Bad news for Gulf PPPs

09 May 2011

The Middle East needs a successful public-private partnership if confidence is to be restored

It has been almost 18 months since Abu Dhabi’s Department of Transport (DoT) received bids for the development of the nearly $3bn Mafraq-Ghweifat Highway Project. Bidders have spent millions of dollars trying to win the contract and the DoT has spent handsomely on advisers to help get the project done. But, in the end, the emirate’s Executive Council has decided that enough is enough.

It is difficult to see how the DoT will attract a strong set of bids for its next project

Having already said it considers the project to be too expensive, based on the two compliant bids received, the Executive Council has scrapped the bids and is looking for cheaper options. This is likely to involve an engineering, procurement and construction contract, rather than a public-private partnership (PPP), as originally planned.

On its own, the move has negative consequences. As the first project launched by the DoT, it is part of a $68bn transport masterplan, of which about 30 per cent was intended to be funded by the private sector.

A bad precedent is being set. The DoT had said the success of the highway project would influence how it procured subsequent schemes. It is difficult to see how the DoT will attract a strong set of bids for its next project, unless it can somehow reassure the private sector it is not wasting its time.

In the context of the wider push to use PPP structures in project delivery throughout the region, the decision could have a much greater impact. It draws attention to the opaque nature of decision making in the region, which often leaves the private sector at the whims of government, with little recourse when they abruptly change tack. Interest from bidders could be dampened as a result.

Billions of dollars of infrastructure projects are planned. Their success depends on stoking competition in the private sector. The next Middle East PPP deal will need to go more smoothly than Mafraq-Ghweifat to restore confidence.

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