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18| pfi | Middle East Report 2010 Infrastructure

Infra evolution revs up

tion of increasingly limited capital and put pressure on MENA governments to focus on developing core infra- structure in order to support sustainable economic growth in the region. A new sense of realism favours essential public infra- structure initiatives such as roads, air/sea ports, mass tran- sit, and utilities projects over the real estate initiatives that characterised many markets across MENA prior to the “liquidity crunch”. In line with the recognition that the infrastructural gaps that have persisted in the past need to be addressed, MENA governments have announced more than US$550bn worth of core infrastructure proj- ects to clear the path for sustainable growth. 1 Faced with substantial capital investment require- ments amid comparatively constrained budgets, MENA governments are increasingly looking to the private sec- tor to enable the transformational change already seen in the regional power sector. Across the region, the pri- vate sector has directly participated in close to 30,000MW of independent power (and water) projects (I(W)PPs) and in the process has mobilised some US$35bn of debt liq- uidity for the sector.


Kuwait’s recently established Partnerships Technical Bureau is overseeing a large-scale public-private part- nership (PPP) scheme to expand the country’s power, water and transportation infrastructure. Abu Dhabi is expanding its use of PPPs for key elements of its US$100bn-plus Surface Transport Master Plan, while Dubai, a long time hold-out of private sector ownership in infrastructure, is working on a new law to enable PPP structures in the utilities and transportation sectors.

ith increasing recognition of the potential for private sector par- ticipation in all facets, the (r)evolution has begun. The eco- nomic challenges of the last two years have forced a re-prioritisa-

Those paying attention may have noticed – infrastruc- ture is back on top of the regional agenda. By Christoph Vojcwith Jonathan Robinson and Michael Cooper, HSBC MENA Project Finance

Saudi Arabia, Oman and Bahrain, already well estab- lished hosts of similar schemes in power and water, are now considering options for private sector participa- tion to develop more and more areas of their core infra- structure sectors.

Not to be overlooked, Egypt, Jordan, Tunisia and Moroc- co are all embracing some form of PPP structure to catal- yse their own infrastructure initiatives. Whether we call it PPP, build, own and operate (BOO), build, own, oper- ate and transfer (BOOT), or build, lease and transfer (BLT), private sector participation in the provision of essential public infrastructure is a key focus on most MENA government agendas. Although not all infrastructure projects are suitable for private sector participation for political and commercial reasons, we believe as much as US$250bn worth of announced core infrastructure projects across MENA will lend themselves for development under a PPP scheme over the next five to seven years. 2

Why MENA? Why now?

Core infrastructure projects require substantial upfront capital investments, historically a significant drain on gov- ernment finances. PPP structures can relieve govern- ments from the burden of funding such initiatives by engaging private sector capital and subsequently amor- tising total costs over long concession horizons. This allows procurers to execute more new projects simultaneously rather than sequentially, a key advantage playing to MENA economies’ needs to build enabling infra- structure as quickly as possible. However, frequently under-recognised are the material benefits from risk sharing, knowledge transfer and operational efficiency that extend throughout the life of the underlying assets. Construction delays, operational bottlenecks and cost over- runs of large infrastructure initiatives can have crippling effects on fast growing economies and rightly represent a

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