Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized PROJECT INFORMATION DOCUMENT (PID) CONCEPT STAGE Report No.: AB4960 Project Name EG-Second Airport Development Region MIDDLE EAST AND NORTH AFRICA Sector Aviation (100%) Project ID P101201 Borrower(s) GOVERNMENT OF EGYPT Implementing Agency Egyptian Holding Company for Airports and Air Navigation Airport Road Cairo Egypt, Arab Republic of Tel: (20-2) 267-0555 Fax: (20-2) 635-0933 Environment Category [ ] A [X] B [ ] C [ ] FI [ ] TBD (to be determined) Date PID Prepared August 26, 2009 Estimated Date of November 30, 2009 Appraisal Authorization Estimated Date of Board February 23, 2010 Approval 1. Key development issues and rationale for Bank involvement Context and key development issues The Government of Egypt (GOE) considers the air transport sector as highly strategic for the country s economic development. Indeed, this sector is key to integration into the regional and global economy by supporting economic exchanges and movement of people. Through air transport, Egypt can take advantage of its geographical position of crossroads between Europe, Asia and Africa. Cairo International Airport is the second largest airport in Africa, after Johannesburg in South Africa. The air transport sector also generates significant employment. Thus it is commonly estimated that one direct job in air transport creates six indirect jobs in the economy, which is illustrated by the installation of an increasing number of companies near the Cairo airport platform. 1 In addition, the air transport sector support tourism and carries most of the foreign tourists visiting Egypt. Tourism accounts for 11.3% of Egypt s GDP, with a total revenue of US$10.8 billion in 2007/08. A total of 12.8 million tourists arrived in 2008, up from 11 million the year before. Today, an estimated 2.5 million jobs directly and indirectly depend on tourism, which has become less and less vulnerable to political events and terrorist attacks. 2 The GOE s overriding concern during the current economic crisis is to maintain economic activity and job creation, as well as to press ahead with economic reform and liberalization, especially in the air transport sector. The global economic slowdown that began in 2008 has reversed the favorable international environment which supported Egypt s growth in the last three years. The friendly 1 A study in 1999 estimated indirect employment generated within CAI s area of influence at 185,000 jobs, rising to nearly 350,000 by 2020. 2 For example, tourism recovered strongly from the effects of the series of bombings in the Sinai Peninsula between 2004 and 2006.
international environment, namely favorable terms of trade, rapid growth of external demand and abundant international liquidity, together with domestic economic reforms and prudent macro management, helped Egypt s economy grow at a yearly average of 7% from 2006 to 2008. The ongoing global downturn will have an adverse impact on Egypt s growth in 2009-2010: the latest estimates for Egypt s real GDP growth are 4% in 2008/09 and 3.8% in 2009/10. A growth of 4%, while respectable, will feel similar to a recession, given the strong pace of growth over the past three years, and there probably will be losses of employment in some sectors. A recent World Bank analysis of the employment elasticity of growth suggests that unemployment will rise to about 10% in 2009-2010. The current capacity of Cairo International Airport (CAI) will be saturated in less than 10 years, in 2017, according to the latest trends and forecasts. In the last two years, passenger traffic at CAI skyrocketed, by 16.7% in 2007 and by 14.2% in 2008. Then, it was hit by the economic crisis: the traffic stagnated at the end of 2008 and dropped by 5% in the first quarter of 2009. However, traffic started growing again in April 2009 by 7% compared to 2008. The GOE now estimates that traffic will have two phases in the coming years, assuming that the economic crisis abates and economic growth resumes worldwide. At first, traffic would remain stable until mid-2010. After, it would increase rapidly by 5.4% in 2010/17 and by 3.3% in 2018/24. These forecasts take into account the expected progressive transformation of CAI into a regional hub for flights between Europe, the Middle East, the Maghreb and sub-saharan Africa. The GOE has established solid institutions to support the air transport sector. In 2001, the increasing importance of the sector led to the creation of the Ministry of Civil Aviation and of the Egyptian Holding Company for Airports and Air Navigation (EHCAAN). EHCAAN controls two airport companies, the Cairo Airport Company (CAC) for Cairo airport and the Egyptian Airport Company (EAC) for the other airports. EHCAAN also controls the National Air Navigation Services Company (NANSC) and the Aviation Information Technology Company (AVIT). EHCAAN s airport strategy is based on recommendations drawn from a study financed by the World Bank during the first Airport Development Project in 2004-2009. This project aimed at strengthening air transport in Egypt by modernizing and expanding airports both in Cairo and in tourism areas, so that they meet the rapidly increasing air traffic resulting from the attractiveness of Egypt, among other reasons. Rationale for Bank involvement By supporting economic growth and job creation, the project is consistent with the key development objective in the Country Assistance Strategy for 2006-2009 of achieving high and sustainable GDP growth. Actually, the project will support economic growth through: increased tourism and facilitated connections for business travel through the airport gateway, job creation during construction which would contribute to the Egypt stimulus package in response to the economic crisis, and employment generated by the airport operations as well as by the industries and services attracted to the CAI area. The GOE has clearly expressed interest in borrowing from the Bank for this project. On May 7, 2009 the Bank received a letter from the Minister of the International Cooperation requesting an US$280 million Bank loan to finance the renovation and the extension of the Terminal Building 2 (TB2) at Cairo International Airport. The Bank has three tangible assets that are key reasons behind the GOE s request for the Bank s support. First, the Bank has access to the specialized policy and technical expertise required to develop airport infrastructure. Second, it has international experience with transport privatization in transition
economies. Third, it has acquired knowledge of the Egyptian airport sector and air transport sector during the first Airport Development Project. Moreover, the GOE very much appreciated the Bank s support for the capacity expansion and modernization of the airport sector during the successful first Airport Development Project (ADP I). ADP I was approved by the Board in March 2004 and closed last June. It supported the construction of the new Terminal Building 3 (TB3) at CAI and of a new terminal building at Sharm-El-Sheikh airport. In addition, ADP I financed a comprehensive technical assistance that had a deep impact on the Egyptian air transport and airport sectors in terms of strategic orientations and institutional development. This assistance comprised (i) the preparation of a national airport master plan for Egypt which is guiding current capacity development and modernization programs, (ii) a plan for gradual air transport liberalization, (iii) the development of a national strategy for development of air cargo which paved the way for an investment program in Cairo, and (iv) a management capacity building strategy which outlined priorities for streamlining CAC and EAC organization. Finally, ADP I was instrumental in mainstreaming environment practices in the airport sector through the establishment of environmental units in CAC and EAC, as well as the installation of pollution monitoring systems, in strengthening the procurement capacity of airport companies, and in transferring efficient project management practices. 2. Proposed objective(s) The project objectives are (i) to support the expansion of CAI passenger capacity to accommodate traffic growth and enhance the airport s quality of service, and (ii) to improve air transport safety and security. In relation with the above objectives, monitoring indicators could include the following: Increased number of passengers and aircraft movements at CAI, stemming from both more pointto-point and connection traffic Increased volume of air cargo at CAI Improved passenger services at CAI Improved airport and air navigation safety and security (indicators tbd) 3. Preliminary description The project will support the expansion of CAI s passenger capacity through the renovation and extension of the Terminal Building 2 (TB2). This will generate direct and indirect jobs in Cairo area as well as all over the country through increased tourism, which is also a significant contributor to the balance of payment. The project can be seen as a second phase of the first Airport Development Project (ADP I), which was approved by the Bank in 2004 and closed on June 30, 2009 after successful implementation. The extension of TB2 will increase the airport total capacity from 21 million passengers per year currently to 25 million by 2015, which will allow accommodating the expected traffic growth until 2023. In addition to supporting the tourism s growth on the long-term, the proposed airport development project will give momentum on the short-term to continue the air transport sector s liberalization, which is likely to be promoted by the GOE as an instrument to face the economic crisis.
Project components The project tentatively comprises two components: Renovation and extension of TB2 The investment component includes the renovation and extension of the TB2 at CAI, which is the largest airport in Egypt and the second largest in Africa after Johannesburg in South Africa. Today, CAI is used by 58 passenger airlines (including charter operators) and 10 cargo operators, and has a total capacity of 21 million passengers per year divided into three terminal buildings. The Terminal Building 1 (TB1) started its operations in 1963 and has a current capacity of 6.5 million passengers per year. The TB2 opened in 1986 and has a capacity of 3.5 million passengers per year. The TB3 was completed in 2009 under the first Airport Development Project (ADP I) financed by the Bank and has a capacity of 11 million passengers per year. The project can therefore be seen as the ADP II. The investment will increase the TB2 capacity from 3.5 million to 7.5 million passengers per year, thereby bringing the overall capacity of CAI to 25 million passengers per year as follows: Capacity (in million passengers per year) TB1 TB2 TB3 Total Before extension of TB2 6.5 3.5 11 21 After extension of TB2 6.5 7.5 11 25 The new TB2 and TB3 will be jointly operated and exclusively dedicated to Egypt Air, its Star Alliance partners, and Gulf airlines, thus fostering the integration of Egypt within the Middle-East and with Europe, and reinforcing the role of CAI as a regional hub. The work program includes the following activities: - renovation of the existing terminal and facilities (passenger waiting areas, gates, customs, baggage claim, etc.); - construction of a new check-in hall, which will be linked with TB3 by an existing pedestrian bridge, and linked with TB1 by a people mover (the people mover is already under construction but out of the project scope); - construction of a new pier with 14 connecting bridges; and - construction of a new tarmac with 16 parking contact stands, which can accommodate two Airbus A380 and a flexible combination of aircrafts, and 4 parking remote stands. The new terminal will comply with international standards of accessibility for disabled and old people, based on the Universal Design specifications promoted by the United Nations. Thus, TB2 will provide higher standards than TB3 which was designed ten years ago. The designers are also considering environment friendly features, such as the extended use of natural light, low-consumption bulbs and gravitational drainage, the reduced use of glass surface to lessen the necessity for air-conditioning, and the creation of a photovoltaic cells canopy to take advantage of the abundant solar energy in Cairo. In terms of employment, further to the extension of TB2, CAC staff currently at about 5,300 after taking staff hired for TB3 should continue increasing by about 150 to 200 new positions. The development of CAI traffic will also induce the creation of a significant number of indirect jobs, by Authorities in charge of security, airlines and companies providing side services, and finally by companies that locate services on the CAI platform.
Strengthening of institutional capacity The benefits of such a component to EHCAAN will be assessed during preparation, with a view to continue assisting EHCAAN to strengthen the airport sector capacity and efficiency, facilitate the mobilization of private sector investors, and better address air transport safety and security concerns. The possibility to finance technical assistance by the loan is yet to be confirmed, given Egypt s policy. But in any event, the Bank could support the initiatives with its own experts, for example by preparing a sector analysis, drafting terms of reference, or reviewing and evaluating technical and strategic recommendations of consultants. Estimated cost The total investment for TB2 is estimated at US$400 million (including US$26 million for additional contingencies), which will be financed by a Bank loan (US$280 million) and by a combination of direct CAC funding with a domestic loan (US$120 million). Considered alternatives EHCAAN and its subsidiary CAC will implement the project. The GOE has not retained a private financing option because CAC already benefits from the private sector assistance through a management contract of all CAI facilities in force until 2013. Furthermore, CAC cannot manage TB2 independently of the other CAI s terminals since TB2 and TB3 will form an integrated system. The consortium (ECG/NACO) selected by EHCAAN/CAC to develop the engineering design has evaluated a range of alternatives to expand the capacity of CAI. It has suggested different locations and capacities for the new facilities, such as the construction of a new third pier at TB3. CAC has finally chosen to renovate and extend TB2 instead of expanding TB3 (completed in 2009) or TB1 (fully renovated in 2003), because it becomes urgent to renovate TB2 s old facilities dating from 1986. Besides, the new capacity of 7.5 million passengers per year proposed for TB2 corresponds to the maximum capacity that can be reached within TB2 s current boundary at the least cost per passenger: this is therefore the most financially effective option (project preparation will include an economic evaluation of the operation). Lending instrument The project will be financed by a Flexible Investment Loan. 4. Safeguard policies that might apply In agreement with MENA s Regional Safeguard Adviser, the team recommends to classify the project as a Category B project. Egypt has a reasonably good legal and regulatory framework related to environmental and social protection, including requirements for environmental assessments and mitigation. The project entails a large investment, but inside CAI platform.
On environmental issues, the Environmental Impact Assessment (EIA) of the first ADP found that building an airport terminal has limited environmental impact, which can be easily managed by implementing an Environmental Management Plan (EMP). According to OP 4.01, CAC is conducting an EIA to determine the possible environmental impacts of the project, the necessary mitigation measures, and a monitoring plan for the EMP. The EIA and EMP are addressing both the construction phase and operational phase of the project as such to minimize and mitigate the negative impacts of the operations in the airport and the surroundings. On social issues, the project does not entail any land acquisition nor resettlement as TB2 extension will take place on land already owned by CAI. Therefore, OP 4.12 on involuntary resettlement is not triggered. Furthermore, the project will not affect any physical cultural resources and OP 4.11 is not triggered either. The EIA will also assess social impacts. Finally, the EMP will include a protocol for accidental finds. Regarding CAI s personnel, the project will create new positions once the new TB2 is operational: CAI s overall staff number should grow slightly to meet the traffic increase while airport and airlines staff at TB2 will have to move temporarily inside CAI platform during construction works. 5. Tentative financing ($m.) Source: Borrower 120 International Bank for Reconstruction and Development 280 Total 400 6. Contact point Contact: Michel Bellier Title: Lead Transport Specialist Tel: (202) 458-5382 Fax: Email: mbellier@worldbank.org