Gulf PPP market on the upswing
The Gulf Cooperation Council (GCC) region’s sizeable infrastructure-investment gap is driving increased interest in public-private partnership (PPP). Infrastructure is at the forefront of each country’s development plans, but the public sector alone cannot fulfil every need in sectors such as water, power, transport, education, telecommunications and healthcare. The speed and volume of proposed development also brings challenges.
The need to diversify its economies, through a combination of government investment and increased private-sector participation, has intensified the region’s interest in alternative project finance. This has the potential to bring important benefits and may be crucial to the region’s ability to deliver projects. PPP is seen as a way of bringing in specialist private-sector expertise and efficiency, as well as attracting international inward investment and local private-sector involvement.
The region’s thirst for ambitious developments has triggered a range of PPP deals, securing buy-in and long-term commitment from the private sector to deliver nationally important projects such as Expo 2020 and the World Cup in Qatar. Other countries have used PPP arrangements to construct airports and shopping malls. We can expect to see growing commitment to PPP implementation, with models becoming more diverse and robust.
The UK pioneered the PPP framework through its Private Finance Initiative (PFI), whereby the private sector designs, builds and maintains infrastructure and other capital assets, then operates those assets to sell services to the public sector. PFI gives the private operator strong incentives to deliver the project on cost and on time, and enables the government to spread the cost of investment over, for example, 25-30 years.
Although the GCC countries are using the UK framework principles, it’s important to note that PPP cannot simply be imported from a global template. A comprehensive PPP programme framework includes legislative, regulatory and process framework, which is vital for success. To attract appropriate private sector investment requires high-level government commitment to PPP, with a clear and transparent PPP policy framework.
With these frameworks in place, PPP provides a very comprehensive transfer of risk and responsibility for delivering and maintaining the building or asset, providing the optimum cost for the building over its life. Public sector borrowing is reduced, private sector skills are unlocked and new technologies are potentially introduced.
The increased engagement with global best practice concepts is a major benefit, helping secure a lasting legacy. Operational benefits are also possible. Governments can focus their resources on delivering strategy and policy, while outsourcing operational delivery to the private sector. If operated properly, this secures better overall value without affecting the delivery of front-line public services.
Michael Conner is an associate director at Faithful+Gould’s Qatar office. He can be reached at Michael.Conner@FGould.com
