Summary:

On 22 June 2023, Tunisian state media announced that the World Bank has agreed to $268.4 million in funding to support an undersea electrical cable project.

The World Bank loan comes after a December 2022 agreement from the European Union to provide over €300 million in assistance for the ELMED project. The total cost of the project is estimated to be nearly €850 million.

The ELMED undersea power transfer project would connect Tunisia to Italy, touching Cap Bon on the Tunisian side and Sicily on the Italian side.

The 600 megawatt cable has been in discussion for several years, promising to help relieve Tunisian dependence on natural gas imports to drive power supplies and to facilitate green energy transfer to Europe.

Tunisia’s financing partners continue to raise concerns about the effectiveness of the project within Tunisia’s energy sector if meaningful reforms are not undertaken to address energy subsidies and the current single buyer structure. A recent report by the World Bank made clear that the lender views public sector reform as the backbone of Tunisia’s economic future. However, Tunisia’s leaders continue to argue that reform outlined by external lenders would almost certainly lead to social unrest within the fragile Tunisian economic and political system.

Outlook:  

The ELMED undersea interconnector fits into a shared European and Tunisian vision of investment in green energy, particularly Tunisia’s potential role in becoming a green energy provider to southern Europe as well a means to stabilize power supplies to Tunisia.

With much of the potential yet to be proven, Europe has expressed a strong interest in leveraging North African states for green energy production. This vision has been accelerated by Russia’s war in Ukraine which has forced the acceleration of energy transition plans for many European countries.

However, Tunisia has continued to struggle to facilitate large-scale investment in the energy space, with growing concern among international firms about the level of bureaucracy and different administrative challenges to operating in Tunisia.

For investment to become impactful for the long-term, some level of reform to facilitate foreign investment in the energy space will likely be necessary as the current perceived risk in the sector remains elevated.

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