Time to team up for PPP: Ian Tempest, Faithful+Gould

PPP as a procurement methodology has been applied in the Gulf Region since 1994, initially within the power and water sectors and only more recently within the property and accommodation sectors. Whilst it has been reported that more than 100 PPP projects have been awarded within the region, the vast majority of these have involved management contracts where the private sector has provided the required services on behalf of the public sector, but has not taken on the financing or procurement risks associated with the project.

It would be fair to state that PPP procurement has gained traction within the larger scale infrastructure projects such as power generation and transportation projects but has not yet secured much presence in the provision of accommodation or health/education services.

One of the earliest successful deliveries of a project within the region following the principles of PPP, was the Taweelah A-2 combined power and desalination plant that achieved financial close in 2002. This 710MW plant was commissioned by the Abu Dhabi Water and Electricity Authority from the Emirates CMS Power Company under a 20-year concession contract that obligated the service provider to design, build, fund and operate the facility to produce 710MW of power and 50 million gallons of treated water per day.

Elsewhere in the region, the Hajj Terminal at Jeddah Airport and the New Madinah Airport have both been procured by the public authority using PPP to involve the private sector to Build, Transfer and Operate the facilities throughout an agreed contract period. Whilst the private sector has delivered a range of education and health care facilities for the authorities in Abu Dhabi, the arrangements have tended to be based around management contracts where the services, but not necessarily the built assets, have been provided by the private sector.

On the rise

There has been an increasing interest in the use of PPP as a method of procuring large scale infrastructure projects in the region as evidenced by the introduction of new PPP laws in Dubai and Kuwait and the plans to do likewise in Oman and Qatar. Principle drivers for the growth of interest in PPP include the increasing demand being placed upon infrastructure services, the impact of the reduced price of oil upon fiscal planning of GCC authorities and their ability to invest in public infrastructure without increasing public sector borrowing requirements. In addition, there is a greater recognition that in some instances, the private sector is better placed than the public sector to design, build, finance and operate facilities and can take greater responsibility for managing those aspects of project risks over which it has control.

Whilst much investment in public infrastructure has already taken place, given the predicted population increases within the GCC countries and the consequential increasing demand upon services, there will be continued pressure to satisfy this demand through alternative funding and operating models.

It is likely that large scale infrastructure projects within the power and water sectors will continue to attract interest, given the examples already established in region. However, it is also likely that PPP will be applied to other sectors including transportation (roads and rail networks), airports, education and healthcare and in some countries, social housing. As the region develops and greater recognition is given to the benefits of recycling and sustainable business practices, it is envisaged that waste treatment and waste management could also provide opportunities for the private sector to provide their expertise to enhance public sector services.

To achieve successful delivery of PPP projects, both public and private sectors need to embrace the principle of partnership working, with both parties contributing to the areas in which they have specific expertise or control. Allocation of risk is one area where greater transparency is required – it is essential that risks are identified at the outset and the party best able to manage or control the risk is given the responsibility of doing so.

The establishment of common legal frameworks within which PPP projects are to be delivered will assist both public and private sectors to understand their respective responsibilities and will speed up the process from project inception to financial close and subsequent operational phase. Long-term funding of these large-scale infrastructure projects can be challenging to organisations less familiar with the principles of PPP contracts and so a process of information dissemination and explanation will be required to ensure that private sector investment from within and from outside the region, is forthcoming.