Private sector urged to step up to build homes, schools and clinics

IDOM

• The GCC has more than $121bn of ‘social infrastructure’ planned
• More of these projects could be built by public-private partnerships

The GCC’s private sector should carve itself a bigger role in infrastructure delivery, according to Cyril Lincoln, executive vice president and global head of real estate, finance and advisory at Dubai-based Mashreq Bank.

There is plenty of work to go around: the region has more than $121 billion of so-called social infrastructure projects planned or under construction.

Lincoln said that private developers, contractors and asset managers had a sizeable opportunity to support Gulf governments’ long-term goals via public-private partnership (PPP) deals.

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“Social infrastructure will continue to top the agenda for GCC governments, as they prioritise quality of life, medical care and education for their growing populations,” he said.

“But there is a need to diversify the way these projects are delivered. It should not be seen as the government’s responsibility alone.”

According to regional projects tracker MEED Projects, more than $50bn of social infrastructure work is under construction, while another $70bn is in various stages of planning. 

Of the total, nearly $71bn is located in Saudi Arabia, followed by Kuwait ($33bn), Qatar ($5.7bn), UAE ($4.7bn), Oman ($3.7bn) and Bahrain ($3.1bn).

Social housing schemes account for just over half of the total – $66.3bn.

Another $17.8bn of healthcare projects and $8.5bn of education projects are also being built.

Typically, these projects are funded by the public sector. This has meant that the challenges of recent years, including the coronavirus pandemic and oil price volatility, have had an impact on governments’ infrastructure budgets.

“The experiences of recent years should serve as lessons for the way forward,” said Lincoln. “It is important to balance spending even during periods of vulnerabilities such as those caused by lower oil prices.”

Procuring through models such as PPP allows the state to transfer key risks to the private stakeholders, while still retaining ownership of the asset.

Despite the recent windfall from higher oil and gas prices, PPP projects are seeing steady growth in the social infrastructure segment.

In Saudi Arabia, Al-Ansar hospital is the first project approved in Saudi Arabia’s healthcare sector under the Vision 2030 privatisation programme.

The kingdom’s Health Ministry and National Centre for Privatisation and PPP have qualified companies that can bid for the contract to develop two medical city projects – the King Faisal Medical City and the Prince Mohammad bin Abdul Aziz Medical City.

In Oman, meanwhile, the Finance Ministry has issued the request for proposals for upcoming PPP projects in the sultanate covering health, education, transport and IT. Oman previously announced 10 successful prequalified bidders for 42 schools set to be developed as PPPs.

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

“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. It also anticipates using PPPs to help gradually privatise certain industries, such as healthcare,” she said.

“The UAE, 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.”

The Dubai Department of Finance announced new PPP projects worth $6.81bn 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 said in February 2020 that it plans to procure infrastructure schemes worth $2.72bn under the PPP model.

Angela Croker, partner at Norton Rose Fulbright, said: “It is very exciting to see governments in the region increasingly looking at PPPs to progress the development of important social infrastructure projects.”

She added: “Private sector involvement will be key to the successful growth and development of infrastructure projects in the region.”

PPP – the story so far

Bahrain: The kingdom recently issued Bahrain Edict No 30/2022 – a guide regulating public-private partnerships. Previous PPP projects, including the Bahrain Metro and the Causeway, were supported by existing tender and procurement laws.

Kuwait: The country enacted Law No. 116 of 201, which replaced legislation from 2008 to cover all asset classes including projects in the electricity sector. It was used for procurement of the Al Zour North 2 & 3 independent water and power project.

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

Qatar: The 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. Dubai enacted its PPP law four years earlier and a federal resolution was issued in 2017.