By: Mohamed Nabil Hazzaa, Naila Ramsay and Nadin Ghaleb

Egypt is becoming a regional hub for green hydrogen projects and their derivatives. Egypt aims to reduce carbon emissions, promote the use of renewable energy sources, and use alternative energy forms, including green hydrogen, as part of its National Climate Strategy 2050.

The strategy is intended to enable Egypt to produce green hydrogen with the least cost worldwide at $ 1.7 per kg by 2050 instead of $2.7 per kg in 2025, according to statements by the Government of Egypt (GoE). Most of the anticipated projects aim to produce green ammonia for export, including to Europe.

The new law no. 2 for the year 2024 setting out a package of incentives for green hydrogen and its derivatives’ production projects was issued and published on 27 January 2024 (Green Hydrogen Incentives Law).

We list below: (i) the projects subject to the Green Hydrogen Incentives Law; (ii) the incentives provided thereunder; (iii) the requirements for qualifying for such incentives; and (iv) the anticipated projects to be implemented in Egypt.

1. Green Hydrogen Incentives Law

1.1 Projects subject to the Green Hydrogen Incentives Law:

The Green Hydrogen Incentives Law applies to green hydrogen and its derivatives’ production projects (only if Project Agreements[1] are executed within five years from the date of the law’s application) as follows:

1. facilities producing green hydrogen and its derivatives.
2. water desalination production stations that allocate a minimum of 95% of their production to the production of green hydrogen and its derivatives.
3. renewable energy generation plants which allocate 95% of their production to supply green hydrogen and its derivatives’ facilities and the water desalination production stations referred to in points (a) and (b) above.
4. projects whose activities are limited to the transport, storage or distribution of green hydrogen and its derivatives within Egypt.
5. projects whose activities are limited directly to the manufacturing of production supplies or inputs which are necessary for the facilities referred to in point (a) above[2].

1.2 Incentives under the Green Hydrogen Incentives Law:

1. cash back between 33%-55% (named the “Green Hydrogen Incentive”) of the income tax for the project and any expansions. The cash back incentive will not be taxable. Disbursement by the Ministry of Finance to be made within 45 days from the deadline for filing the tax declarations (delay interest to apply)[3].
2. equipment, tools, machinery, devices, raw material and transportation vehicles necessary for carrying out the project activities (excluding passenger cars) are exempt from VAT.
3. the project’s exports are exempt from VAT.
4. the project may benefit from other exemptions, by virtue of a decree issued by the competent Minister, after the approval of the Cabinet, including, inter alia: (i) real estate tax due on real estate actually utilized by the project; (ii) stamp duty tax; (iii) authentication and notarization fees of the articles of association of the companies and entities, credit facility agreements and its related pledges, and the necessary land registration agreements for the establishment of green hydrogen and its derivatives production projects; and (iv) custom taxes due on all necessary imports to establish the green hydrogen and its derivatives production projects (excluding passenger cars).
5. a golden license for the Project Company pursuant to the regulations stipulated under the Egyptian Investment law no. 72 for 2017 (Investment Law)[4].
6. without prejudice to the provisions of the laws, regulations, and decrees regulating importation, the Project Company is entitled to import itself or through a third party, what it needs for its incorporation, expansion, or operation, from raw materials, production inputs, machinery, spare parts, and the transportation modes that are suitable for its activities, without the need for its registration in the importers’ register. It is also entitled to export its products itself or through an agent, without licensing and without the need for its registration in the exporters’ register.
7. the Project Company is entitled to employ foreign workers provided that they do not exceed 30% of the total number of its workers, within the first ten years of execution of the Project Agreements.
8. allowing the establishment of special custom-bonded areas for the project’s imports and exports pursuant to an agreement with the Minister of Finance.
9. 30% discount on the value of some of the fees applicable to port-related services and the electronic services provided by Egyptian port authorities.
10. 25% discount on the usufruct fees of the industrial lands allocated for the establishment of green hydrogen and its derivatives production facilities.
11. 20% discount on the usufruct fees of the warehouses in ports.
12. grace periods for the payment of the usufruct fees of the industrial lands and storage related to the project and its future expansions, which are allocated by the authorities that have jurisdiction over the lands, whereby payment starts on the date of commercial operation of the project and no interest or fines would apply.
13. the duration of the licenses granted for the implementation of green hydrogen and its derivatives production projects is equivalent to the term of the usufruct for the site of the project.

1.3 Requirements for qualifying for the Incentives[5]

1. the commercial operation of the project must begin within five years from the execution of the Project Agreements.
2. the financing of the project or its future expansions, as the case may be, must rely on foreign currency financed from abroad, which shall make up no less than (70%) of its investment cost.
3. the project must use locally manufactured products necessary for the project’s implementation whenever available in the local market amounting to at least 20% of the project’s components.
4. the project must contribute to the transfer and localization of modern and advanced technology to Egypt and must implement training programs for Egyptian employees.
5. the project company must implement a plan for the development of the local areas in which it operates, by implementing the social responsibility rules pursuant to the provisions of the Investment Law.
6. the incentives must apply to projects and their future expansions during the term of the Project Agreements, provided that the Project Agreements concerning the future expansions are executed within seven years from the project’s commencement of commercial operations date.

2. MOUs & Framework Agreements

To date, 26 memorandums of understanding (MOUs) and 14 framework agreements have been signed with international and local entities/alliances[6].

[1] Project Agreements are defined under the Green Hydrogen Incentives Law as: “The agreements relating to the green hydrogen and its derivatives’ production projects that are executed by the project company with the competent administrative authorities or the state-owned public utility companies”.

[2] It is worth noting that such projects are determined by virtue of a Cabinet decree, based on the proposal of the Competent Minister, and after consulting with the relevant Minister of Electricity and Renewable Energy and the Minister of Finance.

[3] The categories and conditions of granting this incentive are issued by virtue of a Cabinet decree based on the proposal of the Competent Minister and after consulting with the Minister of Finance.

[4] The Golden License constitutes a one-time and exhaustive approval issued by virtue of a Cabinet Decree to establish, operate, and manage an investment project. Note that 2 green hydrogen SPVs were granted the Golden license named: “Egypt Green Hydrogen Company” and “Misr Green Ammonia Company”.

[5] The Competent Minister shall issue the necessary certificate for the enjoyment of the incentives stipulated in this law. Such certificate shall be deemed to be final and enforceable on its own without the need for the approval of other authorities. All authorities must rely on such certificate and abide by its contents.

^[6] Egypt is also close to signing a framework agreement with Belgian developer DEME for a green hydrogen plant.