Infrastructure is a key component of the business environment, enables trade and commerce and generates employment. It is estimated that the Middle East and North Africa (MENA) region will need between USD 75 and USD 100 billion of investment per year over the next 20 years to meet its needs (World Bank, 2012). Despite this, private investment in MENA-region infrastructure has decreased for a number of reasons, including global economic conditions, tightened banking prudential requirements and regional political uncertainty. Since public finances remain strained in many MENA countries, rising infrastructure needs will require the mobilisation of private investment. Recourse to Public-Private Partnerships (PPP) can help meet these challenges while simultaneously improving expertise and capacity in critical sectors such as transport and renewable energy among others.
This handbook provides an overview of key obstacles and policy issues facing the development of PPPs across the MENA region, with a particular focus on the transport and renewable energy sectors in Egypt, Jordan, Morocco and Tunisia (the Focus Countries). It aims to assist senior officials and decision makers in advancing projects from a conceptual stage to that of viable transactions suitable for private-sector and/or international financial institution (IFI) investment. It is the result of research and consultations led by the Investment Security in the Mediterranean Support Programme, an initiative implemented by the OECD with the support of the European Union. Based on an assessment of the current environment, and the numerous OECD publications relating to PPPs and international good practices, the handbook contains recommendations to address some of the obstacles to successful PPP programmes. Key recommendations include:
• Need to reinforce leadership and professional expertise: The most critical issue facing PPP development in the MENA-region is the need for increased government capacity. Capacity building is required on a number of levels. At the most senior official and political level, the need may be more attitudinal than technical. As high-level support is essential, the benefits and proper motivations for procuring by PPP must be understood and any negative attitudes about the participation of the private sector in the provision of public infrastructure or services should be addressed. For working-level officials and public servants at the line ministry or implementing agency dealing with the private-sector counterparty, training needs are both attitudinal and technical.
Steps to address capacity include not only the creation of PPP central units and satellite units, but also ensuring that they are adequately staffed, resourced and empowered to make decisions. Other options can be contemplated to provide assistance for individual transactions, such as the hiring of external advisors, but this should in the context of creating long-term institutional capacity.
High-level political support can be reinforced by the adoption of national infrastructure strategies and policies that take an integrated approach across sectors and that identify PPPs as a procurement option.
• Ensure regulatory transparency and predictability: To inspire confidence in the longevity and continuity of the PPP policy regime, MENA governments need to guarantee minimum levels of legal security, implement predictable regulations and define strategic goals. A credible, transparent bidding process will be crucial in attracting high-quality bidders and maximising value for money for governments. Inter-ministerial coordination and commitment, and minimising political influence in the selection and development of projects through a solid PPP policy and legal framework, will also help to maximise investor appetite.
• Focus on project selection and preparation: Greater investment in project selection and preparation is needed to develop bankable PPP deals. Governments should concentrate on those projects most likely to succeed in order to build capacity and expertise and to demonstrate a track record of successful projects. It is suggested that MENA governments initially focus on less complex, replicable PPP deals moving on to more complicated projects after having had the benefit of closing a number of transactions. Risk allocation also needs to reflect the expectations of PPP developers and investors and the risks that the market will realistically be willing and able to bear.
There are very concrete steps that can be taken to improve project selection and preparation including; the creating of one-stop shops for permits and licenses required for PPPs or empowering tendering authorities to obtain those permits and licenses that can realistically be obtained without a final design or finished project; emphasising required functional outputs and not technical specifications in tenders; and, ensuring that project locations are chosen on the basis of demonstrated demand or need and not on political motivations.
• Energy subsidies reform is needed to encourage PPPs in the transport and renewable sectors: The prevalence of non-renewable energy subsidies is often a constraint to the development of renewable energy infrastructure projects, and transport PPPs may also be vulnerable to the market distortions they cause. Where heavily subsidised fuels are a major input cost for competing forms or energy or modes of transport, it may be difficult for a PPP to compete. Reforming long-standing and politically popular subsidies may be very difficult but governments should understand that transport and renewable energy PPPs may not be feasible without it.
• De-risk projects: The MENA region is in competition with other areas for private sector investment and is often seen as higher risk than some other regions. Governments should therefore take those steps that they are able to reduce risks faced by private investors. This could include: addressing foreign exchange risk by funding in local currency or by providing revenue to the project company in hard currency, providing an exchange rate guarantee or otherwise working to provide a currency hedge; in projects with traffic/volume risk, retaining this risk or devising a mechanism to share it with the private sector; and, aligning incentives of incumbent operators and state-owned-enterprises to level the playing field and ensure cooperation with the PPP where necessary.
In the course of the OECD's preparation of this handbook, it has become apparent that some government officials hold to certain myths and misunderstandings regarding PPPs. PPPs are not a perfect solution to all infrastructure challenges faced by MENA countries and they involve costs and risks for government. However, when properly understood and implemented, PPPs can play an important role in providing the infrastructure required to enable economic development and improve the living standards of MENA citizens.