Public-Private Partnerships & Infrastructure Development

1. Public-Private Partnerships & Infrastructure Development Challenges & Opportunities By: Moazzam A. Mekan Beirut, May 2, 2008

2. PPPs 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)

3. PPPs - An Evolving Model For Infrastructure 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” Engagement Anywhere Along the Spectrum Public Private Ultimate Goal: Ensuring Access to Reliable and Affordable Basic Services

4. Key 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

5. Tariffs Cost recovery Affordability PPPs – a tool to expand infrastructure investment The Service Delivery Gap • 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 PPPs can leverage investment and efficiency

6. PPPs:a Model for Infrastructure Delivery Global & Regional Challenges Making PPPs Work IFC & PPPs

7. The Global Infrastructure Challenge • 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 Source: Lights! Water! Motion!, by V. Doshi, G. Schulman, and D. Gabaldon, Booz Allen Hamilton, Spring 2007

8. 370.3 400.0 350.0 300.0 213.1 250.0 200.9 200.0 150.0 88.7 100.0 49.0 49.9 50.0 0.0 East Asia & Europe & Latin America & Middle East & South Asia Sub-Saharan Pacific Central Asia Caribbean North Africa Africa PSP is small and yet smaller in MENA … Cumulative Investment in infrastructure projects with private participation in developing countries, by region 1990 - 2006 US$ Billion Source: World Bank and PPIAF, PPI Project Database

9. 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

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

11. But 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

12. PPPs: a Model for Infrastructure Delivery Global & Regional Challenges Making PPPs Work IFC & PPPs

13. Strategy Transaction Structure Transaction Process PPPs: A balancing game  Public service: increase access and quality of service  Tariffs: Affordability, Willingness to pay  Transfer risks to private sector  Maintain control Government's Objectives Business Investors' Opportunity Interest  Legal framework • Country risk • Limited financial obligations • Upside potential • Long-term Commitment  Institutional framework  Transparency  Market analysis  Demand projections  Consumers (Tariffs)  Investment needs Financing  Treasury (Subsidies) Sources  Multilaterals or Bilaterals  Commercial Lending  Equity

14. Conditions for Attracting Capital Source: “What International Investors Look For When Investing in Developing Countries Survey of International Investors:, the World Bank 2003

15. Making 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…)

16. Success when done properly Queen Alia International Airport, Amman, Jordan 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.”

17. Infrastructure Investment: • Global and Regional Challenges PPPs: a Model for Infrastructure Delivery Making PPPs Work IFC & PPPs

18. IFC 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