JEDDAH - The Kingdom of Saudi Arabia has the potential to implement robust public-private partnership (PPP) infrastructure projects that transform its economy and attract private partners, said Arvind Mahajan, Head of Infrastructure, Government & Healthcare services for KPMG in India, during the 15th Jeddah Economic Forum (JEF), which concluded here last Thursday.
KPMG, which operates a global network of independent member firms offering audit, tax and advisory services, was present in this important event, which was held in line with King Salman bin Abdulaziz's vision for the national transformation program aiming to bolster the national economy and diversify its revenue streams.
Islam Al Bayaa, Head of Deal Advisory, KPMG Saudi Arabia, said "PPPs can be an increasingly attractive tool for infrastructure and urban development, especially in the Saudi economy, which is heavily dependent on oil. Such programs and projects can expedite the sought-after transformation for the national economy."
For his part, Mahajan, whose PPP experience covers transport, energy, education, healthcare and urban services, said, "The success of the PPP and privatization program of the Saudi government is critical to facilitating economic diversification of the economy.
The future of PPPs in the country needs to be seen in the context of a global macro-economic environment which is adverse; a rising demand for additional infrastructure requiring an investment of $57 trillion by 2030; a clogged global pipeline of infrastructure projects with insufficient number of investable projects. Funding is therefore available for projects which are incubated and structured well."
He stressed that the key for Saudi Arabia is to institute a comprehensive PPP program rather than take a transactional view, strengthen the institutional capability of not just the government department coordinating PPP but also the executing departments; structure the projects with a balanced approach to risk ownership between the government and the private sector.
The interests of all stakeholders (the public, the government, the private developer and the financiers) should be aligned. Any mismatch can result in project failures, he warned. If the government manages this program well there is an opportunity for private sector to collaborate with the government to create world- class infrastructure.
On the catalytic role, risk mitigation measures can play in attracting foreign investors, Mahajan said "in today's environment uncertainty is the new norm and the risk appetite of investors is low. Clearly both domestic and foreign investors will therefore need to do a proper risk assessment of each project on offer and mitigate the identified risks before deciding to bid."
The government needs to listen to the voice of investors as well and step in to assume risks which the private sector is not able to manage, he pointed out.
In his presentation at the forum, Mahajan also talked in detail about the five factors an effective PPP program in the Kingdom should have. He mentioned regulatory framework, capacity of government institutions to incubate PPP projects, operational capability to execute and supervise projects, attractive investment climate and financial facilities.
He focused on the importance of building appropriate PPP capacity in public and private sectors by setting up a nodal agency or a specialized unit to develop and supervise PPP projects.
Developing an extensive database of PPP infrastructure investment projects is important, he added. The viable investment opportunities in any new sector should be chosen carefully because only well-structured and commercially robust projects will attract private finance and facilitate funding from financial institutions.
Public and private sectors should share regulatory and political risks in order to attract foreign investors, he said. Such risks are extremely difficult for private partners to manage and there should be some robust risks mitigation measures in place to ensure that they will not pose any threat to PPP projects.
Delegations from over 40 countries took part in the event. Prominent speakers included Prince Abdullah Bin Musaed Bin Abdulaziz, general president, Youth Welfare, Amr Khashogi, VP HR & group affairs, Zahid Group, Khaled H. Biyari, CEO, Saudi Telecom Co., Fahd Hamidaddin, chief commercial officer of King Abdullah Economic City, Basmah M. Omair, CEO of Alsayedah Khadijah Bint Khawilid Businesswomen Center, Nahed Taher, owner and CEO, GulfOne Investment Bank, Sultan Ahmed bin Sulayem, chairman, DP World and Jacques Attali, economist, writer and president of Positive Planet.
© The Saudi Gazette 2016
