Power Moves
TAQA ARABIA’S CEO, PAKINAM KAFAFI, IS PUSHING THE EGYPTIAN ENERGY FIRM TO EXPLORE NEW FRONTIERS, WHILE POSITIONING THE COMPANY FOR A LONGAWAITED IPO.
TAQA Arabia’s CEO, Pakinam Kafafi, is pushing the Egyptian energy firm to explore new frontiers, while positioning the company for a long-awaited IPO.
In a lonely patch of desert in southern Egypt, near the city of Aswan, lies a stretch of land covered in gleaming solar panels. Benban Solar Park—a major milestone for the Arab world’s most populous country as it embraces renewable energy—recently began producing power. “This is a megaproject that every single Egyptian is proud of,” says Pakinam Kafafi, CEO of TAQA Arabia.
That statement is particularly true for Kafafi and TAQA Arabia, a leading private energy producer and distributor in Egypt. The Cairo-headquartered firm took part in the project, inaugurating a 65-megawatt solar plant in the park in 2019. The launch of the plant was a milestone in its own right, representing the first major project TAQA Arabia has completed in renewable energy. According to Kafafi, it won’t be the last.
TAQA Arabia is already a big operation to say the least. It has 15 companies under its umbrella, organized into three main divisions: TAQA Gas, TAQA Power and TAQA Oil Marketing. These divisions work in concert to position TAQA Arabia as what Kafafi refers to as a “one stop shop” energy provider in Egypt. That’s where it operates primarily, but it has also undertaken projects in regional markets, from the U.A.E. to Libya. TAQA Arabia recorded revenues of $374 million in 2018, a jump of 43% compared to 2017.
As Egypt embraces new energy solutions, TAQA Arabia is now considering a pipeline of projects in renewables, adding a new dimension to an extensive portfolio that already spans natural gas, power and petroleum products. The move into renewables comes as part of its strategy of capitalizing on untapped opportunities in Egypt, as energy demand has risen in the country. It’s a promising direction for the company, which was founded in 2006 by Qalaa Holdings, one of Egypt’s largest investment firms. The firm has become one of Qalaa Holdings’ most profitable units and Kafafi says revenues are growing across all divisions, particularly in gas and power.
The company today serves 1.2 million customers and counting, a tally including around 250 industrial and 3,500 commercial clients. It does that by doing a bit of everything—it constructs, operates and invests in energy infrastructure in gas transmission and distribution, along with conventional and renewable power generation and distribution. It also markets oil products and lubricants at branded fuel stations across Egypt, aided by a 2018 joint venture with BP giving TAQA Arabia exclusive rights to manufacture, blend and distribute Castrol products in the country.
Kafafi, who has served as CEO since 2013, has played a key role in developing this sprawling operation and leading its 3,400 employees, earning her the number 31 spot on Forbes Middle East’s Power Businesswomen ranking. Qalaa Holdings’ Chairman, Ahmed Heikal, is confident that Kafafi will take the company even further. “Pakinam has worked in organizations that I ran for the last 25 years,” says Heikal. “I saw her develop from a fresh grad to the corporate leader she has developed to be.”Her approach appears to be working.
Still, it’s a complicated time to run a firm like TAQA Arabia. For starters, Egypt has weathered economic challenges and an energy crisis in recent years. Meanwhile, the government has looked to reform its energy sector, passing legislation and enacting regulations aimed at liberalizing the market. That should increase competition. Simultaneously, Egypt has pursued austerity measures, including the removal of fuel subsidies, which raised prices. All that has come as the global energy sector deals with a period of transition, with renewable technologies coming into the spotlight and decarbonization becoming a priority. “Believe me, we change our strategy every six months,” says Kafafi.
Going forward, Kafafi sees plenty of growth opportunities for TAQA Arabia if it can capitalize on recent developments and integrate new businesses that complement its core divisions.
For its gas division, Kafafi sees promise in compressed natural gas (CNG). Egypt’s government is encouraging people to convert cars to run on natural gas, and TAQA Arabia recently introduced a mobile CNG service, where it trucks natural gas to customers in remote areas that are too expensive to connect by pipeline. TAQA Arabia had long considered the move, but the tipping point came last July, when diesel prices jumped after the removal of subsidies. “We decided to run with it,” says Kafafi. So far, four clients have signed on.
Then there’s renewables. The company is working on another small solar project that it hopes to launch by early 2021, while currently studying others. It’s also considering more government tenders, but its main focus is private renewables projects. More generally,
“Believe me, we change our strategy every six months.”
TAQA Arabia is also exploring everything from waste-to-energy to desalination projects, along with energy efficient technologies and hybrid solutions that combine different energy sources.
Geographic expansion is also on Kafafi’s agenda. She reports the company is currently investigating opportunities in both East and West Africa, due to recent gas discoveries there. The hope is to soon launch a new division focused on Africa. “I am confident that she will lead TAQA to be a force in energy infrastructure and distribution in Africa,” says Heikel.
Yet, Kafafi’s biggest goal in 2020 is taking TAQA Arabia public on Egypt’s stock exchange. Qalaa, which owned 60.9% of TAQA Arabia as of 2018, has hired EFG Hermes and HSBC to manage the sale, according to Reuters. It’s a long-awaited development, but Kafafi thinks the timing is finally right. “I think Egypt is ready, the economy is ready and TAQA is ready,” says Kafafi.
It’s a step she’s well-equipped to handle, after getting her start as an investment banker. Although Kafafi was exposed to the energy sector from a young age—her father worked in oil and gas—she did not initially follow in his footsteps. Born and raised in Cairo, she studied economics and political science, graduating in 1994 from Cairo University. She then pursued a career in investment banking, eventually rising to serve as a vice president at EFG‐Hermes. There, she cut her teeth on acquisitions and privatization projects in Egypt.
Not surprisingly, investment banking gave her a good feel for different sectors and how markets and deals work. Yet, through her experience working at EFG-Hermes she says she grew intrigued by “the other side of the table.” She came to find the energy sector particularly interesting. That led her to join the Gas & Energy Group, or Genco, in 2003, working there as an investment manager. Genco was acquired in 2006 by Qalaa Holdings and folded into the newly formed TAQA Arabia, which was created to tap the growing demand for energy in the region. The new firm was led by its co-founder Khaled Abu Bakr, who had also helped form Genco. Kafafi became the new company’s chief investment officer.
In that role, she focused on new ventures, acquisitions and greenfield projects. She made her mark at TAQA Arabia by acquiring and consolidating several gas distribution companies, and led the group’s business diversification strategy into power generation and distribution. Qalaa was already exploring an IPO for TAQA Arabia as far back as 2010, but the move never happened.
By 2013, the company’s leadership had seen enough to promote Kafafi to CEO. Abu Bakr, who became executive chairman, provides a glowing review of Kafafi’s contributions as CEO, describing her as “passionate about growth and very enthusiastic about every new idea, yet, very protective, cautious and conservative when [making] a management or investment decision.”
At that time, the country’s growing population and power generation needs were overwhelming domestic energy production capacity, and Egypt didn’t have the infrastructure to cope, leading to blackouts. Residential power demand in Egypt had increased by 40% between 2008 and 2013, while overall power demand rose by 28%, according to a report from EcoConServ Environmental Solutions, a Cairo consulting firm.
That demand was an opportunity for TAQA Arabia. As CEO, Kafafi continued to diversify its portfolio and build its customer base, including connecting more residential clients and businesses to natural gas. The company reached a million customers in 2018, a milestone Kafafi points to with pride. “Believe me, it takes a long time and effort to build this base,” says Kafafi. On her watch, TAQA Arabia also acquired one of the first gas importing licenses from Egypt’s newly established Gas Regulatory Authority.
But the entry into renewables might be TAQA Arabia’s highest profile achievement to date under Kafafi. Still, the opportunity to expand in this area took a while to develop. By 2014, the Egyptian government was developing Benban and lining up companies to take part, part of a major initiative intended to help reach a goal of generating 20% of electricity from renewable resources by 2022.
TAQA Arabia felt it was an opportunity it couldn’t pass up.
But it wasn’t the only one it was pursuing. It began eyeing a variety of renewables projects, leading it to form consortiums with the U.S. firm SolarReserve and France’s Neoen to consider different tenders. That included pursuing projects in Zaafarana, which is on the Gulf of Suez, and Kom Ombo, which is near Benban.
However, taking part in Benban was the key test for TAQA Arabia. The company likes to be a firstmover, says Kafafi, and wanted to show it could deliver as efficiently as anyone—and the giant solar park was a perfect opportunity to do just that. The project attracted a number of international firms to sign on to develop dozens of plots, ranging from U.A.E.-based Alcazar Energy to Spain’s Acciona and France’s Total Eren.
TAQA Arabia’s plot required a total investment of $72 million, funded by the IFC along with development banks from Finland, Austria, Bahrain and China. It was a high-profile project and TAQA Arabia delivered, with the plant now set to generate 154 million kilowatt hours of energy per year after becoming fully operational in February 2019. “We wanted to test ourselves and prove ourselves,” says Kafafi.
It’s a promising development, from a company showing it has staying power.