Amman turns to the private sector to invest in infrastructure projects

06 September 2010

Jordan is embarking on an unprecedented infrastructure spending programme, but attracting foreign investors will be crucial for its successful implementation

Key fact

Jordan is planning some $30bn-worth of infrastructure schemes over the next 35 years

Source: MEED

Amman is preparing to embark on a major programme of public-private partnership (PPP) projects in the energy, water and transport sectors in an attempt to cut the burden of infrastructure spending.

In total, some $30bn-worth of infrastructure schemes are planned for the next 35 years. Attracting foreign investors will be crucial to the success of the projects.

“All [the projects] are in the planning stages and some are about to enter the tendering process through PPP frameworks,” says Imad Fakhoury, Jordan’s minister of public sector development and minister of state for mega-projects. “The projects are complex, but they will help Jordan to sustain a high economic growth rate and diversify its non-oil economy.”

Of the $30bn earmarked for the projects, half of the investment will be directed towards the energy sector.

Nuclear energy in Jordan

“The country faces severe water and energy shortages. On the energy side, Jordan needs [to add] about 300MW [of power capacity] every 12-18 months and demand for energy is growing 5-6 per cent annually. Currently, 99 per cent of the country’s energy is imported,” says Fakhoury.

Energy imports cost the state about $3.5bn a year, equivalent to some 25 per cent of the national budget.

The government aims to cut the country’s dependence on energy imports to 60 per cent by 2020, with 40 per cent provided from indigenous sources of fuel.

French company Areva and the UK/Australian Rio Tinto have entered into agreements with the Jordanian Nuclear Energy Commission, Jordan Energy Resources Incorporation and the Royal Jordanian Geographic Centre to extract and mine uranium. The Jordanian government has previously estimated its conventional uranium reserves at 140,000 tonnes. Uranium will be used for both a planned domestic nuclear programme and for export. Locally-produced uranium will be enriched overseas under contract and then shipped back to Jordan for use in its proposed power reactors.

Currently, Rio Tinto is carrying out a two-year exploration scheme for the extraction and mining of uranium from Al-Bahiyyeh Valley. If successful, Rio Tinto could secure a 30-year mining contract with Amman beginning in 2015.

Areva holds 33 per cent of shares in a joint venture to extract and mine uranium from central Jordan. Under the $625m project, the company will begin mining operations over 30 years from 2013.

“The two uranium mining projects currently under way have the capacity to create 800 direct jobs, reduce the country’s energy bill and boost revenues through exporting electricity,” says Fakhoury.

In terms of atomic power infrastructure, a 1,000MW nuclear power plant will be built in the southern part of Aqaba. Construction is scheduled to begin in 2013. The project aims to generate electricity at competitive prices using locally-produced uranium reserves. The $4.5bn financing required to complete the programme is expected to be made up of 30 per cent private investment. The process to hire a developer is under way and the winner is expected to be announced within a year.

Each megaproject is of strategic importance in Jordan’s march towards sustainable economic development

Imad Fakhoury, minister of state for megaprojects

A 5MW nuclear research reactor is also planned to develop Jordan’s capacity to produce radio-isotopes for medical and industrial purposes. South Korean firms Kaeri and Daewoo have invested $70m into the $130m project under an engineering, procurement and construction (EPC) contract. Construction of the research reactor will take place over four years, with startup set for 2015.

Oil shales use in Jordan

To further develop domestic sources of energy, the government has signed contracts with four companies to conduct feasibility studies to produce oil from shales in Al-Lajoon and Attarat Um al-Ghadran.

Oil shale is expected to contribute 14 per cent of the country’s energy requirements by 2020, and also to be used to produce crude oil.

The cost of the $24bn project to exploit oil shale reserves will be split 50:50 between the investor and the government. Currently, two companies have finalised the feasibility study and an exclusivity contract is due to be awarded by the end of the year.

The technology and technical know-how required to extract oil from shales will be provided by the UK/Dutch Shell Group. In a project worth $20bn, exploration and other studies will take place until 2020, with commercial operation scheduled in early 2021. “The double-deal agreement is the first of its kind in the world,” says Fakhoury. “These are the best companies in the world coming to Jordan and taking on risk to invest in the country.”

Amman’s plans for investment in the energy sector also include renewable power projects. A 30-40MW wind power project is planned for the Kamshah area along with a 80-90MW scheme in the Fujaij area. Renewable energy, including energy generated from solar power, is expected to contribute 10 per cent of the country’s energy requirements by 2020. A consortium led by Greece’s Terna Energy, will build, operate, and own (BOO) the $45-60m Kamshah project. A developer has yet to be signed on for the Fujaij project worth $120-135m, although it will be fully financed by a grant from the Washington-headquartered World Bank.

Jordan’s water schemes

Jordan’s energy projects are also intended to help its water supply challenges. It is the fourth driest country in the world but has to supply drinking water for a population that is expanding by 200,000 a year. The Jordan Red Sea Project hopes to address the country’s water shortage.

The project involves desalinating water from the Red Sea and pumping it through 300km of pipelines to the majority of the population, which sits 1,000 metres above sea level.

The government is looking for a master developer to build two large desalination facilities, two seawater and 10 freshwater booster pumping stations and three in-line hydro power stations.

As well as providing Jordan’s population with a much-needed water source, the project will take unwanted brine from the Red Sea desalination process and deposit it in the Dead Sea, which is shrinking by up to a metre a year due to extraction by natural resource companies. “The project’s primary aim is to produce freshwater, but it has an environmental aim to save the Dead Sea,” says Fakhoury.

The $4.5bn PPP scheme will also offer investors residential and commercial development opportunities. “The investor will have the right to develop a tourism corridor. This makes the project more interesting and diversifies the element of risk,” says Fakhoury.

Carried out over five phases, work on the Jordan Red Sea Project is expected to continue until 2045, with phase one due to start next year. Some 29 expressions of interest (EOI) were submitted in February and a shortlist is expected to be announced before the end of the year.

Amman’s $30bn-worth of planned infrastructure schemes also include transport schemes. Over the next 30 years, $5bn has been earmarked for ambitious light rail, public transport and national rail transport schemes. Under phase one, a 951km freight rail network will connect the main industrial cities in Jordan. Later stages will see the rail line expanded to 1,740km and link the six GCC states with Europe through a commodity-based transport corridor.

The government will build the infrastructure which is valued at $2.2bn. A private operator will provide management and maintenance services worth $59m in 2015, rising to $282m by 2050. Design and construction is due to begin next year.

As part of the government’s portfolio of transport projects, a study is under way to assess the financial feasibility of building a 24km passenger-based rail system between Amman and Zarqa.

Zarqa is a densely populated city and key industrial centre and the $370m project would go some way to meeting the demand for public transportation from Amman. Extensive feasibility, as well as technical, engineering, legal and financial studies are required to bring each of the $30bn-worth of projects from a mere concept, and onto the various developmental stages, up until full operation, says Fakhoury.

Megaprojects in Jordan of strategic importance

“Each megaproject is of strategic importance in Jordan’s march towards sustainable economic development,” says Fakhoury.

“Embarking on megaprojects is vital for achieving Jordan’s water and food security and meeting the energy needs of the kingdom. Positioning it as a model for infrastructural integration, these large and substantive projects are a way of unlocking new sources and cementing Jordan’s competitive advantage.”

“Due to the complexity of each model they will outlive the current government’s term, but this does not diminish their economic impact,” Fakhoury adds.

Funding the projects will be a major challenge given the current financial climate and the government will have to work hard to make the schemes as attractive as possible for potential investors.

If they are successfully implemented, the schemes will play a vital role in laying the foundation for country’s prosperity over the longer term.

Interview: Imad Najib Fakhoury

Jordan’s ambitious infrastructure building programme will be implemented and developed by the government’s newly formed megaprojects unit. Headed up by Imad Najib Fakhoury, minister of public sector development and minister of state for megaprojects, the unit is currently in its formative stage. As a new portfolio for the Prime Ministry, it is responsible for strategically leading the $30bn-worth of public-private partnership (PPP) projects planned over the next three decades.

Fakhoury, who assumed his current job in 2009, is well-placed to lead the country’s slew of megaprojects. With a master’s degree in public policy and a background in engineering and economic management, he is well practiced in the areas of business development and policymaking.

As the former chairman and chief executive of the Aqaba Development Corporation (ADC), Fakhoury was responsible for several strategic national PPP companies in the energy sector from 2004-09.

All the planned megaprojects fall under the country’s privatisation framework and will benefit from a new, regulatory privatisation law, which will be presented to parliament before the end of the year.

“Jordan is embarking on some strategic projects that are mega in size in water, energy and transport,” says Fakhoury. “To sustain high economic growth rates and develop priority sectors we need to encourage foreign investors to come to Jordan. The new law will act as an integrator, mirror the way PPP projects were carried out in the UK during the [Tony] Blair era and help to resolve conflicts in projects that often turn out to be complex.”

Developing Jordan’s liberal approach to foreign direct investment (FDI) is a natural progression for the Jordanian economy as the PPP scheme is a familiar finance model within the kingdom, he adds.

 “We have been operating PPPs through the Executive Privatisation Commission since 1996 and now is the time to take the next step in what will become a comprehensive reform of infrastructure,” Fakhoury says. “The megaprojects we have selected are fundamental to Jordan’s future success. We have tried to choose sectors that have a growing demand and offer a solid investment and good examples of PPP projects in the Arab world.”

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