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August 16 2022 1:25 AM ˚
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Jordan’s PPP: A win-win solution for infrastructure projects

PPP
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PPP

Hamzeh S. Al-Alayani

The writer is a board member of a Jordanian public-sector government investments management company and a regular commentator on regional energy and industrial matters.

Jordan was a pioneer in opening up the infrastructure public-private partnership (PPP) market to the private sector, indicating a shift from state balance-sheet spending for the construction of infrastructure to longer-term partnerships involving construction and operation, and introduced several economic reforms to promote business growth and job creation through strengthening the legal framework of lenders and borrowers.اضافة اعلان

The World Bank estimates that the MENA region would need $75–$100 billion in investment per year over the next 20 years to meet its needs. As many as 242 PPP projects worth $223 billion are under development; they entail building and expanding infrastructure in the health, mining, transportation, energy, power, aviation, tourism, climate change, and ICT sectors.

PPP programs are successful and sustainable when the laws and regulations are backed by a credible pipeline of bankable projects and enabler governments, through well-informed political decision makers about best practices in PPP.

Jordan has attracted more than $9 billion in investments from over 30 PPP transactions financed since 2004; the country boasts world-class projects, such as the Queen Alia International Airport, the Aqaba Container Terminal, and multiple water and renewable-energy projects.

Jordan’s PPP capital stock was estimated to surpass 22 percent of GDP. Nearly a third of the public sector investment portfolio had been procured through PPPs by 2015, compared with just 6 percent on average in emerging economies, according to the IMF.

Unfortunately, the volume of PPP finance fell to 0.6 percent of GDP in 2018, the lowest level since 2011.

High business costs affect the competitiveness of the Jordanian private sector across the board. Electricity tariffs for productive sectors are more than double the average tariffs in the region and Europe, hindering more rapid growth of the economy.

Furthermore, transportation is expensive for the quality that users receive. This premium is especially true for land transport in the tourism sector, and trucking services between Aqaba and Amman.

Jordan recognizes that enhancing productivity and competitiveness while generating private sector-led growth is critical to achieving economic diversification. It has taken vast strides over the past decades in creating an attractive business ecosystem and has successfully established itself as a destination of choice for a range of industries. To bolster these diversification efforts, Jordan upgraded its Public Private Partnership Law (Law No. 17 of 2020).
High business costs affect the competitiveness of the Jordanian private sector across the board. Electricity tariffs for productive sectors are more than double the average tariffs in the region and Europe, hindering more rapid growth of the economy.
Furthermore, Jordan improved its ease of doing business, ranking 75 out of 190 countries by the end of 2020, according to the World Bank.

Robust market competition helps generate incentives for firms to innovate, reduce costs, and become more efficient, driving productivity.

PPP transactions have been mostly financed through “international project finance” borrowing structures, with only 5 percent sourced from the domestic financial system, while local investment in infrastructure is still relatively small for both the Social Security Investment Fund  and banks.

According to Central Bank of Jordan (CBJ) statistics, “public services and utilities” account for only 14.5 percent of the total domestic loan book. This needs to be addressed by the government to develop infrastructure-financing opportunities in local currency that can tap domestic investors to fill the gaps in future projects in which financial sustainability is more challenging to attain, like the Amman Water Desalination and Conveyance Project.

The government needs to improve its investment efficiency; whilst the creation of a dedicated PPP unit under the Ministry of Investment is favorable to the private sector, other efforts are required to ensure that high-quality investments are approved, fiscal commitments and contingent liabilities are tracked, and the financial viability and governance of sub-sovereign entities are strengthened and increase the capacity and capability of this unit.

The government must align its PPP efforts with the Sustainable Development Goals and Environmental, social, and corporate governance  programs and plan the PPP scheme well, carry out feasibility studies, and conduct auctions openly and transparently.

Private sector investors will be paying close attention to the way the government strengthens its institutional capabilities to manage the PPP process, and ensures strong financial, legal, and technical skills to achieve fair and transparent bidding, evaluation, selection, and implementation processes. Furthermore, the government should share the risks that it can manage better than private investors.


Hamzeh S. Al-Alayani is a board member of a Jordanian public-sector government investments management company and a regular commentator on regional energy and industrial matters.


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