EGYPT RAIL: U.S. COMPANIES SWEEP LOCOMOTIVE TENDER

UNCLAS SECTION 01 OF 02 CAIRO 000539 SIPDIS SENSITIVE SIPDIS STATE FOR NEA/ELA, EEB/ECA, EEB/TRA NEA PLEASE PASS USTDA (L. AFAS) NEA PLEASE PASS USDOT/FRA (B. PELLETIER) COMMERCE FOR ADVOCACY CENTER E.O. 12958: N/A TAGS: ELTN ECON PREL EG QA SUBJECT: EGYPT RAIL: U.S. COMPANIES SWEEP LOCOMOTIVE TENDER REF: A. 06 CAIRO 6666 ¶B. CAIRO - NEA/ELA EMAILS Sensitive but unclassified. Please protect accordingly. -------------- Summary -------------- ¶1. (SBU) U.S. companies General Electric (GE) and Electromotive Diesel (EMD) recently beat out Chinese competition, with each company selling forty new locomotives to Egyptian National Railways (ENR) as part of Egypt's multi-billion dollar transport infrastructure development plan. The GE portion of the deal, which is reportedly worth USD 120 million, will be financed entirely by a Qatari government grant. The EMD portion, which is likely to carry a similar price tag, will come from funds allocated to MoT from the sale of Egypt's third mobile telephone license. Strong advocacy, USTDA support, and USDOT engagement on rail safety cooperation, in addition to the producers' reputations for safety, likely helped swing the deal in GE's and EMD's favor. End summary. -------------- U.S. Companies Sweep Locomotive Tender -------------- ¶2. (SBU) Egyptian Minister of Transportation Mohamed Mansour announced on February 14 the purchase of forty new General Electric (GE) locomotives for USD 120 million. The purchase is to be financed through a grant from the Qatari government, thereby not tapping the USD 5.5 billion the GOE had allocated from the sale of the third mobile phone license for the Minister's plan to renovate and develop Egypt's transport infrastructure. Ministry contacts also tell us that MoT will purchase an additional forty locomotives from U.S.-based Electromotive Diesel (EMD) for a similar price, although final details have not yet emerged. The Ambassador and other Embassy offices advocated directly and repeatedly with the Minister and senior MOT and Egyptian National Railways (ENR) officials regarding the sale. To the surprise of many Egyptian observers, the Chinese competitors, who were shopping far cheaper locomotives, lost on all counts. -------------- Benefits of Cooperation -------------- ¶3. (SBU) The MOT decision to go with GE and EMD comes on the heels of a series of successes in U.S.- Egyptian cooperation in the rail sector. Stemming from the positive relationships developed during a September 2006 visit by U.S. Federal Railroad Administration (FRA) rail safety officials in the wake of several fatal rail accidents, the MoT and FRA recently agreed to a three-month secondment of one of the FRA's senior technical experts to assist the MoT and ENR in constructing a new rail safety framework. In mid-February 2007, USTDA approved a USD 600,000 Grant Agreement for a Railway Traffic Management System Technical Assistance project to be awarded to the MoT. A USTDA contractor visited Egypt alongside the FRA team in September 2006 and, in conjunction with MoT, ENR, and the Embassy offices, identified the grant opportunity in the traffic management side of ENR operations. We expect to conduct a signing ceremony for the grant in late February or early March. -------------- Spare Parts/Refurbishment Deal -------------- ¶4. (SBU) An additional opportunity for U.S. companies is on the horizon with the re-tendering of a proposal to refurbish 120 ENR locomotives. Five companies expressed interest in the original tender: GE, GM, Progress (Prosylab),National (United Transportation Services),and Canadian manufacturer Bombardier (Orascom). According to industry sources, however, ENR significantly underestimated the cost during the original tendering process, valuing the job at USD 800,000 while the five companies' bids ranged between USD 1.3 million and USD 1.4 million. ENR has not yet set a date for the new tender to go out. ENR currently operates only about 300 of its 700 locomotives due to maintenance problems. -------------- Comment CAIRO 00000539 002 OF 002 -------------- ¶5. (SBU) Despite intense Chinese lobbying, the combination of safe, quality products, strong U.S. commercial advocacy, and enhanced policy-level cooperation between the U.S. and the Egyptian MoT likely swung the deal in our favor. With the tragic ferry sinking of February 2006 and a series of fatal rail accidents setting the political backdrop, Minister Mansour was apparently not willing to gamble on Chinese manufacturers' questionable safety record for the development of Egypt's railways, regardless of Egyptian public perceptions and media hype caused by President Mubaraks's visit to China in November 2006. In addition, offers of U.S. technical assistance from FRA and USTDA likely gave the MoT the impetus to stick with U.S. equipment. RICCIARDONE