up doors to pursue other opportunities. In the coming years, we’re looking into opportunities to build fertiliser and petrochemical plants on top of oil and gas facilities.
Hassan Allam Construction is a service provider, and although we sometimes co-invest to secure opportunities, our mandate is engineering and construction. We recently acquired a stake in Egypt’s largest EPCM firm in the energy sector. The firm is focused on numerous power solutions, and we hope to leverage its expertise in the field to offer engineering and construction solutions across the entire energy spectrum – moving away from just the power sector.
Being mainly an engineering and construction company, how are you contributing to enhancing Egypt’s transformative industries?
We contribute largely through our engineering and construction arm. Although we’re not a manufacturing company, we support clients by co-investing alongside them. In return they handpick us to provide the necessary engineering and construction services and agree to a clear exit strategy down the road to allow us to remain focused on our core activities.
We also offer other services such as water treatment facilities on a concession basis. In this case, we invest and build as part of a larger project and get paid tariffs on the treated water. This ensures that the client has a project built to standards without directly spending on capex for the plant. The same applies to power; we can invest and build a power plant and then sell the client the power.
How are you taking advantage of your vertical integration and the synergies between the group’s companies?
Controlling the cycle associated with your service allows you to control quality and to deliver a competitive service on time and to spec. If I’m building and investing, I control much of the cycle while also controlling the standards. This allows us to be a value-added partner and enhance our margins without having to do much in the way of subcontracting.
What are some of your latest projects in Egypt?
We recently completed civil works for the Egyptian Refining Company, which will be inaugurated in May 2019. ERC represented a significant construction project for a major oil player. We are currently active in the construction of several fertiliser and petrochemical plants, including an ammonium nitrate plant and an ethylene plant for Carbon Holdings, in partnership with Linde and CCC. We are also offering offsite utilities via our subsidiary PGESCO. So far, we have built three fertiliser plants for NCIC.
How important is the oil and gas industry to the group?
It’s extremely important. We realise Egypt has built significant infrastructure and you don’t do that unless you’re industrialising. Companies like ours have shifted their focus from water, roads, and airports to heavy industrial facilities. Because we offer a vertically integrated scope, we focus on large-scale energy and industrial projects rather than small- to medium-sized plants.
The development of the oil and gas sector means significant investment in construction-related services, from design and construction to the fabrication of steel and other building materials. Today, companies such as Bechtel and Eni are potential clients for us.
What are your latest M&A activities?
About a year ago we acquired 60% of PGESCO. We also recently acquired two companies in the water treatment sector, one in Germany and one in Egypt. They offer water treatment on a municipal level, as well as water treatment and effluent treatment on an industrial level. We support them through two channels: our construction group, which creates opportunities for them, and our utility investment company, which has become a client of theirs.
We can go to different clients and offer them waste treatment on a turnkey basis, handing over something that is fully operational. We can also offer this service on the energy side with a particular focus on both conventional power and renewable energy.
Overall, we’re incredibly excited about the opportunities in play for us right now, and we think that both the utility investment and development arms will contribute significantly to our future growth.
What is your international strategy?
We have an Africa plan. We have on-the-ground presence in North Africa right now but hope to expand our presence to West and sub-Saharan Africa by 2020. We are pursuing multiple opportunities and have finalised some agreements which will be announced in the near future.
What opportunities does Africa’s rapid industrialisation offer to Egyptian companies?
There’s a big drive from the government to encourage Egyptian companies to invest in what should be a natural path of growth for Egyptian companies like us. The rising interest in Africa is also driven by the fact that, today, the GCC is a highly competitive market that offers fewer opportunities in comparison. Most global players are also looking at Africa now as the continent represents the new frontier for anyone looking to invest in high-potential, fast growing economies. I’m confident we have a competitive advantage over these players, one that we don’t have in places such as Asia or Southeast Asia. This is why we have stayed out of those regions thus far.
Where do you see the biggest growth coming from in the years ahead?
We intend to grow as a utility developer and investor, which we are confident will provide stable revenue and income for the group. We have seen growth on the engineering and construction side in the past, but we’re also well aware of the cyclicality of that market and so we need to offer more to build out that stability.
Focusing on the utility and investment side allows our construction group to get work, while at the same time offering up a service we have tremendous capacity and capability in, be that power or water solutions. Not only do we know how to build, hand over, and maintain these projects, but it also allows us to do something of national significance.
Water poverty is a global issue: 40% of the world’s population will not have access to clean water in the next 15 years. In our part of the world it’s even worse due to our geography. For us, this is the new oil. With power, Egypt’s experience has been very successful, and it has allowed us to develop the competences and experience needed to offer these services in other countries on a competitive basis.