Saudi's infrastructure plans likely to be funded by privatisations and PPPs

The targets published this week under Saudi Arabia’s National Transformation Plan point to a greater involvement by the private sector in the nation’s infrastructure, most likely through privatisations and public-private partnerships (PPP), experts say. A document published this week sets out ambitious goals for investment in infrastructure, with the kingdom planning to develop “comprehensive public […]

The targets published this week under Saudi Arabia’s National Transformation Plan point to a greater involvement by the private sector in the nation’s infrastructure, most likely through privatisations and public-private partnerships (PPP), experts say.

A document published this week sets out ambitious goals for investment in infrastructure, with the kingdom planning to develop “comprehensive public transportation plans” for five more cities by 2020, bringing the total number to 16. It is also looking to reduce delays for public transport projects.

Other targets include increasing the percentage level of private sector contribution in the rail sector from 5 to 50 per cent, and in the ports sector from 30 to 70 per cent.

“These targets do suggest privatisation,” said Keith Miller, a director of advisory services at building consultancy Atkins.

He argued that one way to attract investors into these sectors would be to link transport and logistics projects to real estate – allowing operators of metro or rail stations to develop land around them, for instance, as is done in Hong Kong.

“Creating logistics hubs, with adjacent areas for industry and warehousing will similarly help activate ports,” said Mr Miller.

David Clifton, a regional development director at Faithful + Gould, said that one “quick win” that could be achieved by the kingdom would be to either spin out or float its profitable port operating company, which sits within the ministry of transport.

“The ministry of finance could very easily uncouple it – either IPO it or hold it as a government-owned private entity for the time being. The company then gets access to capital markets.”

Chris Seymour, regional development director at Mott McDonald, welcomed the new plan, stating that it could help to kick-start a market for new government projects that has been stalled since the third quarter of last year, when the kingdom halted new awards while it formulated its strategy.

“Those schemes have not gone away. From this publication, it would seem there is going to be renewed impetus being put into programmes,” he said.

“We would expect levels of acti­vity to get back to 2014, but I wouldn’t expect that to be in 2016. That feels more like a 2017 consideration, so it would be synchronised with the new budget and allow for pre-planning to be done in 2016.”

Mr Clifton does not expect major new schemes to get under way until a current exercise installing programme management offices (PMOs) in national and regional government departments its completed.

“Designing and implementing a PMO could take anything from three to six months to three to six years depending on its scale and complexity,” he said. “But there are certain things that have to be done just to keep the country running. You can’t not repair roads, or service and replace ageing pylons and power stations.”

Mr Miller said that another stumbling block that needs to be overcome is Saudi Arabia’s procurement laws, which state that government departments must award contracts to the lowest bidder, as this is not suited to PPP schemes. He also argued that the creation of a specialist PPP unit to award contracts centrally – similar to Kuwait’s Partnerships Technical Bureau – will make the market more attractive to developers and investors.

“There are real examples in the kingdom of successful PPPs. How you volumise that is now the challenge,” said Mr Miller.

Mr Clifton also said that the kingdom needs to ensure that the transparent approach it has taken with its National Transformation Plan would be followed through to the organisations procuring infrastructure assets or seeking people to run them.

“Liquidity will follow the path of greatest return and least resistance. If they don’t know what they are letting themselves in for, it almost doesn’t matter what the return is. The chances of international banks investing would be pretty weak,” he said.

“But there’s a lot of liquidity in the international marketplace. It’s just a case of tapping it.”

mfahy@thenational.ae

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Source: Business

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