PPP in 3D

Seeing PPPs as a ‘gold rush’ fails to take into account their complex evolution
PPP in 3D
By Jesdev Saggar
Sat 09 Apr 2011 01:16 PM

The latest fad is 3D, with 3D movies and 3D TVs, but does anyone
understand this evolution? In a similar vein, the concept of the Public Private
Partnership (PPP) seems to be the hot topic in the GCC, but again, does anyone understand
this evolution?

A PPP is used by a government as a ‘procurement tool’ to engage
with the private sector for large cost-intensive infrastructure projects. Therefore
the suggestion that PPP is in itself an industry is somewhat misleading.

Although typical infrastructure-project procurement features
numerous stakeholders, stages and objectives, it is important to focus on the three
key elements that drive every project, namely government sponsorship, opportunity
evaluation and partner selection.

Governments in the region are increasingly focused on being more
efficient with their capital and on managing their risk. The PPP procurement methodology
allows for greater transparency, longer-term relationships and larger deals.

At this point you might be thinking this all makes logical sense,
and you will be right. The point is whether the market (i.e. the bidder community)
is ready to bid for these complex opportunities. Do bidders know the opportunities
and risks of engaging with a regional government body? Are they aligned? And, most
importantly, are bidders evaluating the opportunity correctly?

The trick is ensuring all stakeholder expectations are aligned.
Governments often have a 20-year non-profit focused aim on a project, as it may
feature as part of a wider government strategy.

Private-sector partners, however, have a short-term profit focus
and much tighter timelines within which they have to perform. Therein lies the complexity
of PPPs, and why we feel this evolution is not, as others have claimed, a ‘gold
rush’.

The process requires sensitive stakeholder management, intensive
financial modelling, delicate planning and, most importantly, a dynamic private
sector to complement the process.

Deloitte, as the first PPP advisor to the RTA, has had the benefit
of working with an astute leadership team, motivated client and dynamic transport
regulator. Together we have worked through every aspect of the first PPP, drawing
on our collective financial, technical and legal experiences to run Dubai’s first transport-focused
PPP process.

Governments have the will and motivation, as well as the acumen,
to drive the evolution in procurement to assist in reaching its objectives, especially
when it comes to infrastructure. Whether it is a PPP, privatisation or even a long-term
concession agreement, governments are working with industry specialists to prepare,
evaluate and run a transparent partner selection processes. This is indeed an evolution, and one that should
be embraced intelligently.

The opportunity is significant for bidders/partners, but one
must tread carefully, as this path is new and still riddled with legacy issues.

For example, unclear RFPs often result in the addition of risk
premiums from experienced bidders, or ‘suicide’ bids – that is, unfeasibly low bids
that disrupt and destabilise projects. Experienced advisers can bridge what otherwise
might be a wide expectation gap.

In conclusion, the use of PPPs is more of a tool to stimulate
a dialogue, rather than an ‘industry’ for organisations to work within. It is a
method by which governments can evaluate opportunities and private-sector bidders,
and to help develop nations by sharing long-term risk and reward.

PPP is by no means a ‘gold rush’, as there have been many successes
and casualties, so take care when using this tool, and make sure you select the
right advisor to guide the path.

Jesdev Saggar is director: capital projects advisory at Deloitte
& Touche (ME).

For all the latest construction news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.

Subscribe to our Newsletter

Subscribe to Arabian Business' newsletter to receive the latest breaking news and business stories in Dubai,the UAE and the GCC straight to your inbox.