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