In mid-December, Dubai Electricity & Water Authority (Dewa) received four bids from firms interested in developing the emirate’s first ever independent power project (IPP) at Hassyan. The deal represents a significant change in the way Dubai pays for its infrastructure and is the latest sign that the debt-laden emirate is learning from its previous mistakes. So far, Dewa is doing well, but Dubai’s longer term success at adopting this model for infrastructure schemes is less assured.
Dubai has built up a $110bn debt pile by overpaying for foreign assets and borrowing short-term loans to fund its long-term development goals. Its debt crisis in 2009 showed the consequences of these actions.
Dewa’s project is a success for several reasons. It is one of the strongest firms under the government with stable cashflows from utility bills. It also structured the Hassyan project at the right size to make financing easier.
Dubai would no doubt like to emulate the success of the Hassyan IPP with a series of public-private partnerships (PPPs) in other sectors. However, Hassyan’s experience does not guarantee the success of other projects.
Transport and healthcare schemes, other sectors where the government wants to use the PPP model, will find it much harder to attract private-sector interest. In the transport sector, the Dubai Roads & Transport Authority has already tarnished its reputation after payment issues on some of its most important projects. It has already tried to develop one water transport scheme as a PPP, but with uncertain success. Healthcare is also a tricky prospect for the private sector, as the outcomes are less intangible.
There could still be room for limited-recourse financing in other sectors, particularly aviation as state-owned Emirates airline has a world-class reputation. But options for private sector investment could be limited.
Dewa is expected to roll out more IPPs, which should be well-received by the market. Other projects may not receive such a warm reception.