PPP Market on the Upswing

Dafydd Huw Davies
Gulf Cooperation Council regional governments are under pressure to boost investment in infrastructure. Public-private partnership is becoming an important funding mechanism to achieve this.

The Gulf Cooperation Council (GCC) region’s sizable infrastructure investment gap is driving increased interest in public-private partnership (PPP). Infrastructure is at the forefront of each country’s development plans, but the public sector alone cannot fulfil every need in sectors such as water, power, transport, education, telecommunications and healthcare. The speed and volume of proposed development also brings challenges.

The need to diversify its economies, through a combination of government investment and increased private sector participation, has intensified the region’s interest in alternative project finance. This has the potential to bring important benefits and it may be crucial to the region’s ability to deliver its projects. PPP is seen as a way of bringing in specialist private sector expertise and efficiencies, as well as attracting international inward investment and local private sector involvement.

The region’s thirst for ambitious developments has triggered a range of PPP deals...

The region’s thirst for ambitious developments has triggered a range of PPP deals, securing buy-in and long-term commitment from the private sector to deliver nationally important projects, the Expo 2020 and the World Cup in Qatar for example. Other countries have used PPP arrangements to construct airports and shopping malls. We can expect to see growing commitment to PPP implementation, with models becoming more diverse and robust.

The UK pioneered the PPP framework through its Private Finance Initiative (PFI), whereby the private sector designs, builds and maintains infrastructure and other capital assets, then operates those assets to sell services to the public sector. PFI gives the private operator strong incentives to deliver the project on cost and on time, and enables the government to spread the cost of investment over, for example, 25-30 years. [1]

Although the GCC countries are using the UK framework principles, it’s important to note that PPP cannot be simply imported from a global template.

Although the GCC countries are using the UK framework principles, it’s important to note that PPP cannot be simply imported from a global template. A comprehensive PPP programme frameworks, includes legislative, regulatory and process frameworks and this approach is vital for PPP success. To attract appropriate private sector investment requires high-level government commitment to PPPs, with a clear and transparent PPP policy framework.

With these frameworks in place, PPP provides a very comprehensive transfer of risk and responsibility for delivering and maintaining the building or asset, providing the optimum cost for the building over its life. Public sector borrowing is reduced, private sector skills are unlocked, and new technologies potentially introduced.

The increased engagement with global best practice concepts is a major benefit, helping secure a lasting legacy.

The increased engagement with global best practice concepts is a major benefit, helping secure a lasting legacy. Operational benefits are also possible. Governments can focus their own resource on delivering strategy and policy, while outsourcing operational delivery to the private sector. If operated properly, this secures better overall value without affecting the delivery of front-line public services.

Faithful+Gould provides consultancy advice to public sector clients, private sector investors, and funders requiring due diligence services. Our integrated project management, programme management and technical and commercial skills enables clients to get the very best from PPP. Our thorough understanding of the public sector market is reinforced by our experience of best practice from the private sector. This helps all parties to achieve their goals, on a nationally strategic level or on an operationally deliverable level. We can assemble a team with all the skills required to take a PPP procurement from inception to operational phase. Monitoring of the concessionaire’s performance throughout the concession period can similarly be provided.

We also have the support of our colleagues throughout the global Atkins and Faithful+Gould businesses and can draw on this very broad PPP experience.

References

[1] Confederation of British Industries (CBI), Going global: The world of public private partnerships, 2007.

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