Mafraq-Ghweifat bid timeline

Abu Dhabi’s Department of Transport (DoT) is expected to drop plans to develop the estimated $3bn Mafraq-Ghweifat Highway as a public-private partnership (PPP).

Sources close to the project say that although a final decision on the procurement of the Mafraq road has not been made, the DoT and the two remaining bidders for the project have been told it is effectively no longer a PPP.

The move is a significant blow for infrastructure projects in the region as it was considered a key project in kick-starting the development of infrastructure PPPs in the Middle East. Instead the Mafraq project has been beset by delays and concerns that the costs were excessive.

There has been opposition within the Executive Council to develop the Mafraq project as a PPP

Source in Abu Dhabi

Abu Dhabi’s Executive Council, which takes overall responsibility for projects in the emirate, has asked the DoT to come up with other options for the delivery of the Mafraq project. “PPP as a delivery method for this project is not dead yet, but it is dying,” says a source involved in the project. “A final decision is not yet made, but it is very unlikely to come back as a PPP now.”

Another source close to the biding groups says the bids have now been cancelled.

After several postponements, three bids for the project were finally submitted on 24 December 2009. Around 17 months of negotiations followed between the bidders, the DoT and its advisers, the Executive Council and the Abu Dhabi Department of Finance, talks had been under way with a consortium led by Austria’s Strabag to appoint it preferred bidder.

However, in January the Department of Finance said it would not approve a preferred bidder unless they were able to substantially lower their prices. Talks have since failed to make any progress. It is now expected that the project will be developed as an engineering, procurement and construction (EPC) contract.

“There has been increased opposition within the Executive Council to developing the Mafraq project as a PPP since the start of the year,” says a source in Abu Dhabi.

Ernst & Young, the financial adviser to the DoT on the PPP procurement of the project is understood to have had no involvement in the scheme for over a month.

The two bidders have spent millions of dollars on preparing their proposals for the scheme and if the bids are now cancelled, it will make many developers think twice about pitching for infrastructure projects in the emirate, and maybe even beyond.

Bankers, consultants and lawyers had been hoping that the Mafraq project would be a success in order to serve as a launch-pad for the billions of dollars of other infrastructure PPP plans in the region. Plans ranging from road and rail projects, to social housing and education schemes are under way by various regional governments looking to utilise the PPP model. The impending failure of Mafraq as a PPP will weigh on all those schemes.

Abu Dhabi has also cancelled the development of the Tawam hospital as a PPP in early 2010.

“There will be a fallout from this, it will be limited if other projects go ahead more smoothly, but bidders for other infrastructure schemes in the region will want a lot of reassurance before proceeding with a bid,” says a project financier in the region.

Other observers in the project sector admit that it is a damaging blow to PPP, but the effects are likely to be limited. “I don’t think this is a fatal blow to PPP schemes in the Middle East, but it certainly doesn’t help the perception of the region among contractors and potential bidders,” says a PPP specialist in the region.

Across the Middle East, several governments are planning to use PPP structures to procure a range of projects including roads, rail and social housing. Kuwait has perhaps the most ambitious plans, which include tourism developments, the development of Kuwait International airport, and even a zoo.

The DoT could not be reached for comment.