Private sector participation in the region’s transport sector so far has been miniscule.

The overhaul of Saudi Arabia’s Prince Mohammad bin Abdulaziz airport in Medina was the first airport in the region procured using a full-fledged public-private partnership (PPP) scheme.  The contract entailed the design, finance, construction and operations and maintenance of the airport via a 25-year concession awarded to Turkish/local company Tibah, a special purpose vehicle created for the scheme.

The Medina airport expansion was completed on time and entered full operation in the middle of the year. As such, it comes as no surprise that the kingdom’s General Authority for Civil Aviation (Gaca) intends to develop its next international airport in Taif using the same model.

But at $1.2bn, the Medina International airport expansion project is a drop-in-the-ocean for the region’s estimated $30bn-a-year transport projects sector.

Recently, Oman has also said it is considering the PPP finance model for its $12-15bn national rail network, while several airport projects in Jordan are to be developed using private finance options.  Of course Jordan, like Egypt, has had a greater exposure to PPPs than most GCC states, due to major constraints in public funds to support its infrastructure projects.

It is worth mentioning that Kuwait, through the now renamed Partnerships Technical Bureau (PTB), which is now the Kuwait Authority for Partnership Projects (KAPP), was the first to conceive a PPP metro project in the GCC. However as of today, the project is still yet to be tendered.

The most obvious reason for engaging the private sector in long-term, big-budgeted infrastructure projects is the sharing of risks, especially when public funds are distressed. Inversely, years of government revenue-spending surpluses driven by high oil prices have underpinned the trepidation among GCC governments, save for Kuwait, to implement a meaningful all-encompassing PPP regulatory framework.

As well as the availability of public funds, governments are also nearly always in a better position to obtain cheap credit than the private sector. That is until recently, when the risk of governments across the region incurring deficits due to sustained low oil prices became apparent. This development has suddenly made the PPP alternative more attractive.

There are, however, more fundamental reasons why PPPs should play a bigger role than they do in the region’s transport sector. 

The region does not have a strong legacy of operating rail networks and save for Dubai, has limited experience in operating profitable and entrepreneurial airports. Private sector actors – contractors, manufacturers, operators and finance companies – can bring their strengths and rich experience to bear on these projects.

While PPPs are not without risks, indeed the increased number of participants could directly increase the nature of risks involved in any project, they are an important infrastructure vehicle that have paid dividends in many developing and developed economies.

When executed properly, PPPs could provide opportunities for the government to diversify risks between profit- and loss-making infrastructure projects, new incentives for contractors to deliver quality projects because of their stake in the long-term operations and maintenance of each project, and allow private finance institutions to play a bigger role in the execution of projects that have significant economic value.

As such it may yet be the best time for regional governments to consider PPP in their next transport scheme.