Finance plans

Public Private Partnerships (PPPs) are emerging as a viable financing model in the region

Despite Saudi Arabia being one of the richest countries in the world, a lot of its infrastructure is stretched to breaking point. To date, the Kingdom has managed to finance much of its national infrastructure schemes by itself. However, it has also led the field in the use of Public Private Partnerships (PPP), a financing model that is catching on elsewhere in the region.

Today, the state-backed Saudi National Water Company (NWC) has several short-term management contracts with international operators in Riyadh, Jeddah, Taif and Makkah, who are employed to manage the water cycles in these cities. “Water demand in Saudi is increasing year by year,” says Saud Rifki, the senior manager for NWC’s privatisation programme. “First you have the issue of population growth, and also we depend a lot on the desalination of water.”

PPPs provide a viable option for improving the water sector quickly, and for boosting the quality of customer services, he says. “We need to enhance the services to cope, and we need to do it quickly – we don’t have time to wait. PPPs are a quick fix, and are also good for knowledge transfer.”

In the wake of the Arab Spring in particular, PPPs have become ever more important to GCC governments, whose commitment to improving living conditions for their citizens is heavily reliant on a significant financial outlay and degree of international know-how.

However, it has not all been easy going. In Saudi Arabia, in particular, massive projects that were initially conceived under the PPP banner have been put on hold. Landmark projects such as the Dammam-Riyadh-Jeddah ‘Land Bridge’ rail link were initially planned as PPP initiatives. However, authorities dropped that plan two years ago, and are now opting to finance the entire project – at an estimated cost of $7bn — on their own. The same is true for the massive independent power and water desalination project at Ras Al Zour on the Kingdom’s Gulf coast.

Though the concept is not new — many of the region’s power and water projects have been running as PPPs for more than a decade — experts say the business model is now being applied across a broader range of sectors. Indeed, last year, Dubai’s Roads & Transport Authority (RTA) said some 30% of all transport deals would be offered as PPPs in a bid to spread the risk and cost of large projects, while Qatar’s Ministry of Business and Trade recently assigned a unit to examine PPPs as a possible source of funding for its infrastructure spree. Kuwait, potentially the most active in its PPP programme, spent a large part of 2011 earmarking new projects for private involvement.

“There is definitely a more positive attitude towards PPPs in the region now, particularly in Kuwait,” explains Charles Lloyd, partner and head of capital projects and infrastructure at PricewaterhouseCoopers (PwC). “They set up a PPP law back in 2008, but that has only really become a reality in the last year. They have projects in the market now.” Among Kuwait’s biggest PPP projects are the Az Nour power and water plant and the Public Rehabilitation Hospital. The Gulf state also plans to tender its national metro project as a PPP in the future.

Other changes in the last year concern the types of partnerships being chosen by authorities. According to sources on the ground, many governments are moving from shorter-term, privately-controlled contracts to longer-term, more government-led partnerships. “We are moving now towards what I refer to as localisation,” says Roger Eyre, director of management advisory services at Hyder Consulting. “In Saudi Arabia, they needed the support of the private sector to address the serious issues in relation to water and wastewater services, and they used the management contract model to enable the step change to take place. But going forward they are looking more at JVs. One of the drivers for that is the need to find employment for the local population, and to have more control.”

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