GCC embraces public-private partnerships to drive projects

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• Saudi sees way to share financial burden of its giga-projects
• UAE welcomes industry collaboration and knowledge sharing

Public-private partnerships will become more important across a wider range of sectors in the Gulf region as countries continue to diversify their economies, say experts.

With the total value of planned and unawarded projects in the GCC countries expected to reach $2 trillion, governments are seeking more private sector support in infrastructure projects delivery.

“Both Saudi Arabia and the UAE see PPPs as a means to accelerate major projects,” Sarah Al-Shawwaf, senior vice president of Albright Stonebridge Group, told AGBI.

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“Saudi Arabia sees PPPs as crucial to meeting its foreign direct investment targets and transitioning some of the financial burden of its giga-projects to the private sector in the long term. 

“The kingdom also anticipates using PPPs to help gradually privatise certain industries, such as healthcare.

“The UAE, and particularly Abu Dhabi, is also focused on promoting PPPs, but its motivations are somewhat different.

“It sees PPPs more through the lens of industry collaboration, knowledge sharing, and building local capabilities.”

Phil Hanson, partner, Herbert Smith Freehills, added: “PPPs appear to be central to the policy of the UAE government, with a healthy pipeline of forthcoming projects. 

“The country has a long and successful record of procuring PPPs in the power and water sectors. Increased diversification into other sectors such as education, transportation and healthcare is expected in the coming years.”

The Dubai Department of Finance announced new PPP projects worth $6.81 billion in 2021 including 30 infrastructure, transportation and urban development projects. 

The Dubai Health Authority also announced eight healthcare projects, while the Abu Dhabi Investment Office (ADIO) said in February 2020 that it plans to procure infrastructure schemes worth $2.72 billion under the PPP model.

This week, it was announced that a PPP scheme to build new school campuses in Abu Dhabi has achieved financial close. It is expected to pave the way for more private sector participation in the country’s social infrastructure.

The Besix Sharjah Branch-Plenary Group consortium is behind the Zayed City Schools PPP, the UAE’s first in the field of school infrastructure.

It was awarded by ADIO, in collaboration with the Abu Dhabi Department of Education and Knowledge. 

It covers the financing, design, procurement, construction, commissioning, and 20-year operations and maintenance of three new school campuses, with a total capacity of 5,360 students in Zayed City, Abu Dhabi.

For Belgium-based Besix, which previously worked on Dubai’s Burj Khalifa tower and is currently building the Guggenheim Abu Dhabi, PPP offers opportunities for further growth.

“We have been pioneers in this field,” said Peter Lembrechts, general manager, BESIX Middle East, having also set up the country’s first PPP in water with Ajman Sewerage.

“We will continue to strengthen our position in this area in the years to come. Recently, we entered a strategic partnership to explore sustainable salmon production in the UAE.”

Romain Kao, bid manager, BESIX Middle East, said social infrastructure is “clearly a growth area for PPPs in the UAE and the Middle East.”

“We are looking to be a real partner for the public authorities and participate in the development and the long term vision enhancement of the Middle East,” he added.

The project covers a greenfield plot across Zayed City, a 4,900-hectare construction project. 

Construction is expected to start later in 2022 and be completed in August 2024, with schools opening in September of the same year.

John Martin St Valery, director for government and stakeholder relations, British Business Group Dubai and Northern Emirates Board, said: “We have seen, through our various sector focused working groups, particularly in construction and healthcare, how PPP can drive quality of standards and greater compliance.

“PPP is a great enabler for FDI to the region, providing visibility of the huge scale and vision of the UAE. [It opens] doors for greater investment, expertise and opportunity.”

Raghu Mandagolathur, CEO of Marmore Mena Intelligence, said it is likely that more PPPs are set up in the UAE in the short- to medium-term, as Dubai and Abu Dhabi seek to realise ambitious projects.

Saudi PPP funding

But it’s not just the UAE which is seeing momentum in PPP projects. 

Angela Croker, partner at Norton Rose Fulbright, explained: “It’s very exciting to see regional governments increasingly looking at PPPs to progress the development of important social infrastructure projects.

“Private sector involvement will be key to the successful growth and development of infrastructure projects in the region, and we are delighted to be advising on a significant number of such projects.”

Sandeep Sinha, head of healthcare consulting, Middle East and Africa, for JLL, said that the Saudi healthcare sector is “witnessing an increase in private investment, with several upcoming healthcare PPP projects.”

Education is another sector seeing PPP deals in the kingdom. SNC-Lavalin was recently awarded a facilities management services contract by the Wave 2 Schools Project of the Saudi Ministry of Education to finance and manage 60 public schools in Madinah. 

Al-Shawwaf added that although PPP adoption in the GCC has been and continues to be “somewhat slow”, Gulf countries will continue to encourage the growth of PPPs.

“With the rest of the world facing recession headwinds, international investors may increasingly look to the Gulf as a comparative bright spot, which in turn may drive further interest in PPPs in the region,” she added.

Christiane Kuti, senior director, global infrastructure & project finance, Fitch Ratings, expects many new infrastructure projects in gas-fired thermal power, water desalination, nuclear energy and social infrastructure will increasingly be looking for private funding, including from international markets.

But she cautioned: “Regulatory frameworks for public-private partnerships and renewables in some Middle Eastern countries are still evolving. 

“Even where legal frameworks are already in place, their effectiveness has not been tested.”

The PPP story across the GCC

Bahrain The kingdom recently issued Bahrain Edict No 30/2022 promulgating a guide regulating public-private partnerships. Previously, the implementation of PPPs was still a focus for the government, with the Bahrain Metro and the Causeway projects, both of which were supported by existing tender and procurement laws.

Kuwait The country enacted Law No. 116 of 2014 which replaced legislation from 2008 to cover all asset classes including projects in the electricity sector and was used for the Al Zour North 2 & 3 IWPP procurement.

Oman The sultanate has implemented PPP projects, particularly in the energy and water sectors. In July 2019, Oman put into force a PPP Law creating a high-level framework for PPP projects and establishing the Public Authority for Privatisation and Partnership (PAPP). 

Qatar The upcoming World Cup host issued Law No. 12 of 2020 to regulate the partnership between the private and public sectors. The country has a history of PPP transactions, most notably by the Qatar Electricity and Water Authority.

Saudi Arabia In July 2018, the Saudi National Centre for Privatisation released its discussion draft of the Private Sector Participation Law which was approved in March 2021.

UAE Abu Dhabi launched legislation in 2019 on organising PPPs while Dubai enacted its PPP law four years earlier and a federal resolution was issued in 2017.