Egypt: Oil & Gas Sector Reform Policy Dialogue - Valuation of Assets of Gas Transmission Systems

Description

Country:

Egypt

Business sector:

Power and energy

Project number:

69201

Funding source:

EBSF - EBRD Shareholder Special Fund

Contract type:

Consultancy Services

Notice type:

Invitation for expressions of interest (CSU)

Issue date:

26 May 2017

Closing date:

23 Jun 2017 at 17:00 London

Access eSelection

Project Description:
The European Bank for Reconstruction and Development (the “EBRD” or the “Bank”) is committed to building deep and liquid energy markets in its Countries of Operations, including through the strengthening of independent regulation, the implementation of market-supporting regulatory frameworks, and the entrenchment of market-based behaviour.

A programme of gas market reform, aimed at substantial liberalisation of the down- and mid-stream segments of the gas sector, is currently being implemented by Egyptian authorities, with the support of international organisations. The reform is expected to set up independent governance structures, facilitate a gradual transition towards more transparent and market-based pricing, and allow greater participation of the private sector through increased, market-based investment across the value chain.

Among other requirements, the reform requires that competing suppliers and other market participants (as licensed suppliers and shippers) will have access to transmission services on a non-discriminatory basis, by paying tariffs that allow recovery of the efficient costs of providing these services. A primary duty of a new independent regulator to be set up will be to regulate transmission services (e.g. determine revenues required to recover efficient costs, approve the level and structure of tariffs etc.). The independent regulator will be formally established once a new Gas Market Law is adopted. Regulatory functions in the interim period are being undertaken by Gas Regulatory Affairs (GRA), which is currently part of the Egyptian Natural Gas Holding Company (EGAS). The GRA is expected to take the role of the independent regulator in the future.

It is envisaged that the annual profile of transmission revenues allowed by the regulator --and the tariffs designed to recover these revenues-- will be set on a multi-annual basis, most likely for a period of five years. The principal components of these revenues are the return on the net asset value to be approved by the regulator (the Regulatory Asset Base, or RAB), the annual depreciation charge, and the allowed operating and maintenance expenditures (OPEX).

Egypt has an extensive pipeline network – the National Gas Grid (NGG) - for gas transmission and distribution. The NGG is mainly owned by EGAS and EGPC and the high pressure (i.e. transmission) network is operated by GASCO. The transmission network is defined in terms of: (on the upstream side) the gas transmission facilities between the outlets of gas processing plants and of other gas inputting facilities injecting gas that meets the required gas specification; and (on the downstream side¬) the gas off-take facilities of electricity generation plants, of industrial plants and of other large volume gas consumers and of Local Distribution Companies connected directly to the transmission system.

The value of the RAB is a key component of the calculation of transmission charges. EGAS does not have a comprehensive and up-to-date asset register of its gas transmission assets. For the gas transmission pipeline segments and facilities that may be physically identified an actual (or estimated) original acquisition cost (in EGP) is available for only two-thirds of assets. Overall, around 80 percent of the gas transmission infrastructure has an economic valuation. The remaining 20 percent, comprised of old infrastructure and new assets recently put in operation, do not have a third party assessment of the asset base, which is needed to implement the new Gas Law.

The EBRD now seeks to select and engage a consultant (the Consultant) to support the Egyption authorities in conducting a comprehensive assessment of the technical and economic valuation of the gas transmission system, aimed at being able to set fair and transparent transmission revenues on a forward-looking basis (the Assignment).

Assignment Description:
The Assignment has the following objectives:

1)Generate a revised and updated estimate of the original acquisition cost of the natural gas transmission assets, subject to the extent to which these assets have been consumed and remain useful;
2)Recommend an appropriate opening value of the RAB for the Egyptian natural gas transmission system, which will form the basis for the Egyptian gas regulator to set fair and transparent transmission revenues on a forward-looking basis;
3)Recommend an appropriate depreciation policy that will form the basis for the Egyptian gas regulator to set fair and transparent transmission revenues; and
4)Assess the transmission system operator’s approach to planning its capital expenditure needs and make recommendations for improvements.

The selected Consultant is expected to provide the following services:

1)REVIEW OF METHODOLOGY FOR DETERMINING REGULATED NETWORK TARIFFS AND OTHER REGULATORY DOCUMENTS (TASK 1)
The Consultant will review outputs of prior and ongoing work for the economic regulation of network, including drafts of the methodology for determining transmission tariffs. The purpose of this Task will be to ensure that the analysis and recommendations of the Consultant are consistent with the overall approach for regulating networks in Egypt. This Task will be facilitated by a Steering Group (established by Egyptian authorities) that will make information from other work-streams available to the Consultant.

2)THEORETICAL FRAMEWORK AND OPTIONS (TASK 2)
The Consultant will review valuation methodologies used in other jurisdictions and make recommendations on the most suitable option for the Egyptian natural gas framework. Specifically, under this Task 1 the Consultant will:

a.Present and assess a selection of theoretically valid and internationally applied valuation techniques to generate an appropriate opening value of gas transmission RAB – e.g. historical cost accounting, indexed historical cost accounting, (optimised) depreciated replacement cost, (optimised) deprival value).
b.As part of the Consultant assessment of valuation approaches, the Consultant should make recommendations on specific issues, including (but not limited to):
i.The merits and de-merits of conducting and presenting the valuation in Egyptian Pounds or in US Dollars and make recommendation on the most suitable valuation methodology and FX risk treatment;
ii.Make recommendations on the appropriate indexation policy, ensuring that recommendations are consistent with the methodology for other elements of network regulation.
c.Present and assess depreciation policy options and make a recommendation that is suitable for the Egyptian natural gas network.

3)DATA COLLECTION AND VERIFICATION (TASK 3)
The Consultant will collect all data that will be necessary to perform its valuation exercise, including by means of using informed assumptions on the basis of currently available data, as well as complementing such data with an appropriate field survey as may be necessary. Successful completion by the Consultant of this Task will include:

a.Acquiring and assessing relevant reports, data and information to identify the use conditions of the assets --including compressor stations, valve stations, pressure reduction and metering stations etc.;
b.Reviewing the existing register of gas transmission assets, and also filling-in any gaps to be able to generate a comprehensive asset register for the system;
c.Assessing the quality and technical characteristics of the physical assets from maintenance, upgrade, pigging and incident records;
d.Supporting/supplementing the assessment of asset condition with an appropriate field survey and offering relevant documentation –including date of inspection together with the name(s) of the person(s) involved and extent of inspection;
e.Compiling and presenting a comprehensive asset register for the natural gas transmission system;
f.Presenting a map of the transmission infrastructure, including planned new capacities, timing, capacity extensions, bottlenecks etc.

4)ANALYSIS AND RECOMMENDATIONS ON RAB VALUATION (TASK 4)
The Consultant will proceed with an analysis of data collected and verified and make recommendations on a valuation of the gas transmission RAB and depreciation policy options for Egypt. Specifically, in Task 4 the Consultant will:

a.Estimate the useful life of the assets, and the possibility of extension beyond the stated asset life, at full and/or reduced capacity;
b.Make available a separate Excel sheet that defines the cost of each item of the gas network in detail –including of the pipelines, compressor stations, metering stations, buildings, software, vehicles, lands and other equipment;
c.Provide an evidenced and supported recommendation on the valuation technique to be employed to generate an appropriate opening value of transmission RAB – and presented in the asset register;
d.Provide an evidenced and supported recommendation on the appropriate depreciation policy.

5)ASSESSMENT OF CAPITAL EXPENDITURE PLANNING (TASK 5)
The Consultant will conduct an assessment of the transmission system operator’s approach to planning capital expenditure and maintenance. This review will not extend to an assessment of actual plans and its focus will be limited to the procedures used by the TSO. Specifically, in Task 5 the Consultant will:

a.Review the current decision-making process (for example, how the TSO collects and uses data, use of feasibility studies, criteria used by the TSO to develop and choose between different capex options, the timeframe over which investment cycles are considered, etc.) for developing plans for capital expenditure, maintenance, and upgrades;
b.Provide high-level recommendations for potential areas of improvement in the operator’s approach to planning capital expenditure, maintenance, and upgrades.

Status of Selection Process: Interested firms or groups of firms are hereby invited to submit expressions of interest.

Assignment Start Date and Duration: The Assignment is expected to start in Q3 2017 and has an estimated overall duration of 12 months.

Cost Estimate for the Assignment: EUR 1,000,000 (exclusive of VAT).
The Consultant must determine whether any VAT would be chargeable on the services and the basis for that determination, without taking into consideration the special status of the Bank as an IFI and state this to the Bank in their response to the Invitation for Expressions of Interest. To the extent that a Consultant incurs input VAT on goods and services purchased in connection with the provision of services (e.g. VAT on airline ticket) which is not otherwise recoverable by the consultant from the local tax authority, the gross cost to the consultant of such expenses shall be treated as a reimbursable expense.

Funding Source: It is expected that the Assignment will be funded by EBRD Shareholder Special Fund. Please note selection and contracting will be subject to the availability of funding.

Eligibility: There are no general eligibility restrictions. The Consultant, including consortium members, subconsultants and experts, contracted by the EU to implement an assignment which included the technical and financial estimation of this Assignment is not considered eligible for the participation in this selection process.

Consultant Profile: Corporate services are required. The Consultant will be a firm or a group of firms preferably with previous project experience related to:

1. Technical/engineering aspects of natural gas pipeline networks in several jurisdictions, including those with similar characteristics to Egypt. This should extend to technical surveys of gas transmission infrastructure.
2. The economic regulation of networks, and specifically on regulated asset base and depreciation methodologies and calculations.
3. Natural gas market design and market opening in both EU/advanced as well as in newly liberalising jurisdictions.
4. The Egyptian, EU and international gas/energy markets.

The Consultant’s expert team is expected to include key experts as follows:

a Key Expert No 1 (Team Leader) with technical and regulatory experience of natural gas pipeline networks in several jurisdictions
b Key Expert No 2 (Technical/engineering expert) with experience of conducting technical surveys of gas transmission infrastructure
c. Key Experts No 3 (regulatory expert) with experience of the economic regulation of network infrastructure and valuation methodologies
d. Key Expert no 4 (Local Sector Expert) preferably with direct experience in Egypt’s natural gas sector and its regulation, as well as strong Arabic language skills

Submission Requirements: In order to determine the capability and experience of Consultants seeking to be shortlisted for this Assignment, the information submitted should include the following:

1. Company/group of firms’ profile, organisation and staffing.

2. Details of previous project experience or similar assignments particularly undertaken in the previous five years, including information on contract value, contracting entity/client, project location/country, duration (mm/yy to mm/yy), expert months provided (if different from duration) , main activities, objectives. The Consultant project experience should be accompanied by a summary table showing the consultant’s relevant experience for each of the headings in the Consultant Profile section above.

3. CVs of key experts who could carry out the Assignment detailing qualifications, experience in similar assignments, particularly assignments undertaken in the previous five years, including information on contracting entity/client, project location/country, duration (mm/yy to mm/yy), expert months provided, assignment budget, main activities, objectives.

4. Completed Consultant Declaration Form and Contact Sheet, the template for which is available from the following web-link:

http://www.ebrd.com/pages/workingwithus/procurement/notices/csu/contact_sheet.doc.

The above information should not exceed 15 pages excluding CVs and the Consultant Declaration Form and Contact Sheet.

The complete expression of interest (including CVs, Consultant Declaration and Contact Sheet) should be submitted, in English electronically through e-Selection, to reach the Bank not later than the closing date. The expression of interest shall be one file (pdf). The EBRD reserves the right to reject applications of firms submitting more than one file. Only if the permissible file size is exceeded (4MB), the Consultant may split the expression of interest into further files.

Bank Contact Person:
Sophie Medert
Technical Co-operation
European Bank for Reconstruction and Development
One Exchange Square
London EC2A 2JN
Tel: + 44 20 7338 6000
e-mail: MedertS@ebrd.com (submissions should be sent through eSelection and NOT to this email address)

Notes:
1. Following this invitation for expressions of interest, a shortlist of qualified firms will be formally invited to submit proposals. Consultant selection and contracting will be subject to availability of funding.

2. The shortlist criteria are:
•Firm’s experience of the technical/engineering aspects of natural gas pipeline networks in several jurisdictions, including those with similar characteristics to Egypt. This should extend to technical surveys of gas transmission infrastructure – 30%
•Firm’s experience the economic regulation of networks, and specifically on regulated asset base and depreciation methodologies and calculations – 15%
•Firm’s experience in gas market design and market opening in both EU/advanced as well as in newly liberalising jurisdictions – 15%
•Firm’s experience the Egyptian, EU and international gas/energy market – 15%
•Key Experts’ CVs – 25%