Qatar could turn to PPP to support infrastructure

06 April 2015

Private sector will need to step up as budget deficit looms

  • IMF says Qatar to fall into deficit by 2016
  • PPP used in water and power sector already
  • Liquid local bank market ready to finance projects

With the Qatari government’s budget likely to fall into deficit in the coming years, the use of public-private partnership (PPP) schemes could help fund planned large-scale infrastructure projects.

Qatar will face a budget deficit from 2016, according to the latest Article 4 on Qatar’s economy published by the Washington-based International Monetary Fund (IMF) on 2 April.

Qatar is already using PPP structures in its water and power sector, but has yet to expand the model to other industries, preferring to fund infrastructure from the government’s balance sheet.

Yet, given the low oil price environment coupled with the need to keep spending to fund the infrastructure needed to host the Fifa 2022 World Cup, analysts are warning that Qatar might increasingly need to turn to the private sector to support its growth plans.  

“There are other projects that could use PPP models. For schools, hospitals, hotels for the Fifa 2022 World Cup, even stadiums - anything that can generate revenue… and that is what we are trying to encourage the government to do,” said Gabriel Olufemi, a Doha-based lawyer with Pinsent Masons’ Construction Practice, a UK-headquartered legal firm.

Currently the most advanced PPP project in Qatar is the $500m Ras Abu Fontas A3 desalination plant. The Japanese contractor Mitsubishi was awarded the contract to build the plant in March. It is being developed as an independent water project (IWP) with the government-owned Qatar Electricity and Water Company (QEWC).

However, the government is beginning to consider PPP as a possible option for building hundreds of new schools the country needs, Olufemi said.

Olufemi said that by using PPP structures, the local and highly liquid Qatari banking sector can provide the required funding to the project sponsors.

“What are the alternative ways to resolve this potential deficit problem and funding shortfall, considering the government is continuing to spend, and the obvious way is through PPP,” he said.

“The best way to deal with any short-term cash-flow issues is to get the banks, which are very liquid, to fund the projects,” he said.

Tapping the banking sector for funding will also help diversify the country’s economy away from the dominant hydrocarbon industry.

According to a QNB report published in March, bank lending is expected to rise by 9 per cent in 2015, 10 per cent in 2016 and 11 per cent in 2017, with growth mainly driven by project lending.

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