In April 2018, the Saudi Arabian government announced the launch of 14 PPP initiatives. The headline projects were the corporatisation of the Saudi ports sector, the privatisation of part of the Saline Water Company (SWCC), and the sale of some of SWCC’s assets.
The initiative extended to the Saudi football league, the postal service and the flour mills sector. In addition, the corporatisation of the King Faisal Specialist Hospital was highlighted. As well as increasing employment prospects, the key stated objective was the raising of some $10 billion for the State treasury. So what have we seen since April 2018?
Rather than establishing a centralised PPP governance function, the kingdom has instituted a hybrid arrangement. This takes the form of a number of Supervisory Committees. These are sectoral bodies, e.g. education, health, energy. Each Supervisory Committee is supported by the relevant government minister and is responsible, within certain parameters, for reviewing and approving proposals for the implementation of PPP projects within its sector. The committees then have their own execution teams, responsible for facilitating decisions.
The Supervisory Committees are supplemented by the National Centre for Privatisation. The NCP’s responsibilities include developing a national privatisation and PPP regulatory framework and sector privatisation standards and guidelines. It also plays an execution function for the procurement of PPP projects on behalf of the ministries, if a ministry decides not to directly manage the procurement process itself.
The combination of the Supervisory Committees and NCP creates a hybrid of centralisation and sectoral decentralisation.
In the summer of 2018, a draft PPP law was released into the market. The draft addressed a number of questions relating to government procurement regulations, and whether these would continue to adversely cut across the effective implementation of PPP projects in the kingdom. The good news is that, based on the draft, they will not.
Water sector leads deals flow
In addition to regulatory changes, there has been a reasonable amount of deal flow, albeit primarily in the utilities sector. Two independent water projects (IWPs) have been tendered, namely the Shuqaiq IWP and the Rabigh IWP. Commercial close has been achieved on both deals. The Yanbu IWP and Jubail IWP are expected to follow. Commercial close has also been achieved on the Dammam independent sewage treatment project (ISTP) and Jeddah ISTP. An RFP (request for proposals) for the Taif ISTP is expected next.
In the renewables space, the Sakaka solar IPP has achieved financial close and a preferred bidder has been appointed for the Dumat al Jandal wind IPP.
Outside of the utilities sector, Tatweer Buildings Company has launched the first wave of what is expected to be a programme to procure 2,000 public schools on a PPP basis. The first wave is for 60 schools across Makkah and Jeddah.
So what do we expect to see next? The utilities PPP sector is showing early signs of success and there is a significant pipeline of projects. However, it is the sale of assets that will make a difference to the Ministry of Finance in the short term. Of the four sectors that were earmarked for early sale: ports; grain silos; football stadia; and post, it seems that grains silos is likely to hit the market first. The expectation is that an RFP will be issued to bidders during the course of this year.
It is also understood that healthcare PPPs will be introduced to the market during the course of 2019, a sector with enormous potential. Transportation, particularly aviation and roads, also have great potential.
Although there have been some tangible achievements, there is still some way to go. The announcement of Vision 2030 and the subsequent publication of the National Transformation Program has raised private sector expectations and most indicators show there is appetite to invest.
One of the key challenges is regulation and finalising the shape that the legal regime will take. Foreign developers will be all too familiar with some of the PPP failures seen in other jurisdictions, most of which were borne out of a failure to pay adequate attention to regulation. The appetite for more deals will inevitably have to be balanced against the need to learn from the regulatory mistakes made in other jurisdictions.
Any opinions expressed here are the author’s own.
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