PUBLIC-PRIVATE PARTNERSHIPS IN THE MIDDLE EAST AND NORTH AFRICA IN THE MIDDLE EAST AND NORTH PARTNERSHIPS PUBLIC-PRIVATE PRIVATE SECTOR DEVELOPMENT Handbook This handbook provides an overview of key obstacles Public-Private and policy issues facing the development of Public- Private Partnerships across the Middle East and North Africa region, with a particular focus on the Partnerships in the Middle transport and renewable energy sectors in Egypt, Jordan, Morocco and Tunisia. It is aimed at senior officials and decision-makers in the region and intends East and North Africa to assist them in moving projects forward from a conceptual stage to viable transactions suitable for A Handbook for Policy Makers private-sector and/or international financial institution (IFI) investment. It is the result of research and consultations led by the ISMED Support Programme throughout 2014. Building on OECD instruments and good practices related to PPPs and infrastructure investment, as well as on extensive consultations with : A HANDBOOK FOR POLICY MAKERS partner IFIs and local stakeholders, the Handbook contains recommendations to address some of the obstacles identified as inhibiting the successful completion of PPP programmes. Ms Nicola Ehlermann-Cache Head of the MENA Investment Programme OECD Global Relations Secretariat [email protected] MENA-OECD INVESTMENT PROGRAMME www.oecd.org/mena/investment [email protected] With the financial assistance of the European Union DISCLAIMER: The opinions expressed and arguments employed herein do not necessarily reflect the official views of the OECD or of the governments of its member countries or those of the European Union. This document and any map included herein are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area. With the financial assistance of the European Union 1 FOREWORD The infrastructure shortage in developing countries is a major obstacle to improved living standards, enterprise development, and the goals of the United Nations Millennium Declaration. This is especially the case in the Middle East and North Africa (MENA), where infrastructure demand had long been rising due to population growth, rapid urbanisation, and economic expansion, and was further amplified as historic MENA-region transitions pressured governments to increase living standards and improve the business environment. In many countries, the high levels of investment required for infrastructure cannot be financed by the public purse alone, and private investment is therefore an option that governments cannot afford to ignore. Private investment goes beyond mere additional capital to mobilise private sector technological expertise and managerial skills in the public interest. Still, a number of failed public-private partnerships in the infrastructure sector attest to the challenges facing policy makers. Infrastructure investment involves contracts that are by nature complex and of long duration, and that must ensure financial sustainability while meeting user needs and social objectives. The challenges are more acute when foreign investors are involved, as is often the case where the infrastructure project exceeds a certain size. In addition, private infrastructure investment has become increasingly scarce, due to the global economic crisis, commercial bank deleveraging, perceived increased political risk in some countries, and tightened bank prudential regulations. This handbook aims to identify barriers to the successful tendering and completion of Public- Private Partnership (PPP) infrastructure projects in the MENA region, particularly in Egypt, Jordan, Morocco and Tunisia. It is intended to assist government officials, civil service staff and policy makers by providing knowledge and direction to move projects from a conceptual stage to tender and investment (by the private sector or international financial institutions). PPP projects cover a wide range of models of private participation from limited management contracts to full public divestiture. For the purposes of this Handbook, a broad definition of PPP will be adopted that that considers any long-term contractual relationship between a state or state-owned entity (SOE) and a private-sector entity whereby the latter delivers and finances public services using a capital asset, sharing the associated risks, to be a PPP (OECD, 2012, Recommendations of the Council on Principles for Public Governance of Public-Private Partnerships). There are limits to the usefulness of any handbook in a field as complex as PPP project development, where the scope of projects and the range of sectors vary tremendously. It has therefore been drafted with a focus on two sectors: renewable energy and transportation. This document does provide detailed technical advice on infrastructure investment, contract formulation or regulation. Nor does it advocate the privatisation or private management of publicly owned infrastructure. The choice between public and private provision of infrastructure should be guided by an assessment of value-for- money and what best serves the public interest. This handbook will discuss this decision, but is more properly intended to come into play after such a determination has been made in favour of private procurement. What this handbook will do is sensitise policy makers to the challenges of PPPs and better-equip them to take advantage of the opportunity PPP represent. 2 ACKNOWLEDGEMENTS This Handbook, Public-Private Partnerships in the Middle East and North Africa: A Handbook for Policy-Makers, is the result of a collaborative effort that began in December 2013 under the Investment Security in the Mediterranean (ISMED) Support Programme, with the financial assistance of the European Commission. It was developed under the overall guidance of Anthony O’Sullivan, Deputy Director of the Global Relations Secretariat (OECD) and was written and edited by Andrew Fitzpatrick, Véronique Zovaro and Sabri Draia, ISMED Support Programme. Valuable input and material was provided at various stages of drafting by Carlos Conde, Head, MENA Division, Global Relations Secretariat (OECD); Nicola Ehlermann-Cache, Head, MENA- OECD Investment Programme; Marie-Estelle Rey, Senior Advisor, MENA-OECD Investment Programme; Mohamed-Amine Sabibi and Yasmin Rezig, MENA-OECD Investment Programme. The text was reviewed by Carl Dawson, Advisor, Global Relations Secretariat, OECD; Carole Biau, Policy Analyst, Investment Division, Directorate for Enterprise Affairs, OECD; and Ian Hawkesworth, Public Governance and Territorial Development Directorate, OECD. Special thanks to the members of the ISMED Advisory Committee for their constant guidance and support throughout the work of the ISMED Support Programme: Fernando Nino-Page and Jean- Louis Lavroff, European Commission ; Olivier Lambert, Multilateral Investment Guarantee Agency ; Francesco Totaro, European Investment Bank ; Andrea Engel and Lorenzo Nelli-Feroci, International Finance Corporation ; Benoit Mauduit, Agence Française de Développement ; Irina Kravchenko, European Bank for Reconstruction and Development ; Manuel Fernandez-Riveiro, Union for the Mediterranean; Christoph Krieger, KfW; Luigi De Pierris, African Development Bank ; and Hasan M. Mahmud, Islamic Development Bank. The publication was edited and prepared for publication by Vanessa Vallée. 3 TABLE OF CONTENTS FOREWORD ................................................................................................................................ 2 ACKNOWLEDGEMENTS .......................................................................................................... 3 EXECUTIVE SUMMARY ........................................................................................................... 6 ABBREVIATIONS & ACRONYMS ........................................................................................... 8 GLOSSARY ................................................................................................................................ 11 INTRODUCTION ....................................................................................................................... 13 CHAPTER 1: PPP FUNDAMENTALS ..................................................................................... 17 Defining Public-Private Partnerships ....................................................................................... 19 Why procure via PPP: Appropriate reasons to procure by PPP ............................................... 22 Misunderstandings about PPP: Inappropriate reasons to tender via PPP ................................ 25 Requirements for a successful PPP Programme ...................................................................... 29 CHAPTER 2: PPP LEGAL FRAMEWORKS IN FOCUS COUNTRIES ................................. 34 Country Focus: Jordan ............................................................................................................. 35 Country Focus: Morocco ......................................................................................................... 36 Country Focus: Tunisia ............................................................................................................ 37 Country Focus: Egypt .............................................................................................................. 39 CHAPTER 3: BARRIERS APPLICABLE TO PPP PROJECTS IN THE