Making PPP work in the Middle East

28 August 2018
PPP has not taken off in the region as well as many would have liked

With about $224bn-worth of public-private partnership (PPP) projects planned or under way in the Middle East and North Africa, it is easy to think that the plan to use the private sector to finance, build and operate state assets and deliver public services is going well.

The reality, however, is that PPP has not taken off in the region as well as many would have liked. Three years after the fall in oil prices reinvigorated the region’s private finance plans for projects, PPP still has an unconvincing record in the region – at least outside of the power sector.

Over the past two decades, the region’s utilities have successfully delivered many independent water and power plants and independent power plants due to the fact that private developers have been attracted by the assured revenues of government electricity and water offtake guarantees. As the main feedstock supplier, governments can also guarantee fixed energy costs in advance.

Together, these factors have allowed developers to build a clear picture of the risk that they are taking on.

Beyond the region’s power and water sector, however, the prospect is far more uncertain for investors. Most schemes do not have a track record that might provide an indication of performances, and on many projects it is difficult to predict long-term future income. At the same time, construction risks on major infrastructure schemes are unpredictable.

There is considerable developer interest in investing in PPP, but the reality is that there is not a constant pipeline of bankable projects that are attractive to developers or lenders.

Four years on from the crash in oil prices and the subsequent resurrection of PPP, the region still needs to be more realistic about what projects it brings to the private sector market.

PPP panorama


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