World Islamic Economic Forum ( WIEF ) Madinah Institute for Leadership and Entrepreneurship (MILE)

1. 7thWIEF Roundtable Madinah, Saudi Arabia Promoting Growth through Public Private Partnership : Global Lessons 17 April 2013 World Islamic Economic Forum (WIEF)Madinah Institute for Leadership and Entrepreneurship (MILE)

2. Public Private Partnership • A Public Private Partnership (“PPP”) is a contractual relationship between a government and a private sector entity • The private entity finances, builds infrastructure assets and provides operations and maintenance services • Some key principles of PPPs are: • Public sector pays for the “service” and not the “asset” • No payment until asset is operational • Value for money • Risk allocation (to the party best able to manage the risk) • Requires competitive bidding and • Output specification for services • Synonyms of PPPs include PSPs (private sector participation), Joint Ventures and Privatizations. • A typical PPP are BOOT contracts (Build Own Operate Transfer)

3. What are PPPs? Payment for Performance • Alternative way of funding projects • Introduces private finance to public sector projects • Public Sector defines and buys a service not an asset • Private Sector delivers the service (and assets as required) • PPP structure is usually to create a single standalone business, financed and operated by the private sector • Create the asset and then deliver the service to the public sector client, in return for payment commensurate with the service levels provided Public Sector: Required Services Share operational role Private Sector: Creates assets Shares operational role Service Delivery

4. Pros and cons of PPPs • Pros • Improved and consistent provision of services • Certainty over financial outcomes • Improved risk allocation –i.e. risk transfer • Improved asset utilization • Encourage private sector innovation through output based approach • Competition drives down project cost • Whole-of-life approach to project costing • Cons • Complex contractually to negotiate • Longer time to implement than traditional projects • High implementation costs: • Finance • Fees • Due diligence • Developer resources

5. PFI and PPP structuresPPP Structure more commonly shown as.. Public Authority Debt funding ~80-90% Special purpose vehicle Equity funding ~10-20% Operator C Lifecycle Operator D Hard FM Operator E Soft FM Operator F Energy Management Contractor A Design Contractor B Build Operation & Maintenance Contracts Note: The high gearing would be typical of an availability based payment mechanism

6. PPP Risk Transfer Public Sector Private Sector EPC Design-Bid-Build Risk Transfer Build-Transfer-Operate Design-Build Build-Operate-Transfer DBOM DBFOM Outsourcing BOO Privatization Public Sector Risk Private Sector Risk Key:

7. Latest challenges surrounding the effectiveness of PPP Illustrative PFI debt margins (UK) 3% 2% 1% 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 Source: UK Treasury • Shorter term finance • Hard and soft mini perms • Club deals over syndication • Extended debt tails • Increased equity contribution • Larger deals bond financed

8. PPP Transaction Debt Margins (Q1 2013) Recent loans in the infrastructure sector (2013 Q1) show an average range of 250-350 bps in debt margins globally Source: EY Analysis of Thompson data for the 3 months up to 9 April 2013

9. Successful PPP’s in the MENA Region Source: IJ Online – Inspiratia - MEED

10. Effectiveness of PPP Concession granted Operation Planning Feasibility Construction Procurement Commercial Close Financial Close Comments: • Advocacy: • Visioning for the Project • Monitoring of the Concession • Decision Making: • Agreement to take into transaction phase based in market testing • Selection of appropriate SPV • Intervention when output specifications not delivered • Solid Business Case: • Determining the basis for private sector participation • Engaging market for best price against service delivered (i.e. Value for Money) • Delivery on outline case Advocacy    Decision Making    Solid Business Case    

11. Current strategies in various countries in the region • Qatar • PPP framework under development • Healthcare, education, housing, IWPP • Pipeline: Education, healthcare, housing, IWPP • Kuwait • IWPP, social and transport • PPP Law, PTB • Pipeline: Many PTB projects on hold • Jordan • Transport, however attempted using PPP on renewable projects • Privatisation law in 2000 followed up by PPP regulations in 2008 • Pipeline: water, transport • Bahrain • IPP/IWPP/ waste water • Privatization committee • Pipeline: Social housing • Libya • All infrastructure sectors • PPP model being considered by new government • Pipeline: Transport, healthcare, education, power, refineries • UAE • IPP/IWPP, Social, transport • Abu Dhabi • No PPP Legislative framework • No defined pipeline • Dubai • PPP legislation in process • Pipeline: Transport • Egypt • Delivered projects in social, utilities, transport • Decree No. 238 of 2011 Egypt’s PPP Law • Pipeline: Healthcare, Ports • Saudi Arabia • No central PPP Unit (Municipalities) • Projects closed in waste water and aviation • Pipeline: IWPP, transport, city development • Oman • Power and water (IPP/IWPP) • Regulation comment • Pipeline: Education, healthcare, housing

12. Global Examples • Canada • PPP model supported at both federal and provincial levels • 33 operational PPPs • Pipeline projects focus is transport • Spain • Mature PPP market with significant recent volumes of secondary market sales • Pipeline projects in transport • UK • PF2 being rolled out • Lack of clear pipeline of future projects, however rail and nuclear appear to be signature projects being carried forward • USA • Total of 34 states (including Puerto Rico) possessing dedicated P3 legislation • All Sectors,, however key sectors include transport (e.g. Chicago Midway Airport), social accommodation, and renewables • India • Political will for PPP and private sector participation is strong • 1,965 total PPP projects up to 2011 • Opportunities in transport sector • South Africa • PPP Unit created in 2000 • Potential PPP projects in healthcare, waste and water management to improve agricultural sector • Australia • Mature PPP market • Pipeline projects in education and transport aligned to the commodity industry • Nigeria • Closed deal on highway PPP • PPP pipeline focused on transport and power (e.g. Lagos Airport)

13. Partnership strategies for successful implementation of PPP Fund raising incentives • Subsidies e.g. interest accrued on loans • Investment grants for construction • Coordinating with financial institutions to provide medium/long term financing (i.e. refi-risk, subsidise accrued interest etc) • Examples include Egypt Authorities covering changes in base rate but not margins • Where necessary, authority expropriate land for use by the private investor • Provision of infrastructure ready sites with plots enabled through connections to the utilities grid • Examples include Dubai and Bahrain free zones Expropriation of private land Organization and legal framework • Significant relaxation of regulatory impediments and restrictions • Investment in public sector procurement authorities • Transparent and consistent tendering process • Examples include Kuwait’ Law 2007 with Dubai also drafting a PPP law • Captures lessons learnt for future projects • Consistent assessment and benchmarking of projects by Higher Committee • Fair and transparent approach to procurement • Examples include Kuwait’s Partnerships Technical Bureau (PTB) Central PPP Unit Government equity stake in the SPV • Ultimate form of risk sharing • Enables control of the project through regular government intervention • Examples include Omani IWPP transactions and latest Treasury advice from UK

14. Questions?