The fall in oil prices to the $40-$50 a barrel range will give renewed impetus to efforts to apply public private partnership (PPP) models to infrastructure schemes ranging from transport to education and healthcare.

GCC governments are facing growing concerns over budget deficits, which could affect capital spending.

“In order to bridge budget deficits, GCC governments can borrow more, invest less or roll out PPP schemes. I expect we will see a combination of the three,” says Maarten Wolfs, partner and head of infrastructure finance in the Middle East for the UK’s PwC. “By getting a private sector entity such as a bank or ECA [export credit agency] to fund the project through a project-financed PPP, the Ministry of Finance defrays the capital cost of the project over time, which helps countries manage deficits better.”

So far in the Middle East, the vast majority of project finance is focused on the energy and utility sectors. Countries such as Oman and the UAE have tendered independent power and water projects on a regular basis over the past two decades.

The relevant government entities now have experience and models that could be transferred to other sectors. The GCC’s growing population means social infrastructure such as schools and hospitals need to be built in large numbers.

Previously, governments resisted the more expensive option of private finance as treasuries have been full.

“There has been a lot of talk of using project finance for much-needed social infrastructure investments,” says Wolfs. “But when we look back at the deals closed, they are overwhelmingly in energy and utilities. The challenge is applying that PPP model to other infrastructure deals. Several GCC countries have approached consultants on the topic.”

Various laws on PPP are being considered, but schemes could also proceed on an ad hoc basis, building on earlier projects.

Saudi Arabia’s General Authority of Civil Aviation (Gaca) is preparing the list of prequalified companies to bid for Taif International airport, the second airport in the kingdom to be developed using a PPP model. The project will use experience gained on the successful $1.2bn Prince Mohammed bin Abdulaziz airport in Medina, developed by Tibah, a joint venture of Turkey’s TAV Airports and local contracting firms Saudi Oger and Al-Rajhi Holdings.

Wolfs argues that PPPs not only bring financial benefits to economies but are also a way to foster improved operations and diversify local economies.

Oman is one of the GCC countries under the most budgetary pressure, so PPPs could move fast there. Muscat sees its transport infrastructure investment as a vital part of the economic strategic plan, despite planning more spending cuts.

Observers expect the $15bn Oman rail to use PPP to some extent, to proceed with the essential project. Negotiations between Oman Rail and shortlisted contractors for the $1.5bn first phase of the project are ongoing, and contractor-led finance is reportedly under consideration with domestic banks.

The decision to use private finance will ultimately depend on whether a strong bankable model can be created.

Kuwait is moving fastest with social infrastructure PPP projects. The Kuwait Authority for Partnerships Projects (KAPP) has already prequalified developers for its schools development programme, involving nine schools. The projects had been delayed by legal changes, but are now progressing.

On the other hand, too many private finance projects could test the capacity of clients, lenders and, above all, bidders. Their budgetary constraints on the number of bids they prepare each year means GCC governments will need to coordinate their schedules across borders to avoid bidder fatigue.