Water, watts, and wealth: The quiet sell-off of essential services

In 2015, Parliament passed a new law to regulate the electricity sector which went unnoticed at the time, as public debate was then focusing on the government’s plan to gradually lift electricity subsidies; a continuous process to this day.

The law included a provision allowing for the privatization of electricity. The impact of that clause only became visible weeks ago, when, for the first time, the government announced its approval for non-state-owned power stations to sell electricity directly to consumers. Around the same time, a new law regulating the drinking water sector was issued, containing privatization provisions strikingly similar to those in the electricity law.

Are we on the cusp of a new era of privatization in which essentials like water and electricity—long considered public services—are treated as market commodities?

Who sets prices?

Although laws open the door for private companies to operate alongside the state in delivering these services, they still preserve the cabinet’s authority to set prices.

Yet a closer reading of the laws reveals that the state is not entirely free to fix prices at will. Both laws require tariffs to be determined based on economic principles. This aligns these services with sectors like pharmaceuticals and fertilizers, where the state technically sets prices but frequently adjusts them, citing the need to encourage the private sector.

Article 4 of the Electricity Law states that the regulatory authority shall determine “sound economic principles” for setting tariffs. It gives the cabinet the choice to adopt these market-based prices or to cover the difference as “subsidies” if it opts to lower prices. The new Water Resources and Irrigation Law contains a nearly identical clause in Article 16.

Criticism

Economist Elhami El-Merghany criticized the move towards privatizing services that should, he said, be provided by the state at prices affordable to all social classes. Under this approach, prices will gradually rise until the state retreats entirely from the sector, “leaving citizens at the mercy of private companies that prioritize profit,” he told Al Manassa.

MP Freddy El-Bayadi, deputy head of the Egyptian Social Democratic Party, expressed concern over the state’s apparent shift towards withdrawing from key services and the tendency for private sector involvement to result in higher prices.

“In recent years, the state has increasingly leased public hospitals to investors and repriced services to generate profit. The same could happen to the education sector under the new education law,” El-Bayadi told Al Manassa.

Last year, a law was passed granting the private sector the right to manage public medical facilities. Following the privatization of the Hermel Oncology Hospital under this framework, patient protests escalated over increased service fees.

Akram Ismail, an energy expert and member of the Bread and Freedom Party, believes tariff decisions are ultimately subject to the government’s political calculations, regardless of the service provider.

“The government is moving towards a free-market model, as advocated by the minister of electricity, but it still bears part of the cost for lower-income and middle-income segments due to societal and security considerations,” he said.

Privatising essential services

Private sector involvement in electricity was initially set to begin five years after the law was passed. But in 2021, the government extended the transition period by another three years. This paved the way for the first four deals this year, in which private companies directly supply electricity to industrial producers without any government mediation. The arrangement is backed by the European Bank for Reconstruction and Development.

A similar path appears to be planned for the water sector by 2030. According to Article 2 of the new water law, public service providers have five years from the date the executive regulations come into force to align their operations in preparation for competition with the private sector.

Water and environmental researcher Abdelmawla Ismail warned that similar global experiments have marginalized the poorest groups and widened the gap between those who can afford water and those who cannot.

He cited Bolivia’s experience in the mid-1990s, when the government leased the city of Cochabamba’s water sector to a multinational consortium for 40 years under pressure from the IMF in exchange for new loans.

As a result, monthly bills in the city rose by $20, or at least one-fifth of residents’ incomes. Continuous protests eventually forced the government to cancel the agreement and return the water sector to public ownership.

Failed privatization efforts have not been limited to developing countries. In France, public-private partnerships in water services, which have existed for decades, have been rolled back due to corruption and high costs associated with private sector management.

“There is always doubt around the private sector’s ability to deliver services as efficiently as the state. This has led to the failure of water privatization in many countries,” Ismail told Al Manassa.

For the benefit of citizens

Some experts argue that private sector involvement can boost competition, improve service quality, and relieve the government of the burden of managing essential services. With competition, they believe, service providers will aim to satisfy the public with better services and fair pricing, said Osama Fawzy, energy expert and founder of the Hydrogen Intelligence platform.

According to a previous Al Manassa report, the recent electricity deals may signal the beginning of a wave of energy privatization targeting high-consumption industries like fertilizer and cement, which could reduce electricity subsidies in the state budget.

Akram Ismail sees no issue with privatizing electricity for industrial use. He argues it could ease the burden of subsidizing gas used to generate power for industry, without affecting services provided to domestic consumers.

In 2022–2023, the industrial sector accounted for 27.3% of total electricity consumption, while households made up the largest share at 37%.

Since 2014, the state has incentivized private sector investment in renewable energy through Decree-Law 203, which allowed private producers to generate electricity for the state. The state then integrates this output into the national energy mix. However, renewable energy currently represents only 11.6% of Egypt’s electricity production, far from the government’s goal of reaching 65% by 2040.

Energy expert Fawzy is confident in the private sector’s ability to boost the share of renewables in Egypt’s energy mix. This shift, he argues, would help alleviate the soaring costs of natural gas imports.

“In recent years, the rising cost of imported natural gas, which we now rely on more after shifting from being a net exporter to a net importer due to geopolitical changes, should push the government to step back from the electricity sector and support the private sector’s rapid shift to renewable energy,” he told Al Manassa.

Privatization could help solve persistent problems, such as the state’s sole responsibility for providing energy to citizens and industry. But without strong regulatory safeguards, this shift risks turning basic services into commodities accessible only to those who can afford them.