The rise of the private sector providers in the Middle East

13 November 2007
At first glance, a review of utility contracts signed in the Gulf over the past 12 months suggests governments are still the
principal suppliers of electricity and water.

In the past year, they have signed conventional contracts to build 9,700 MW of new electricity capacity. Private developers won contracts for 7,200 MW (see Special Report, page 31).

But a closer look reveals a different scenario. MEED’s second annual survey of power and water developers shows that private firms accounted for 43 per cent of electricity and water supply contracts signed in the past year, while 2,900 MW of the government deals were emergency contracts signed by Kuwait to prevent summer blackouts.

Were it not for the inability of Kuwait to plan properly, private companies would now account for the majority of new power and water supply contracts for the first time. In 2008, they will.

The Gulf is at a turning point in the supply of public services. As well as giving states a new way to deliver infrastructure, the outsourcing creates a wave of opportunity for investors.

But privatisation is never pain free. Private supply represents the end of heavily subsidised public services. In the case of existing facilities, it means redundancies as investors look for profits by reducing costs. And when things go wrong, as they often do, it can trigger costly legal disputes.

Such problems have been seen everywhere that privatisation has been tried, in rich and poor economies alike.

In many parts of the developing world, the rush towards privatisation has been driven by the IMF structural reform programmes, as a condition of providing loans. But the Gulf is in a different situation. There are no international creditors demanding wider GCC reforms in return for loans.

Instead, it is a way for governments to make the systems more efficient without having to take the blame for the tough decisions. It will be private companies who are demanding the payment of bills and laying off workers. Privatisation has much to offer the Gulf, but in the long term it is governments who must deal with the consequences.

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