PPP models not always successful

25 January 2011

Governments must learn to share control with developers if PPP agreements are to work

Heading into 2011, many governments in the region had high hopes that developing major projects on a public-private-partnership (PPP) basis would help drive their economies in the future.

Kuwait is developing a comprehensive PPP programme that includes a metro and rail network; Dubai has a water transport scheme; Abu Dhabi is planning the Mafraq-Ghweifat highway; and Saudi Arabia’s expansion of Medina International airport is the first PPP airport project in the Gulf.

What has happened at New Aqaba Port is a timely reminder that although the PPP model can solve many problems, it does not always work.

One of the key reasons the planned PPP agreement fell apart is that the selected consortium proposed different specifications to what originally featured in the requirements put forward by Aqaba Development Corporation.

When a government signs a PPP agreement with a separate body contracted to build, finance and operate a project, the client inevitably has to hand over some of its control to that group.

For Amman, that meant relinquishing too much control. The government has now chosen to fund the port project itself and the budget has been revised to between $300m and $350m from a previous budget of $700m.

Jordan is not just experiencing this problem with the New Aqaba port. Amman’s confidence in developing its $4.3bn freight railway network and a light rail system between the capital and Zarqa is also wavering. Selecting a suitable funding structure for these projects has been the key obstacle to Amman’s plans to move forward and put them to tender.

The PPP model could work successfully in Jordan going forward, but only if the government can learn to loosen its grip and share control with its partners.

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