DUBAI — Public-private partnerships (PPPs) are an essential tool to accommodate and advance Middle Eastern infrastructure requirements. When planned, designed, and implemented prudently, they can contribute to national development and support growth across all socio-economic sectors, benefitting public and private sector players.

Arthur D. Little expounds this viewpoint in their latest report entitled Successful Public-Private Partnerships: How countries should set up an effective ecosystem for public-private partnerships. The document is rich in insights outlining how specific requirements should be considered throughout the planning, structuring, and implementation phases of such projects.

There are also key directions for how the private sector can spur innovation, exploring sector and country level initiatives as they are articulated across four main ecosystem levers — governance, strategy, transaction process, and implementation/monitoring.

The consultancy highlights the growing gap between infrastructure spending and needs, despite the critical nature of infrastructure regarding economic and social development. In order to mitigate this void and cope with spending limitations, governments are advised to involve the private sector where possible, which can bring additional financial support, increased efficiencies and optimal delivery of projects in tandem with the public sector, creating long-term value for money and positive outcomes for all.

“PPPs can conveniently unlock substantial financial and non-financial resources to foster the procurement of infrastructure. We acknowledge that adoption has been limited due to high complexity, high costs, the need for an enabling environment, and availability of bankable projects, but see longer term opportunities to deliver successful partnership projects in the future.” said Carlo Stella, partner at Arthur D. Little, Middle East.

“Our work in the Middle East region and around the world has shown us that countries often struggle to implement PPPs. Encouragingly, we are starting to see signs of a turnaround with regional success stories providing tangible case studies to build confidence in this approach with all stakeholders involved.”

One such example from the UAE is the Abu Dhabi government, who issued a new PPP framework in December 2020, offering a clear and structured approach to procurement in this area which will attract private sector players and spur regional projects. The Kingdom of Saudi Arabia (KSA) issued a new Private Sector Participation Law (PSP Law) this month so that PPP and privatization projects fall under their own legal framework as well as a PPP-focused resolution in late 2020, introducing key amendments on project approvals.

KSA’s revised program has delivered significant results with several PPP tenders closed in 2019 and 2020, despite the difficulties of the pandemic. In light of the pandemic crisis, the national center for privatization organized a dedicated PPP conference where COVID-19 and its impact on PPP took a central role in the agenda. A research paper highlighting the likely implications and risks for government PPP projects was issued, with short and medium-term strategies developed to address them efficiently and effectively.

PPP ecosystem challenges and solutions

At the national level, the challenges are as follows:

• Striking the right balance between empowering sectors and maintaining quality.

• Ensuring the project pipeline is suitable and strong.

• Ensuring the projects in structured in the right manner, protecting both public and private sectors.

• Optimizing implementation to maximize success of PPPs.

Overcoming such challenges is crucial to optimize PPP ecosystems at a country level. A deliberate streamlining of approval authorities and the creation of PPP catalyzers are both firm foundations for success.

Moreover, sector ministries need to be empowered and responsible for implementing these projects whilst managing related contracts for the full project duration. In terms of building a sustainable project pipeline, sectors must articulate a private-sector participation plan, conduct a comprehensive needs assessment analysis, and select PPP projects that matter most in terms of eligibility and suitability.

"Governments need to carefully construct processes and mechanisms in order to select and nurture their partners. This is the optimum way for all entities to infuse efficiency and performance as projects grow," said Sally Menassa, principal at Arthur D. Little, Middle East.

"We know it is crucial that all personnel involved in such projects have clearly defined roles and are empowered to deliver success. If these basics are in place we have a strong foundation to deliver successful PPP-driven initiatives."

The findings also show how governments should perform option analysis, conduct soft market sounding for pathfinder projects, ensure they protect all interests, and capture success beyond any given project's financial closure. Regarding the latter, governments are encouraged to plan strategically and actively monitor their PPP portfolio to safeguard against poor private sector performance and turbulent economic conditions.

— This report is by Arthur D. Little