Public-private partnership projects gain ground in GCC

Chris Scudamore

JEDDAH: The role of the private sector is critically important in relation to project funding, according to an expert in capital projects services.

 “Now that the GCC countries are looking to expand the application of PPP (public private partnership) or BOT (build, operate, transfer) principles beyond the power and water sector, there will be a large portfolio of government backed projects coming to the market for private finance in the next few years,” says Chris Scudamore, PwC Capital Projects Services leader for the Middle East region.
In fact, now is a time of opportunity in relation to PPPs or BOT, Scudamore told Arab News, adding that the private sector can play a role to provide funding via banks, but also by forming consortiums to both fund and deliver projects for government.
“This represents a huge opportunity and my advice would be for potential participants in this market to be aligning now with strong international partners with an excellent track record of PPP projects in an international and GCC context,” Scudamore pointed out.
There will always be a need for local knowledge and local partners with such PPP deals — so this is something the Kingdom’s private sector and midmarket companies could benefit from.
Emphasizing the role of the private sector, he said: “The role of the private sector is critically important in relation to project funding. Now that the GCC countries are looking to expand the application of PPP or BOT principles beyond the power and water sector, there will be a large portfolio of government-backed projects coming to the market for private finance in the next few years.”
Specifically, where government budgets may not be able to pay for construction projects through traditional contracts, they will be looking for the private sector to provide the funds for projects in exchange for a service charge over a multiyear period (for example, 25 years), he stated.
In the region, a number of PPP style projects have been delivered in the power and water sector, so this isn't a new initiative. What is new is the application of PPP or BOT principles in other sectors such as schools, hospitals, stadiums, etc., Scudamore said.
Asked about the new set of challenges created by lower oil prices for Gulf countries,he said: “Lower oil prices, means lower government revenues from oil, which often translates into reduced government budgets and spending. This has a knock on effect of reduced numbers of new projects, an increased number of deferrals or cancellations of projects and attempts to reduce scope and save costs on current projects.”
Referring to the study conducted by PwC Capital Projects Services, Scudamore said: “Our survey identified that over 75 percent of respondents had been impacted by funding constraints this year and 60 percent expected to spend less on projects next year.”
However, he added that despite falling oil revenues and potential reductions in government budgets, this is actually a time when governments need to accelerate even further their planned diversification projects if they want to diversify away from oil and gas. This then creates a challenge where projects need to be accelerated but short-term availability of funding and finance is constrained. 
Asked how Gulf countries could diversify their economies to become less dependent on oil, Scudamore said: “Diversification away from oil and gas is a much discussed topic. All the GCC countries have similar national visions to accelerate the development of their economies and try to create a sustainable economy away from oil and gas. This normally includes investment in education, health, tourism, transport, and infrastructure such as ports and airports.”
All of these investments will channel money into the economy where these types of projects are being developed. This money will have an economic benefit while it is being spent, but local companies will also benefit from developing skills and experiences during the projects — something they may be able to sell later on, he said.
The product and outcomes generated from investment in education, for example, will help the GCC countries create a next generation of intellectuals and entrepreneurs to take their countries forward with a new phase of economic development.