Pathfinder project

Adrian Creed speaks to Melanie Mingas about the region’s various PPP models, the legislation behind them and the continued expansion of international law firm Clyde and Co

With a strong background in the finance and regulatory aspects of power, utility and infrastructure projects, Adrian Creed joins Clyde and Co with a specific remit to aid the firm in its continuing expansion throughout the Middle East, Africa and India.

Already the largest law firm in the MENA region, new offices in India and Africa, are only the first step of this programme.

“I am keen to develop some new solutions to help host governments, developers and lenders to social infrastructure PPPs. In particular, affordable housing is a huge issue within that,” comments Creed.

“I don’t think governments can just build housing and give it to locals anymore, there need to be long term plans and new delivery models,” he continues, further elaborating that Bahrain is leading the way, following the recent close of the region’s first affordable housing PPP.

“In my view, this will be the first of many and this project is likely to be a pathfinder project for the region,” he adds.
The issue, according to Creed is uncertainty in the political and social landscape of the region; an anchor for the success of any PPP project.

He says that while there are a number of Gulf states with “significant” financial resources at their disposal, others have to prioritise their projects in line with both public needs and the continued development of the country.

With a “dramatic” population growth and increasing demand for key infrastructure and services, governments are finding themselves hindered in their attempts to keep pace with the burden on the public purse, meaning they are “not equipped to concurrently manage and run the large number of projects being undertaken across a range of business sectors,” Creed says.

“Historically, governments around the region have typically funded infrastructure out of the public purse but in recent years most MENA governments have been looking for alternative procurement strategies.
“One of the trends of the last few years has been to utilise project finance techniques and to engage in wider PPP initiatives to help address this problem,” he adds.

The private sector role

The key is to look to the successful models employed elsewhere, such as the UK where 20 years of PPP projects have not only set a standard, but allowed legal, construction and finance professionals to hone the skill sets now demanded in the MENA region.

“These new projects are normally structured on a concession basis. A private developer might, for example, design, build and then operate a hospital over a 20 year concession period and in return the government would pay a unitary tariff over the lifetime of the project. This unitary payment would be linked to the private sector’s performance and would be structured in such a way as to provide incentives and penalties for good and bad performance, respectively,” he advises.

Despite the widespread use the PPP model being under-utilised in general, the most successful projects have included Saudi Arabia’s Madinah Airport, and water infrastructure, power generation, port and airport projects in a number of GCC countries.

However other projects have failed, such as Abu Dhabi’s Mafraq–Gweihat rail line and the Saudi Arabian land bridge project.

“In order for a PPP style project to proceed, there needs to be a strong and sustainable payment profile over the term of the project.  In addition to the payment profile risk, host governments, developers and lenders will also need to be satisfied that other risks are also properly mitigated, so that the project will be sustainable over a long period of time.

“But trying to foresee what the landscape will be like in 20 years time is a challenge in this region,” Creed continues.

New agendas

With Creed confirming the most difficult sector in which to initiate PPP is social infrastructure, he says the event of the Arab Spring have pushed this sector to the top of domestic political agendas.

He observes that there are two primary challenges to delivering successful PPPs in social infrastructure: the perception that such duty should be provided by the state; and the generally insufficient revenues generated by projects such as low cost housing, where the cost of designing, building, financing and subsequently running a new facility, requires government subsidy.

“I think there is a philosophical and commercial challenge to core principles in some of these areas and this challenge needs to be addressed in order  to get these new initiatives in the social infrastructure space moving in the same way as the successful developments that have taken place in the utility and transport sectors,” he asserts.

Region wide, currently PPP legislation is patchy, with some countries boasting a comprehensive – or at the least, general – PPP law, and other jurisdictions taking a sector-specific legislator approach, such as Abu Dhabi, which allows private companies to take part in power and water projects.

“Regional governments will have to look hard at building a competent regulatory sector in which everybody has confidence, because if you are going to develop these new long-term project delivery mechanisms, the market will need to be confident about the rules of the game.

“In particular, they need to know that their project is not going to be adversely impacted  as a result of a  future change in sector regulations,” Creed concludes.



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