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Cablegate: Egypt Rail: U.S. Companies Sweep Locomotive Tender

VZCZCXRO9751
RR RUEHBC RUEHDE RUEHKUK RUEHROV
DE RUEHEG #0539/01 0590708
ZNR UUUUU ZZH
R 280708Z FEB 07
FM AMEMBASSY CAIRO
TO RUEHC/SECSTATE WASHDC 3795
INFO RUEHEE/ARAB LEAGUE COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC

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.

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Summary
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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.

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U.S. Companies Sweep Locomotive Tender
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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.

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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.

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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.

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Comment

CAIRO 00000539 002 OF 002


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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

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