Legislation could facilitate a wave of multi-billion dollar infrastructure projects
Saudi Arabia is aiming to finalise the legal framework for public-private partnerships (PPP) this year.
Riyadh is currently discussing the framework and wants the PPP legislation in place before the end of this year, according to sources aware of the matter. It has yet to formally appoint advisors, they added.
A legal framework is widely expected to facilitate the development of a wave of multi-billion dollar infrastructure projects in the kingdom.
The proposed legislation follows the establishment of a central body under the Ministry of Economy and Planning, which will drive the countrys plans for further private sector participation in its economy.
The National Centre for Privatisation (NCP) has been created to plan and oversee the procurement of PPP projects and other private sector initiatives as the kingdom seeks to meet the privatisation targets identified in its 2020 National Transformation (NTP) and Vision 2030, MEED reported in March.
The NCP is currently housed in the same office as the Ministry of Economy and Planning and the body reports to the minister, according to the sources.
NCP is also tasked with establishing a framework for privatisation and identify and prepare assets for sale.
Saudi Arabia, which depends heavily on sale of crude for revenues to meet expenditures, is expected to run a SR198bn ($53bn) budget deficit this year. The price of oil has slumped from $115 a-year in mid-2014 to about $50 a-barrel this year, which has forced Riyadh to cut spending and shelve a number of projects due to lack of funding.
It has now commissioned PricewaterhouseCoopers to conduct a kingdom-wide review of the projects and look into claims of billions of riyals worth of delayed payments to contracting sector. With its financial resources under pressure, the kingdom is looking at alternative ways to continue building the much needed infrastructure projects.
The development of some of the schemes with the help of private sector is one of the options available to policy makers.
Saudi Arabia has already said it will finish planned and yet to be awarded rail schemes including the Saudi Landbridge, the Mecca Metro and urban rail projects in Jeddah, Medina and Dammam on a PPP basis. Some steps have already been taken with PPP projects, and in March a contract to develop Yanbu airport was awarded on a PPP basis.
The kingdoms move to finalise its PPP law follows Oman and Qatar. Oman is expected to have the legislation in place within months and the Qatar could have the regulations approved within weeks. Kuwait and Dubai already have the PPP regulations in place.
Saudi Arabias most significant contract award of the decade
Airport deal signals that Riyadhs commitment to PPP is serious
It is not the biggest contract signing, but it is arguably the most significant in recent times as the construction industry looks for signs that the regions largest market, Saudi Arabia, is starting to recover.
A team of Turkeys TAV and the local Al-Rajhi Group has signed an agreement with the Saudi Arabia General Authority of Civil Aviation (Gaca) to build and operate a new terminal at Yanbu airport for 30 years. By GCC standards, the airport is not a big one. It is expected to handle 1.2 million passengers in 2017, with the capacity increasing to 3 million once the new terminal is completed.
What makes it so significant is that it is a public-private partnership (PPP). Ever since oil prices dipped in late 2014 the region has been looking to PPP as a way for governments to deliver infrastructure without the upfront financial burden of paying for the construction, while at the same time bringing in expertise from the private sector.
This process has taken time. Outside the power and water sectors, there are few examples of PPP projects being successfully delivered, and most countries still need to develop the regulatory and legal frameworks needed to give the private sector the confidence to invest. To deliver this Riyadh has established a PPP unit that with help drive privatisation in the kingdom.
At the same time, there has been scepticism about whether governments are truly committed to PPP. This is not without good reason. The market still remembers the cancellation of Abu Dhabis Mafraq-Ghuweifat highway scheme and the apparent volte-face that the government took once oil prices rebounded from lows in 2009.
The Yanbu deal shows that this time the resolve of the regions governments to use the PPP model is stronger. Oil prices have been lower for longer and there is the expectation that they will not return to the 2010-14 highs any time soon if at all.
It is also not a surprise that it is an airport deal that is blazing the trail. A consortium that includes TAV and Al-Rahji is operating Medina airport on a PPP basis after signing a deal in 2012, and construction work was completed on schedule in 2015.
With another airport PPP scheme now signed, the market will be confident that other Saudi airport PPPs such as Taif will move forward.
More importantly, there will be increased confidence in the PPP model in general, and with projects ranging from housing to metros, and hospitals to schools all planned that award of Yanbu airport could arguably the most significant award of the decade.
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