The new law applies to agreements for green hydrogen projects that would start production within the next five years. These projects include green hydrogen production plants and derivatives, desalinated water production plants that allocate a certain percentage of their production to the production of green hydrogen and derivatives, and power plants from renewable energy sources that allocate no less than 95 per cent of their production to feed green hydrogen production plants.
The maximum term for such agreements is 50 years from the date of their conclusion.
Projects also benefiting from the new law includes those whose activity are focused on transporting, storing, or distributing green hydrogen and derivatives produced within Egypt. After consultations with the ministers of finance and electricity and renewable energy, projects whose activities are limited to manufacturing the production inputs necessary for the above-mentioned factories will also enjoy the benefits of the law.
The provisions of the new law also apply to future expansions of existing projects that meet the stated requirements throughout the validity of the agreements, provided that the agreements for expansion are concluded within seven years of the date of the start of the commercial operations of the project.
The incentives include tax breaks ranging between 33 and 55 per cent on the incomes earned from the projects. They also include exemption from value-added tax (VAT) on the purchases of equipment, tools, machinery, raw materials, and transportation necessary for the projects.
Exports from green hydrogen projects and derivatives are subject to VAT at a rate of zero per cent.
The Ministry of Finance, according to the proposed law, is obligated to bear the value of the taxes on green hydrogen projects, as well as the value of the stamp tax and other administrative fees.
All green hydrogen projects are allowed to import and export without the need to be officially registered as importers or exporters.
The draft law includes a number of requirements for firms wishing to benefit from the incentives, including that projects should begin commercial operations within five years from the date of the conclusion of the agreements, and that the projects or their expansions should rely on foreign lending of at least 70 per cent of the investment cost for financing operations.
The projects should source 20 per cent of their production inputs from local suppliers in order to be eligible. They should contribute to the transfer and localisation of modern and advanced technologies, with a commitment to developing and implementing training programmes for Egyptian workers.
Yousri Al-Sharkawi, head of the Egyptian-African Businessmen’s Association, believes that the move to adopt a package of incentives in support of energy sectors and projects related to the production of green hydrogen is a good one and is a step in the right direction, given that the energy sector leads economic development.
“Energy is one of the most important issues for the Egyptian state, and Egypt has been transformed from a country that suffers from an energy deficiency to an exporter that has diversity in energy production,” he said.
Al-Sharkawi stated that Egypt is now moving steadily towards more renewable energy projects, with a focus on green hydrogen, as well as the nuclear project in Dabaa.
“Hosting the UN Climate Change Conference [COP27] in November 2022 opened the way for Egypt to attract foreign investment in the field of green hydrogen and modern energy production,” he said.
He added that the new laws to expand renewable energy projects need to be enforced according to precise and clear executive regulations in which small, medium, and large investors can successfully start establishing their projects.
Since the beginning of 2022, Egypt has signed many memoranda of understanding with various international entities to attract foreign investment in green hydrogen and to become a hub for its production.
Total foreign direct investment in green hydrogen projects in Egypt is expected to reach about $81.6 billion by 2035. The government aims to expand these projects and integrate them into the National Energy Strategy 2035 within the framework of plans to transition to carbon neutrality and reduce emissions from the energy sector.
“To strengthen the economy, Egypt needs to attract more foreign direct investment, as this is the main source of hard currency without the state bearing more of the costs,” Al-Sharkawi concluded.
* A version of this article appears in print in the 1 June, 2023 edition of Al-Ahram Weekly