The government of Egypt has now expressly recognized the production, storage and export of green hydrogen and green ammonia among the areas falling within the state's economic development strategy. It has also passed a decree that would allow green hydrogen and green ammonia projects to benefit from a wide range of state support under the country's existing Investment Law No. 72 of 2017 (Investment Law), including tax incentives. This is a key development for Egypt's hydrogen economy. We expect that it will stimulate private investment and the development of new green hydrogen and ammonia projects in the country.
Existing Investment Law
First, it is important to understand the relevant provisions of the Investment Law.
Article 20 of the Investment Law provides that companies that are established to develop a strategic or national project contributing to achieving development or projects in partnership with the private sector and the state, the public sector or the public business sector, in the area of public utilities, infrastructure, new or renewable energy, roads, transportation or ports, may, by a cabinet decree, be granted a "single license" for the establishment, operation and management of the project, which will include a construction permit and an allocation of real estate property required for the project (License). Such a License will be effective without the need for any further procedures and may include other additional incentives for the project provided in the Investment Law. The Investment Law executive regulations provide that the cabinet must issue a decree setting the criteria that should be satisfied to consider a project as a strategic or national project. These criteria will be revised and updated occasionally to fit with the state's economic development strategy. The executive regulations also set out requirements that applicants must satisfy to apply for the benefit of Article 20.
Among the other incentives provided under the Investment Law, and which can be included in the License, Article 11 provides that companies set up before 28 October 2023 to operate in certain industry groups, could obtain a deduction from their taxable income that is equal to 50% for Geographical Zone (A) or 30% for Geographical Zone (B) of the project investment cost (as determined by the General Authority for Free Zones and Investment (GAFI)), up to a maximum of 80% of the paid-up capital at the time of commencement of the project (Special Incentive). The commencement of the project is determined by GAFI based on a notification process by the company in question and a certificate issued by GAFI's chair to that effect. This incentive is limited to seven years from the date of commencement of the project and is not perpetual. A prime ministerial decree is to be issued to determine the approved sub-industry groups for eligibility of the Special Incentive in Geographical Zone (A) and Geographical Zone (B).
Furthermore, the Investment Law provides that the following additional incentives may be made available to a project by a cabinet decision (Additional Incentives):
- Authorization to establish special customs points for exports or imports of the project in coordination with the minister of finance.
- Utilities connection costs to be borne, in full or partially, by the state after the date of commencement of operation.
- Labor technical training cost to be partially borne by the state.
- Reimbursement of 50% of the land allocation cost if production commences within two years from the land delivery date.
- Land allocation free of charge for some strategic activities.
- Other non-fiscal incentives to be issued by a prime ministerial decree based on suggestions from the concerned ministers when needed.
The expansion of an existing project may benefit from the Special Incentive and Additional Incentives. Expansions are described under the Investment Law as the increase of the capital of the company by adding new assets, leading to an increase in the production capacity of the project in accordance with the terms and conditions to be issued by a cabinet decree.
New legislation enabling green hydrogen and ammonia projects through the Investment Law
Cabinet Decree No. 20 of 2022 (Decree No. 20) was issued and provides that GAFI must coordinate with the relevant ministries and governmental entities to issue, within a month from the issuance of Decree No. 20 (i.e., 15 April 2022), a decree determining the conditions for characterizing a project as a strategic or national project in the context of Article 20 of the Investment Law. Decree No. 20 expressly identifies the production, storage and export of green hydrogen and green ammonia among the areas falling within the state's economic development strategy.
In the context of Article 11 of the Investment Law, a further Cabinet Decree No. 981 of 2022 was issued recognizing the production, storage and export of green ammonia and green hydrogen among the sub-industry groups that may benefit from the Special Incentive under Geographical Zones (A) and (B).
In addition, Cabinet Decree No. 983 of 2022 was issued and provides that GAFI must coordinate with all relevant ministries and governmental entities, based on approved sub-industry group, in accordance with Article 11 of the Investment Law to identify, within a month from the issuance of the decree (i.e., 15 April 2022), the priority projects that would be eligible for Additional Incentives as set out in Article 13 of the Investment Law and the type of Additional Incentives that would be offered. When identifying the priority projects, ministries and governmental entities must take into account that they would contribute to the state's economic development strategy, which expressly includes green economy projects.
This is a significant development for Egypt's hydrogen economy. We expect that it will stimulate private investment and development of new green hydrogen and ammonia projects in the country. A large number of feasibility studies and memorandums of understanding for the development of green ammonia and green hydrogen have been reported to be entered into between Egyptian state entities and the leading international ammonia and hydrogen market players in 2021. We expect that with this newly afforded state support, these studies and preliminary agreements will proceed to projects, with more international investors entering the Egyptian hydrogen and ammonia market in due course.