Public-Private Partnerships & Public-Private Partnerships & Infrastructure DevelopmentInfrastructure Development

By: Moazzam A. MekanBy: Moazzam A. MekanBeirut, May 2, 2008Beirut, May 2, 2008

Challenges & OpportunitiesChallenges & Opportunities

PPPs are not a new conceptPPPs are not a new concept

“…The government should only administer the society. If the government enters the economic activity it will cause disturbance.”

- Ibn Khaldun (1332-1406)

PPPs - An Evolving Model For PPPs - An Evolving Model For Infrastructure DeliveryInfrastructure Delivery

“a relationship formed between public sector and the private sector with the aim of introducing private sector resources and/or

expertise for delivering public sector services”

PublicPublic PrivatePrivate

Engagement Anywhere Along the SpectrumEngagement Anywhere Along the Spectrum

Ultimate Goal: Ensuring Access to Reliable and Affordable Ultimate Goal: Ensuring Access to Reliable and Affordable Basic ServicesBasic Services

Key Benefits of PPPsKey Benefits of PPPs

For the public sector: Injection of private capital Operational efficiency Optimization on allocation of risks Better management of public finance:

Government pays only when services are delivered Budget certainty More efficient use of public funds

For the private sector: Attractive framework to enter or develop new markets Attractive returns Legal and financial guarantees from the Government

PPPs – a tool to expand infrastructure investmentPPPs – a tool to expand infrastructure investment

Expands public spending on infrastructure

Countries with relatively high public debt burden have a limited scope for increasing investment via public borrowing

Significant scope to improve the quality of infrastructure investment

Financial discipline

Time

Tariffs

Affordability

Cost recovery

The The ServiceServiceDelivery Delivery

GapGap

PPPs can leverage investment and efficiency

PPPs:a Model for Infrastructure Delivery

Global & Regional Challenges

Making PPPs Work

IFC & PPPs

The Global Infrastructure ChallengeThe Global Infrastructure Challenge

Source: Lights! Water! Motion!, by V. Doshi, G. Schulman, and D. Gabaldon, Booz Allen Hamilton, Spring 2007

Global infrastructure needs through 2030 are estimated to be about $41 trillion MENA would account for about 2 percent of this amount or $870 billion

US

$ B

illio

n

Source: World Bank and PPIAF, PPI Project Database

PSP is small and yet smaller in MENA … PSP is small and yet smaller in MENA …

Cumulative Investment in infrastructure projects with private participation in developing countries, by region 1990 - 2006

213.1200.9

370.3

49.088.7

49.9

0.0

50.0

100.0

150.0

200.0

250.0

300.0

350.0

400.0

East Asia &Pacific

Europe &Central Asia

Latin America &Caribbean

Middle East &North Africa

South Asia Sub-SaharanAfrica

Why little PPP activity in MENA?Why little PPP activity in MENA?

Slow decision-making and inconsistent public policies

Political instability and regime challenges

Lack of transparency

Public good issue – unwillingness to pay commercial rates for infrastructure services

Low per capita incomes in some countries – inability to pay at commercial rates

Public Sector mind-set -- large public sector

Underdeveloped Capital markets

Low private infrastructure spending

Improvement vs. 2007 report Decline vs. 2007 report

178

141

137

135

129

126

125

117

113

88

85

80

68

49

40

23

1

0 20 40 60 80 100 120 140 160 180 200

Congo, Dem. Rep.

Iraq

Syria

Iran

Morocco

Egypt

Algeria

West Bank & Gaza

Yemen

Tunisia

Lebanon

Jordan

United Arab Emirates

Oman

Kuwait

Saudi Arabia

Singapore

Investment Climate Remains Relatively WeakInvestment Climate Remains Relatively Weak

Source: World Bank Group, Doing Business Database, 2007 & 2008The ease of doing business index averages economy rankings across the 10 above topics

But MENA Offers Increasing OpportunitiesBut MENA Offers Increasing Opportunities

Excess liquidity in the Region Rise of regional investors and cross border investments Optimism Reforming governments New positive trends:

Strong shift from public to private Rising privatization/PPP trend Increasing economic diversification

PPPs: a Model for Infrastructure Delivery

Global & Regional Challenges

Making PPPs Work

IFC & PPPs

PPPs: A balancing gamePPPs: A balancing game

StrategyTransaction

Structure

Transaction Process

BusinessOpportunity

Legal framework Institutional framework Transparency Market analysis Demand projections Investment needs

Financing Sources

Consumers (Tariffs) Treasury (Subsidies) Multilaterals or Bilaterals Commercial Lending Equity

Government'sObjectives

Public service: increase access and quality of service

Tariffs: Affordability, Willingness to pay Transfer risks to private sector Maintain control

Country risk Limited financial obligations Upside potential Long-term Commitment

Investors'Interest

Conditions for Attracting CapitalConditions for Attracting Capital

Source: “What International Investors Look For When Investing in Developing Countries Survey of International Investors:, the World Bank 2003

Making PPPs LastMaking PPPs Last

More focus on long-term sustainability of PPP arrangements political, financial, and social sustainability

local currency financing & risk insurance

Sound regulatory arrangements and structures Attention to factors outside of contracts Public support

“Sustainable” subsidy arrangements

Tariff affordability and acceptability

Transparency and clear communication

Visible benefits, particularly but not only on service delivery

Avoidance of unintended downsides (community disruption, resettlement, etc…)

Success when done properlySuccess when done properly

Middle East Transport (Aviation) Deal of the Year 2007

“the deal sets a significant precedent – the first limited recourse airport financing in the Middle East – and should pave the way for other countries in the region seeking private investment in their airports.”

Queen Alia International Airport, Amman, Jordan

Infrastructure Investment: Global and Regional Challenges

PPPs: a Model for Infrastructure Delivery

Making PPPs Work

IFC & PPPs

IFC ExprienceIFC Exprience

Substantial experience in PPPs– Completed over 100 in advisory transactions and more

on investments Strong presence in MENA Two Transaction Models

– Individual Transactions• Queen Alia International Airport, Hajj Terminal, etc.

– Program Supports• Egypt, Yemen, Pakistan, …

– Water, Wastewater, Toll Roads, Hospitals, Public Schools

• Consistency, Capacity Building, Timeliness