Partnership possibilities

There are twists and turns to navigate in developing a workable public-private partnership deal.
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What gets public private partnerships off the ground?

Joe Huse: I think in the Middle East the level of involvement is dictated by what is commonly termed the haves and the have nots, in relation to vast mineral and resource wealth. The countries that do not have huge dependable revenue streams have no choice but to go down the public private partnership (PPP) path. If you take Bahrain as an example, there last three major power projects have all been done on a PPP basis. A number of other projects throughout the region will probably be done on this basis too.

Charles July: The prevalence of these PPP deals will vary hugely by jurisdiction. If you take Abu Dhabi, it is experimenting with PPPs for surface transportation, with the likelihood that it will be used for the metro and integrated high speed rail link. It lends itself very well to these sorts of projects.

PPPs – which is a very flexible term – could be used in the context of wider infrastructure projects, such as a port, where the state is the landlord, and through a concession arrangement involves the private sector as a terminal operator. That’s a classic arrangement, where they have a long term agreement.

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People tend to get hung up a bit on terminology, but when you dissect these kinds of arrangements, its basically the private sector building something or providing a service to the state, which the state therefore doesn’t have to finance itself. That can be for a variety of reasons, whether the state can’t afford, or doesn’t want to bear the cost of that project, or from a political perspective may want to actively encourage private sector involvement, then it is a very attractive option.

Where this will become very intriguing in the future, because it is harder to organise, is social infrastructure (healthcare, housing, education, courts and prisons). The big difference is that in these scenarios there is no product which could then be off-taken by someone. The state pays through a unitary charge for the service provided. That has its own challenges because the state has to demonstrate that it getting value for money.

The key thing is the public sector demonstrating that a privately procured PPP arrangement gives better value for money than running the project – whatever it may be – than if it was state run.

A conventional procurement can’t be easily compared to a PPP because it has to be measured over the whole life of the deal. The private sector is responsible for maintenance and servicing over the lifespan of the project, so those future costs need to be built into the equation.

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