Jordan forecasts revenues of $507m a year from its national railway by 2020
The global financial crisis and Arab uprisings have had a serious impact on private finance markets, but they have not dented Jordan’s will to pursue a series of multibillion-dollar public private partnership schemes. Government reshuffles prompted by the protests have, however, slowed progress.
The change has had no impact, the mandate is still the same, the action plan is still the same to an extent
Ammar Jarrar, adviser to government
No project is a better indicator of this than the $10bn Jordan Red Sea Water project. The scheme was launched at the end of 2009 as an alternative to the Red Sea-Dead Sea conveyance system, proposed by Israel, Palestine and Jordan, and assisted by the Washington-headquartered World Bank.
According to the Jordan Red Sea Project Company, the trans-border version of the scheme would cost $37bn over its 30-year life, but the domestic version just $10bn. However, this is not the reason for going it alone. Jordan is desperate for more water and Amman feels that by running the project internally it will deliver desalinated water to its cities more quickly.
Water demand in Jordan
Total water demand in Jordan is estimated by the government at 1.5 billion cubic metres a year (cm/y), but freshwater resources amount to just 867 million cm/y. The disparity means that groundwater sources are over-used, which will affect future water quality. The 325-kilometre Disi conveyor, being built by Turkey’s Gama, will help by bringing a further 100 million cm/y of water into Amman, but in terms of future demand this is just a drop in the ocean.
|Jordan Red Sea project|
|Phase||Time frame||Desalinated water capacity (million cm/y)|
|cm/y=Cubic metres a day. Source: Jordan Red Sea Project Company|
The answer, says the Water and Irrigation Ministry, is desalination and the Jordan Red Sea Project includes building plants with a combined capacity of 930 million cm/y.
Six consortiums have been prequalified to become the master developer for the $4.5bn first phase of the five-phase scheme. The successful bidder will become part of the Jordan Red Sea Company and help secure project financing with the government acting as guarantor.
Aware that water revenues alone will not to encourage investment, Jordan has packaged a number of real-estate developments into the project. These include South Amman City, South Dead Sea City and North Aqaba City, along with five new tourism resorts and low-density luxury housing communities with a total of 47,000 new homes.
The project has already fallen behind the original schedule. The announcement of the preferred bidder was meant to be made on 29 November, but sources tell MEED that the bids have not been submitted and the deadline for submissions has been extended to 30 January 2012. This is hardly surprising given the changes to the government over the past 12 months. Two of the driving forces behind the scheme, Water and Irrigation Minister Mohammed Najjar, and Megaprojects Minister Imad Fakhoury have lost their posts.
Jordan’s ministry reshuffles
Jordan Valley Water Authority secretary-general Mousa Jamani has replaced Najjar, but the role of megaprojects minister no longer exists. The ministry created by then prime minister Samir Rifai to much fanfare at the end of 2009 has been disassembled.
Instead, staff from the agency have become part of a new body, the Project Administration of the Prime Ministry, which sits within the premier’s office. Ammar Jarrar was former financial adviser to the megaprojects minister.
“I am still financial adviser and I participate in different technical committees,” he says. “Our mandate is to provide support to the sponsor agencies or ministries that own the megaprojects and to track and monitor project progress and report to the prime minister on impediments, opportunities and so forth.”
Jarrar says that the abolition of the ministerial position has not affected Jordan’s plans to push on with its major projects and confirms that private investment remains a key part of the strategy.
“So far the change has had no impact, the mandate is still the same, the action plan is still the same to an extent. I guess the ultimate answer will be ‘wait and see’ because the budget will come out in a matter of weeks.”
The 2012 budget will ultimately decide which projects receive financial allocations.
“That will be a good determinant of how the government is approaching the megaprojects,” says Jarrar.
Concerns over the draft budget have already been raised by contractors in Jordan, who were disappointed to see that only $16.8m had been allocated for payment of outstanding work.
According to the Jordanian Construction Contractors Association (JCCA), firms are owed more than $168m. Head of the association Ahmed Yousef al-Tarawneh has written to the government to complain about the outstanding dues and was disappointed to see such a small allocation for settlement.
He warned that the decision could lead to project delays, as well as harming the economy.
“I fear that this will push the contractors to take decisions that do not serve the nation,” Al-Tarawneh said in a statement. He also warned that five companies were on the brink of bankruptcy.
Infrastructure funding challenge
As the cash flow problems facing contractors shows, financing major schemes is the biggest challenge facing Jordan’s projects sector today.
Using the private sector is one way to help lower the government’s capital outlay and Amman has learned many lessons since it began using public-private partnership (PPP) models, such as build-operate-transfer (BOT).
Some schemes, including the expansion of Queen Alia International airport and the Al-Samra Water treatment projects, have shown that the BOT model can be successfully deployed in Jordan. However, others such as the Amman-Zarqa light-rail scheme have failed to take off.
Financing major schemes is … the biggest challenge facing Jordan’s projects sector today
The 26km light railway progressed as far as having a developer appointed, (the Kuwait-led Jordanian Kuwaiti Company (JKPC)) in mid-2008. But by the end of March 2009, the company had failed to secure financing despite two extensions from the government. This was not the first time the project had run into trouble. Previous efforts to tender the scheme had fallen flat after returns were not considered attractive enough and companies failed to bid for the project.
After awarding a consultancy contract to Canada’s CPCS in January 2006, the Public Transport Regulatory Commission reassessed the terms and included an $85m capital infrastructure grant and a minimum revenue guarantee of $11m a year.
The resulting structure attracted three bids, two of which were compliant. But by the time the scheme was awarded to JKPC, global debt markets had all but closed as the global economic crisis hit.
Today, the project remains on the government’s to do list, and how it will move forward remains unclear as the Transport Ministry is considering alternatives such as a cheaper bus rapid transit network.
Progress is, however, being made on the 897km Jordanian National Railway, which is again seeking private involvement. In August, the Transport Ministry revealed a new structure to the proposed network, which will run north-south through the country, linking major cities and the Aqaba port with Syria, Saudi Arabia and Iraq.
Jordan Railway Company will finance, build, own and manage the railway network. The $2.96bn project will take four years to be completed. The 509km Aqaba to Syria north south link is expected to account for the majority of the investment at $2.43bn. The 290km link from Zarqa to Iraq will cost $410m and the 91km Saudi Arabia link is estimated at $120m.
According to the project documents, the government will also be seeking a private sector partner to operate and maintain the new national railway network.
“Under a PPP structure, the operator will purchase, own, and maintain its own rolling stock, in addition to operating and maintaining the railway network. Under an operating concession contract, the operator will lease the rights to operate the railway from JRC for a minimum period of 30 years,” says the project brief.
The ministry says it is considering allowing regional investors to become a part of the Jordanian Railway Company. Private investment in rail will be difficult to secure. Saudi Arabia has struggled with its plans to build the 950km Landbridge using the BOT model.
The scheme was initially launched as a PPP before moving back to the government-funded project when it became clear that finance was not forthcoming. The railway sector is now awaiting a final decision on how the $7bn scheme will move forward.
Ambitious timetable for projects in Jordan
Jordan plans to begin building the new railway in 2012, while simultaneously seeking an operating company. It forecasts revenues of $507m a year by 2020, rising to $1.07bn by 2040. The existing Aqaba Railway Company, which serves the Jordanian Phosphate Mining Company is expected to become part of the operating company.
The official procurement process will begin early next year, by which time another of Jordan’s megaprojects, a $6bn nuclear power station, should have been awarded.
Technical and financial bids from three developers – Russia’s Atomstroyexport, Canada’s AECL and France’s Areva with Japan’s Mitsubishi Heavy Industries – are currently being assessed by the Jordan Atomic Energy Commission. An award is expected by the end of 2011.
Projects such as the nuclear power station and the Red Sea project demonstrate that despite the political uncertainty and financial challenges, Jordan is determined to push on with infrastructure schemes.
Intent alone will not be enough. The challenge will be securing financial allocations and attracting private investment.
With a global economy that will continue to be challenged in 2012, this will be difficult proposition.