Transcript Slide 1
Public-Private Partnerships &
Infrastructure Development
Challenges & Opportunities
By: Moazzam A. Mekan
Beirut, May 2, 2008
PPPs are not a new concept
“…The government should only
administer the society. If the
government enters the economic
activity it will cause disturbance.”
- Ibn Khaldun (1332-1406)
PPPs - An Evolving Model For
Infrastructure Delivery
“a relationship formed between public sector and the private sector
with the aim of introducing private sector resources and/or
expertise for delivering public sector services”
Engagement Anywhere Along the Spectrum
Public
Private
Ultimate Goal: Ensuring Access to Reliable and Affordable
Basic Services
Key Benefits of PPPs
For the public sector:
Injection of private capital
Operational efficiency
Optimization on allocation of risks
Better management of public finance:
Government pays only when services are delivered
Budget certainty
More efficient use of public funds
For the private sector:
Attractive framework to enter or develop new markets
Attractive returns
Legal and financial guarantees from the Government
PPPs – a tool to expand infrastructure
investment
Expands public spending on
infrastructure
Tariffs
The Service
Delivery
Gap
Cost recovery
Countries with relatively high
public debt burden have a
limited scope for increasing
investment via public
borrowing
Significant scope to improve
the quality of infrastructure
investment
Affordability
Time
Financial discipline
PPPs can leverage investment and efficiency
PPPs:a Model for Infrastructure Delivery
Global & Regional Challenges
Making PPPs Work
IFC & PPPs
The Global Infrastructure Challenge
Global infrastructure needs through 2030 are estimated to be about $41 trillion
MENA would account for about 2 percent of this amount or $870 billion
Source: Lights! Water! Motion!, by V. Doshi, G. Schulman, and D. Gabaldon, Booz Allen Hamilton, Spring 2007
PSP is small and yet smaller in MENA …
Cumulative Investment in infrastructure projects with private participation in
developing countries, by region 1990 - 2006
370.3
400.0
350.0
US$ Billion
300.0
250.0
213.1
200.9
200.0
150.0
88.7
100.0
49.0
49.9
50.0
0.0
East Asia &
Pacific
Europe &
Central Asia
Source: World Bank and PPIAF, PPI Project Database
Latin America &
Caribbean
Middle East &
North Africa
South Asia
Sub-Saharan
Africa
Why little PPP activity in MENA?
Slow decision-making and inconsistent public policies
Political instability and regime challenges
Lack of transparency
Public good issue – unwillingness to pay commercial rates for
infrastructure services
Low per capita incomes in some countries – inability to pay at
commercial rates
Public Sector mind-set -- large public sector
Underdeveloped Capital markets
Low private infrastructure spending
Investment Climate Remains Relatively Weak
Singapore
1
Saudi Arabia
23
Kuwait
40
Oman
49
United Arab Emirates
68
Jordan
80
Lebanon
85
Tunisia
88
Yemen
113
West Bank & Gaza
117
Algeria
125
Egypt
126
Morocco
129
Iran
135
Syria
137
Iraq
141
Congo, Dem. Rep.
178
0
20
40
60
80
100
Improvement vs. 2007 report
Source: World Bank Group, Doing Business Database, 2007 & 2008
The ease of doing business index averages economy rankings across the 10 above topics
120
140
160
Decline vs. 2007 report
180
200
But MENA Offers Increasing Opportunities
Excess liquidity in the Region
Rise of regional investors and cross border investments
Optimism
Reforming governments
New positive trends:
Strong shift from public to private
Rising privatization/PPP trend
Increasing economic diversification
PPPs: a Model for Infrastructure Delivery
Global & Regional Challenges
Making PPPs Work
IFC & PPPs
PPPs: A balancing game
Government's
Objectives
Public service: increase access and
quality of service
Tariffs: Affordability, Willingness to pay
Transfer risks to private sector
Maintain control
Strategy
Business
Opportunity
Legal framework
Institutional framework
Transparency
Market analysis
Demand projections
Investment needs
Transaction
Structure
Investors'
Interest
Transaction
Process
Financing
Sources
Country risk
Limited financial obligations
Upside potential
Long-term Commitment
Consumers (Tariffs)
Treasury (Subsidies)
Multilaterals or Bilaterals
Commercial Lending
Equity
Conditions for Attracting Capital
Source: “What International Investors Look For When Investing in Developing Countries
Survey of International Investors:, the World Bank 2003
Making PPPs Last
More focus on long-term sustainability of PPP arrangements
political, financial, and social sustainability
local currency financing & risk insurance
Sound regulatory arrangements and structures
Attention to factors outside of contracts Public support
“Sustainable” subsidy arrangements
Tariff affordability and acceptability
Transparency and clear communication
Visible benefits, particularly but not only on service delivery
Avoidance of unintended downsides (community disruption,
resettlement, etc…)
Success when done properly
Queen Alia International Airport, Amman, Jordan
Middle East Transport (Aviation) Deal of the Year 2007
“the deal sets a significant precedent – the first
limited recourse airport financing in the Middle East
– and should pave the way for other countries in the
region seeking private investment in their airports.”
Infrastructure Investment:
Global and Regional Challenges
PPPs: a Model for Infrastructure Delivery
Making PPPs Work
IFC & PPPs
IFC Exprience
Substantial experience in PPPs
– Completed over 100 in advisory transactions and more
on investments
Strong presence in MENA
Two Transaction Models
– Individual Transactions
• Queen Alia International Airport, Hajj Terminal, etc.
– Program Supports
• Egypt, Yemen, Pakistan, …
– Water, Wastewater, Toll Roads, Hospitals,
Public Schools
• Consistency, Capacity Building, Timeliness