By Karen Leigh
Infrastructure boom, fear of risk will foster growth of private funding market, says analyst
The Gulf is forecast to see a surge in public-private partnerships (PPPs) as governments rush to spread the cost and risk of giant infrastructure projects, a PricewaterhouseCoopers has said.
Local states are spending billions of dollars in overhauling infrastructure, with Qatar alone set to spend $100bn – or 87 percent of GDP – on modernising the emirate.
“To see a rise in PPPs you have to start with infrastructure spending, and the Middle East is massive for that,” said Clement Walsh, director of infrastructure finance at PWC.
“There are huge projects out here, in the UAE, Kuwait, Saudi Arabia and Qatar.”
If just some of the infrastructure projects planned for the Gulf take place, he added, “it will be a big market” for PPPs.
As governments work to further develop and rejuvenate their economies in the wake of the global economic crisis, they are increasingly turning to private funding.
Dubai’s state transport agency said in January it would offer about a third of its infrastructure projects over the next five years as PPPs in a bid to scale back its exposure to risk and costs.
In Abu Dhabi and Saudi Arabia, big projects such as inter-country rail lines and causeways have also opened to private sector involvement.
In Qatar, the Ministry of Business and Trade has also assigned a unit to examine PPPs as a possible source of funding for its infrastructure spree.
PwC is one of the PPP facilitators that will be making a significant investment in the Middle East in the next twelve to 36 months, said Neil Broadhead, partner in charge of advisory services.
“Capital projects and infrastructure practice in the Middle East is a very significant investment,” he said. “It’s included on everyone’s agenda.”
PwC currently has 30 engineers, accountants and other PPP facilitators on the ground in MENA, in offices from Dubai and Abu Dhabi to the newly opened arm in Ramallah.
Broadhead said the biggest demand was for professional service advice – ensuring that capital is managed effectively during the building of projects. Those projects include everything from transportation to waste treatment facilities.
“Most governments looking at [making] big expenditures look at PPPs to reduce the burden on the public purse and as the best value for money,” Walsh said. “Because that’s the measure for success. Over a project’s life cycle they offer a better value – but they’re not cheap. They emerged from very mature economies… they are a way of managing risk to the public.”
Both said the Middle East and GCC – with a recovered economy, emphasis on building and projects tied into the Qatar World Cup and other initiatives – would be a PPP hotspot in the next year.
“One year ago there was no capital projects team in the Mid East – now there’s Abu Dhabi, Doha, Saudi, Ramallah, capital projects in Dubai,” Broadhead said. “To work with these clients we need to be in their markets.”
PwC and other accountants, bankers and lawyers all have a vested interest in convincing Governments that PPP is the answer to all their public service infrastructure needs. PPP works well for simple infrastructure like roads and not so well for services like schools, hospitals and prisons. The private sector supposedly brings efficiencies, but their only concern is profits and so they deliver the lowest quality necessary to receive their service fees with no real concern for public welfare. Why do PwC and others promote PPPs? They are a massive source of ongoing fee revenue to structure and then administer these long-term contracts. PwC acted on some PPPs like the London Underground PPP (which fell apart after 7 years and cost Â£180m in advisors fees and Â£275m in reimbursed bid costs); Ministry of Defence main building, London (Â£100,000 estimated savings on a Â£700m 30 year PPP contract compared to public procurement). Its cheaper for Governments to issue infrastructure bonds.