Over 20 years, successive Egyptian governments have announced at least six plans and projects to develop and modernize the country’s railway network with a budget of approximately $880 millions earmarked for their execution. Yet, the plans and the tens of million dollars allocated to them failed to achieve those goals.
Based on data figures and their analysis, this investigation assesses the execution of these plans and projects geared towards improving and developing Egypt’s railway network, in a way that curb the losses and increase its safety standards. It also highlights why these development plans have failed to achieve their goals.
Since the middle of last century, Egypt’s National Railway (ENR) development projects have depended on loans. In 1956, the Egyptian Rail Authority (ERA) National Railways company secured a loan of EGP 750,000 from the Post Office’s Saving Fund for five years at an interest rate of 4.5% to buy diesel-powered locomotives.
Since then the dependence on loans to execute badly needed projects has gradually increased, so that 70% of railway projects have become loan-dependent, as claimed by Minister of Transport Hisham Arafat while briefing a plenary session of the Egyptian parliament.
In December 2015, the Board of State Commissioners (an Egyptian Administrative legal oversight body) recommended that officials should be required to disclose the budgets of the National Railways and the amount of loans it has so far accumulated. This came after the Egyptian Center for Economic and Social Rights filed a lawsuit against the National Railways Authority’s practices before the board of commissioners three years earlier.
Lawyers at the Egyptian Center for Economic and Social Rights said that if the loan figures were true in light of the budgets allocated by the state to the railways authority and the projects implemented to develop the network, officials should be held accountable administratively and criminally since train accidents are usually the result of negligence, the lack of signal safety system and their poor maintenance.
In the late 1960s, railways reached a state of deterioration that led the government at the time to sign an agreement with Germany to develop this vital sector. Germany’s support and financing came through projects offered and implemented by D Consult GmbH, a German firm, according to Dr. Hamdi Barghouth, an expert in international transport. He also attributed the network’s deterioration during that period to negligence in replacement, renovation and maintenance operations.
In the early 1990s, the German government stipulated a gradual reform of railway economics in order to continue providing support, Barghouth says. This depended on achieving balance between revenues and expenditures within 10 years through gradually increasing transport costs. But the price increases were not adopted for political, economic and social reasons, according to the expert.
Hence, the German government refrained from offering new loans to the National Railways Authority, and its team of experts based in Cairo left after a 24-year mission at D Consult offices, which were located inside the Rail Authority’s headquarters at Ramses Square in Downtown Cairo.
New Accidents… and a National Development Plan
In late 2006, specifically after the Qalyub train accident, which left 58 dead and 140 injured, the Egyptian government decided through the Ministry of Transport to draft a new plan in cooperation with the international consultancy Booz Allen Hamilton called The Plan for Restructuring and Developing Egypt’s National Railways, the document attributed the deterioration of the railway system to lack of investment, poor safety and inadequate management.
The government allocated EGP 8.5 billion for the plan ($460 million), including EGP 5 billion ($270 million) immediately allocated from the proceeds of the third mobile license contracted by the government at that time. The rest would be earmarked from the state’s budget, then Prime Minister Ahmed Nazif announced. In addition, there would be funding provided by the Ministry of International Cooperation in foreign grants and loans, Majdi Radi, the spokesman for the Council of Ministers, told Al-Ahram newspaper in late August 2006.
Safety… The Development Goal that Has Never Been Met
As the implementation of the Plan for Restructuring and Developing Egypt’s National Railways started in 2006, the number of train accidents exceeded 1,000 a year, and the number gradually rose to 2,000 by 2010.
The development plan was also due to be completed by 2011, the year the country saw a revolution taking place and the toppling of the Mubarak regime. With the political and security upheaval that followed, trains traffic came to a halt, and with it the development plan was frozen temporarily.
As the railway operation returned gradually to full capacity by 2013, the rate of train accidents gradually increased, reaching its peak in 2018, which saw 2,044 incidents, according to the Central Agency for Public Mobilization and Statistics (CAPMAS) data.
After the announcement of refurbishment and development plan was announced in 2006, more than 21,000 train accidents were recorded according to CAPMAS, which said 1,287 people died and 2,113 others were injured between 2002 and 2019.
Mounting Debts… And Eroding Assets
In mid-May 2020, during a meeting at the presidential palace, the debts of National Railways Authority amounting to EGP 250 billion or ($13.4 billion) of which EGP 100 billion ($5.37 billion) were owed to the Central Bank, the guarantor entity of all local loans granted to the Rail Authority, and EGP 150 billion ($8 billion) were loaned through the state budget for projects currently being implemented by the Ministry of Transport, were all presented by Minister of Transport Kamel Al-Wazir to President Abdel-Fattah Al-Sisi.
The Authority’s debts to the Central Bank, which a presidential statement issued after the meeting estimated at EGP 100 billion ($5.37 billion), were accumulated by the Authority over years due to an annual deficit between daily operating revenues and costs that has hit 30% in 2019. This deficit was covered by overdraft from the Central Bank in loans entailing interest that the authority committed to settle, according to National Railways’ head then, Ashraf Raslan.
Interest Value Exceeds Loan Value
The Authority’s debts include the loans it had borrowed late last century and the interest that such loans have incurred due to repayment failure. Interest value has exceeded the original loans; the Authority’s former head, Ashraf Raslan, says he considers this the biggest part of the debts, which continue to grow annually. Something similar happened to the loans obtained by the Authority from the National Investment Bank (NIB).
The value of the annual interest for an EGP 10 billion loan ($540 million) was estimated at EGP 4.1 billion ($220 million) in the 2019/2020 financial year – and that is the interest for one year only. Hence, the interest amount exceeds the total of 20 loans obtained by the National Railways Authority from NIB during the last two decades. The value of the EGP 10 billion loan ($540 million), after adding the total interest, jumps to EGP 33.4 billion ($1.79 billion), said Raslan, during a meeting of Parliament’s Plan and Budget Committee in January 2020.
During the period set by the government (2006 – 2011) to implement The Plan for Restructuring and Developing Egypt’s National Railways of 2006, the Rail Authority obtained loans and grants from three international and local bodies to finance the plan.
In August 2009, the World Bank approved a $270 million loan for the National Railways Authority, as part of the government’s planned funding for its implementation. The loan was increased in September 2011 to $600 million, after approving a so-called “additional loan” at a value of $330 million.
According to a report by the Central Auditing Organization (CAO) issued in 2013, “The Rail Authority was unable to properly plan, organize and prepare itself to benefit to the maximum from the World Bank loan”.
The report attributed the reason to be the “very slow leveraging of the World Bank loan,” which negatively impacted the implementation plan.
According to the Central Auditing Organization (CAO) report, it took the Rail Authority more than one and a half year to contract a company to implement the project after it received 22.5% of the total value of the loan. The contracting procedures took more than three years also from the date after the Authority was granted the right to access the funds of the loan, the report said.
This negligence also meant that the so-called “additional loan” from the World Bank was not leveraged by the Rail Authority for another two years according to CAO’s report (The agreement with the World Bank gave the international body review and financial supervision rights). The report showed that spending the $330 million loan started more than two years after the loan was granted.
The report called on the Rail Authority to make quick use of the loan to save lives and property.
The World Bank’s loan, which was due to expire in September 2015, in accordance with the project agreement, was closed in December 2020. The Egyptian government was able to extend the project implementation period and the reforms agreed upon with the World Bank three times (2017, 2019 and 2020).
Railway operators continue to announce new development plans and receive additional international loans for implementation. The Rail Authority, which is trying to settle its old debts, has received so far $2 billion approximately from 2017 until the completion of this investigation.