Energy and Water Projects in the Middle East and North Africa Dissertation

Executive Summary

A country’s economic growth is subject to the development and maintenance of energy, water, telecom and transportation infrastructures in an effective and efficient manner. When planned, financed and maintained properly, infrastructure contributes to the socio-economic development and boosts living standards of citizens. In addition, an efficient infrastructure system facilitates trade and attracts foreign investments in a nation. Nevertheless, in spite of the apparent benefits associated with an efficient infrastructure system, many governments in developing nations face huge gaps in their fiscal budgets and are therefore unable to make adequate investments in infrastructure development.

Consequently, these governments have collaborated with the private sector in order to access technology, capital and expertise that are essential in funding, developing and maintaining infrastructure projects in their respective countries. In addition, policymakers have discovered that, when sound institutional and economic policies are put in place, public-private partnerships (PPPs) can play a significant role in promoting economic development. For example, countries in the Middle East and North Africa region have immense potentials to drive economic growth, under the public private partnership framework, in energy and water infrastructure development.

Introduction

The main focus of this research is to explore the impact of public-private partnership models in the provision of energy and water projects in the Middle East and North Africa (MENA) region. According to Samuelson and Mark (1981), a public-private partnership model is a “simplified description of a process and relationship which is used to explain and predict…past and future outcomes respectively” (p.11). In the context of this research, the partnership between the government (represented by the public sector) and the private sector is referred to as public-private partnership (PPP). In other words, Public private partnership (PPP) refers to the reciprocally gainful relationship developed between the public and private sector (Al-Nasa’a 2007; Weirowski & Hall 2008). Under the public private partnership arrangement, partners from the private sector provide considerable equity investments. On the other hand, the public sector gets access to improved or new services (Shediac et al., 2008, p.1; Weirowski & Hall 2008). Thus, when PPP is correctly structured, it assigns risk to the partner with the best skills to address it (Menard 2012). Usually, the public sector shifts risks associated with low demand and revenue, operations and maintenance, design and construction, including other unique situations to the private sector (see table 1).

There are various definitions of public private partnerships (Akintoye & Beck 2003, p.31; Grimsey & Lewis 2004, p.181). However, in this study, public refers to public sector organizations (i.e. central, provisional and local governments) while the private sector refers to profit-making organizations. The current research is about the partnership between local governments in MENA region with profit-making organizations that are awarded tenders to develop and maintain infrastructure projects in the water and energy sectors (Akintoye & Beck 2003, p. 31). It is crucial to note that economic goods and services provided under the PPP framework must exhibit value for money (VFM). According to Akintoye and Beck (2003), VFM implies that the projects provided by the private sector (on the behalf of the government) should bring about net-benefits to the government (p.31). The net-benefit is evaluated in terms of risk transfer, quantity, quality and cost of the projects (Grimsey & Lewis 2004, p.183).

According to Creswell (1998), the justification of any study is not “the discovery of new elements…but rather the heightening of awareness for experiences which have been…overlooked” (p.94). By promoting dialogue and heightening awareness, it is hoped that this study will provide better understanding of the manner in which public private partnership could be integrated in government policy documents of the MENA region. It is acknowledged that PPP brings about improvements in public administration. This research aims to create a novel line of thinking, that is, to see public private partnership models as integral part of socio-economic development in MENA region.

Statement of the Problem

In MENA region, there exist huge gaps between public expectations aroused by governments in the region among the masses and what can be feasibly delivered. Most of the MENA countries experience financial constraints and lack capacity to speed up service delivery (Estache 2002), reduce poverty levels and fight underdevelopment. Financial impediments and inadequate capacity to act enhance the time response rate of these governments to surmount developmental challenges and is deemed to be an obstacle to the competitiveness of MENA governments in executing development plans in the energy and water sectors (Binza 2005, p.14). According to Nadler (1992), inadequate capacity to act is defined as inability of the government to employ its limited resources to realize its goals in an efficient way (p.155). This problem exuberated by policy formulation and implementation failure (Cloete & Wissink 2000, p.86) which happens in three potential ways:

• Poor service delivery, which happens when the public sector fails to discern an opportunity to adopt sound public private partnership projects.
• Derailment takes place when the public sectors takes advantage of a developmental opportunity but loses it during the PPP implementation phase since the project lacked support from other key stakeholders.
• Duplication failure occurs when solutions are successfully executed in one stage of the public private partnership project but are not duplicated in other stages of the project (Nadler 1992, p.157).

The development and implementation of infrastructure projects in water and energy sectors, under the public private partnership framework, is a multifaceted phenomenon (Ascher 1987; Binza & Fadane 2006). It entails dealing with challenges such as lack of accountability, transparency, competitiveness of PPP bids; poor risks allocations; credit enhancements; and government investment and guarantees (Ankintoye & Beck 2003). Risk management is deemed to be the hub of most debates against public private partnerships. To maximize returns and reduce risks, laws on value management service must be adopted within the entire life cycle of public private partnership projects. Risks must be determined, evaluated, moderated and priced during the initial phase of the project (Mokate 2002, p. 2).

Research Questions

The basic unit of analysis for this research is all MENA countries that use PPP as a preferred model of service delivery in the development and implementation of water and energy infrastructure projects for sustainable socio-economic development in the region. The present research attempts to address the following questions:

• What are the key factors that have aided successful implementation of public private partnerships in energy and water projects in the MENA region?
• What factors have hindered adoption and successful implementation of public private partnerships in other areas of the economy?
• What is the preferred mode of engagement used in this partnership?
• Are there any extra advantages in terms of service delivery to the public in using public private partnerships rather than pure public investments?

Objectives of the Study

The aim of this study is to explore the Impact of PPP projects in energy and water sectors in the MENA Region. The following objectives will guide this study:

• To examine factors that contributed to the successful implementation of PPPs in energy and water projects in the MENA region.
• To examine factors that hindered the successful implementation of public private partnerships in other areas of the economy.
• To explore the preferred mode of engagement used in the PPP framework.
• To explore any extra advantages, in terms of service delivery to the public, in using PPPs rather than pure public investments.
• To make suggestions and recommendations that may aid replication of PPPs in other development sectors within the MENA region.

Significance of the Study

Currently, the MENA region requires significant investments to improve and maintain its infrastructure. The infrastructure of MENA region is worsening at a rate faster than the construction and maintenance of new projects. In addition, politics and power monopoly are widespread within the public sector. In many cases, the quality of infrastructure services dispensed by the public sectors in MENA region is deplorable. For example, weak pricing policies, chronic incompetence and massive corruption among state-owned institutions resulted in poor service delivery to end-users in 1990s (Harris 2003, p.3; Clarke & Wallsten 2002).

According to a World Bank report (1994), the annual loss of weak pricing policies and incompetence were almost equivalent to yearly investment in infrastructure projects in many developing countries (figure 1). Many government introduced corporatization and performance contracts to enhance performance of state-owned utilities. However, these efforts were largely unsuccessful as governments were unable to enforce financial discipline as well as give financial independence to these institutions. In addition, governments were unable to realistically impose rewards or punishment for good or poor performance since targets set were readjusted on a regular basis (Harris 2003, p.4).

The need to boost infrastructure in the region is perceived as a vital ingredient to spur economic growth. Nevertheless, MENA governments have limited financial muscles required to boost capital expenditure and improve public services. Consequently, the MENA countries have performed dismally in public service dispensation compared to global averages (figure 2). Nonetheless, MENA countries have embraced the PPP concept in order to provide infrastructure services in a cost-effective manner to the public as well as reduce the escalating gap between the cost of providing such services and resources available. Since budgetary restrictions prohibit most MENA governments from investing adequate financial resources in infrastructure projects (Engel et al., 2006, p. 27), PPP framework is nowadays the preferred model for most government with respect to the provision of public infrastructure. The main scholarly significance for this research is to make a contribution in public administration area by showing that PPP concept could be used to foster socio-economic development in the MENA region, especially if a suitable PPP framework is put in place.

Research Methodology

Research methodology is a scientific inquiry that aims to answer a research question or test a key hypothesis (Palys 1997) so that the researcher can forecast and explain unique events by gathering diverse scientific facts in an attempt to “tacitly agree to the epistemic imperative…a quest for truthful knowledge” (Mouton & Prozesky 2001). Bulmer (1984) states that research methodology is:

systematic and logical study of the principles guiding the investigation concerned with the questions of how the researcher establishes social knowledge and how he/she can convince others that his/her knowledge is correct (p. 4).

Research methodology entails two approaches: Qualitative approach and quantitative approach. Qualitative approach is used when the researcher explores events in their natural environments and employs various techniques to infer, understand, clarify and give meaning to them (Anderson & Arsenhault 1998, p. 119). Qualitative approach lends credence to the analysis of data on the basis of its quality and not quantity. On the other hand, quantitative approach is used when a researcher analyses data on the basis of its quantity.

The present study will use a qualitative approach to achieve the objectives set in this chapter. The findings of this study will mainly be based on secondary data analysis. The researcher will collect information from credible sources such as scholarly journals and books as well as data from official websites (i.e. IMF, World Bank and IFC). Primary data will not be used in this study given the existing financial and time constraints.

Chapter Summary

Chapter One

This chapter has provided an outline and the focus of this study, which is about the impact of PPP models in the successful implementation of energy and water projects in the MENA region. A brief definition and description of key concepts used in this research has been presented. The research questions and objectives of this study have also been provided. This chapter has also discussed the significance of this study as well as the research methodology that will be used to explore the research topic.

Chapter Two: Literature Review

This chapter deals with a collection of approaches and strategies useful for creating systematic and reliable PPP models for developing and maintaining energy and water projects in the MENA region. This chapter has also explored a number of successful energy and water projects implemented in the MENA region under the PPP framework. The various challenges facing MENA governments, with respect to the adoption of PPP models in the water and energy projects, have also been investigated.

Chapter Three: Research methodology

This chapter has described the research approach used in this study. In addition, this chapter has provided a justification as to why secondary data analysis was preferred over primary data analysis. Finally, this chapter has provided some advantages associated with using secondary data analysis in this research.

Findings and Analysis

This chapter presents a critical analysis and evaluation of the work presented in chapter two. It evaluates the PPP models in MENA region in terms of success factors, challenges and areas of opportunities.

Chapter Four: Suggestions and Recommendations

This chapter has provided several suggestions and recommendations that MENA countries should adopt to ensure successful implementation of PPP models in other development areas such as telecommunication and tourism sectors.

Chapter Five: Summary, Conclusion and Practical Implications

This is the final chapter of the study. It presents major summaries, conclusions as well as practical implications of the findings of this research. It also suggests gaps that future studies should attempt to address.

Literature Review

Introduction

This chapter presents a detailed discussion of various infrastructure projects developed under the PPP models in MENA region. This chapter will be based on the aim and objectives of this study. As noted earlier, the aim of this study is to explore the Impact of PPP projects in energy and water sectors in the MENA Region. The five objectives that will guide the present study are: (1) to examine factors that contributed to the successful implementation of PPPs in energy and water projects in the MENA region; (2) to examine factors that hindered the successful implementation of public private partnerships in other areas of the economy; (3) to explore the preferred mode of engagement used in the PPP framework; (4) to explore any extra advantages, in terms of service delivery to the public, in using PPPs rather than pure public investments; and (5) to make suggestions and recommendations that may aid replication of PPPs in other development sectors within the MENA region.

By the early 1990s, the annual losses from inefficiencies and unsustainable pricing policies in Middle East and North Africa countries were estimated to be nearly equal to annual investment in infrastructure (figure 3). In nutshell, the resources spent by governments on provision and maintenance of these projects surpassed revenues collected from fees and taxes. Under these conditions, PPPs provide an alternative remedy to alleviate these deficits. As a matter of fact, PPPs reduces cost overruns, mispricing and improves transparency. Since the private sector lends credence to sound pricing policies and financial discipline, PPPs enable the public sector access larger pool of investment resources thereby eradicating the financial impediments that confines government institutions (Shediac et al., 2008, p.4).

Types of public-private partnerships

There are over 10 types of PPPs that can be categorized into four groups, on the basis of potential returns and risk levels (figure 4). Each type of PPP arrangement bestows different options and opportunities for crafting agreements suitable for the project, related risks and the type of investors. For instance, leases and contracts bear minimal risks since they need modest capital outlay. They are usually suitable for water infrastructure projects that promise minimal return. On the contrary, Greenfields demand a considerable commitment from investors and are thus suitable for energy and telecom projects that promise high returns. Greenfields agreements are the most preferred forms of PPPs globally since they provide the best opportunity for the public sector to divest risks and promise high returns for investors. Build, own and transfer (BOT) and build, own and operate (BOO) are other examples of Greenfields agreements (Shediac et al., 2008, p.4).

Water Scarcity in the MENA Region

MENA holds the distinction of being the driest region in the world. For example, the per capita accessibility of water in the region is 1200m³ per annum. On the contrary, the global average is about 7,000m³/person/year. 50% of the population in the MENA region faces severe water scarcity. As statistics in figure 5 demonstrate, MENA region is currently experiencing population explosion as a result of high birth rates and low mortality rates. Consequently, the amount of water available per person is projected to reduce by half in 2050 (Yamouri 2010, p.1).

No one can dispute the fact that water scarcity is a major problem in MENA region that must be addressed immediately. Governments in MENA region have invested in infrastructure projects to address water scarcity. Consequently, the amount of water supplied across the region has improved considerably. For instance, some MENA countries have successfully improved irrigation systems in farming region through public private partnership framework. What’s more, the Middle East and North Africa region stands out as the frontrunner in the application of modern technologies, including wastewater re-use and desalination. Nevertheless, investments in these novel technologies have not been supported by key institutional and policy reforms resulting in modest economic returns. As noted earlier, over 80% of water sources are allocated to farming activities. However, MENA governments have failed to implement sound policies to ensure that water is used for agricultural activities in an efficient manner (Yamouri 2010, p.1).

Water supply and uses in MENA

The amount of renewable water resources in Middle East and North Africa region is approximately 334³/annum. Approximately 50% of this amount is accessed via international rivers. Conversely, the population growth and socio-economic development requirements of the region surpass 200km³/annum (approx. 60% of renewable water) and is growing rapidly. For instance, in 1950, the ARWR (average annual share of available renewable water resources) per capita surpassed 4,000m³/person/year for the MENA region. This share reduced considerably to 1312m³/person/year and 1233³/person/year in 1995 and 1998 respectively and is expected to decrease further to 546m³/person/year by 2050 (see figure 5) as a result of population explosion in MENA region (World Bank 2007; UNDP 2008). It deserves merit to note that the agriculture sector in the Middle East and North Africa region consumes over 80% of water resources available. The remainder is shared between industrial sector (7%) and domestic sector (10%) as shown in figure 6.

Problems facing the Water Sector

Unproductive Strategies

In an attempt to ensure food-sufficiency, a number of MENA governments have implemented unfavorable policies to safeguard agriculture sector. For example, over 80% of the region’s water supply (i.e. dams) is consumed by the agricultural sector. The unproductive policies implemented in the agricultural sector have resulted in the cultivation of crops (via irrigation) that could be imported at a lower cost. Water diverted for agricultural purposes usually requires costly investments to meet domestic and commercial needs. What’s more, socially-inspired policies on water pricing have reduced cost-efficiency, decreased maintenance, lessened quality of service and worsened financial stability of utilities in MENA region (Yamouri 2010, p.1).

Inefficient use of water resources

Some countries within Middle East and North Africa region consume more water than their recyclable supplies. Others consume water reserves in a wasteful manner. For example, the domestic sectors in the MENA region consume more water than any other place in the world. As a matter of fact, the sector consumes more water than the amount used by the domestic sector in the US. In addition, over 45% of water is lost through leakage in water supply infrastructure. As a result, more than 50% of water (set aside for irrigation farming) is lost through poor water infrastructure (Yamouri 2010, p.1).

The quality of water in MENA Region

The surface and groundwater in MENA region have been polluted by weak sanitation infrastructure systems and compromised the wellbeing of the public health as well as environment. In FYE2002, Iran spent approximately 2.2% of its GDP to treat communicable ailments (i.e. diarrhea) as a result of ineffective wastewater collection infrastructure in the country (Yamouri 2010, p.1).

Over-reliance on public revenue

Approximately 5% of GDP and 25% of public capital expenditure in MENA region is spend on water. Nevertheless, much of these expenditures fail to produce the desired outcomes. In addition, investments suffer technical setbacks and are poorly planned. For instance, dams are developed but there is no irrigation infrastructure to channel the collected water. To worsen the matter, utilities in only two MENA countries are able to meet their operational and management (O&M) outlays (Yamouri 2010, p.2).

Major Issues in the Energy Sector

According to the World Bank, the requirement for productive investment in energy infrastructure in the MENA region is massive. The MENA region receives a small percentage of infrastructure investments from international community as a result of low credit worthiness, impediments on its financial institutions and high risks associated with energy infrastructure projects. The prospect of MENA region to attract foreign investments will be determined by its ability to lessen foreign exchange risks as well as decrease constraints/risks associated with project finance (PF) in the region. One of the major restrictions relates to controlled access to non-recourse debt which weakens the ability of the economy to attract private investment in energy infrastructure projects. Foreign investors are typically unwilling to finance such projects with equity only or assume full responsibility of the project’s debt on their balance sheets. As a result, majority of energy infrastructure projects fail to startup (Orsi 2011, p.83).

Constraints to Project Finance

Project finance (PF) entails the creation of a legal autonomous project firm financed via equity (from a single or several companies) and a non-recourse debt in order to fund one or several infrastructure projects (Orsi 2011, p.82). An important aspect of PF entails the establishment of a project company or special Purpose Vehicle (SPV) before an infrastructure project is undertaken. The application of PF entails three crucial decisions. First, there must be an investment decision regarding infrastructure development projects. Second, there must be an organizational decision to produce a legal autonomous firm to own and operate the project. Finally, there must be a financial decision that entails nonrecourse debt. Given that SPV is a legal and autonomous firm, debt-structuring can be done without recourse to the investors. Private companies have in the past used PF to finance infrastructure projects such as oil fields, pipelines and mines. However, recent trends have revealed that private firms are increasingly using PF to finance infrastructure projects in MENA region in order to improve access to gas, and crude oil reserves (Orsi 2011, p.83).

However, most of the previous regimes in MENA region had strong prejudices against infrastructure projects that entailed minimal regulatory intervention. Their insatiability resulted in serious regulatory risks to foreign investors who sought to invest in infrastructure projects. A brief assessment of the region reveals the urgent need for modern pipelines, ports, roads and railways that could be used to facilitate access to the region’s precious resources for profit or resale. What’s more, the financial systems and institutions within MENA region must prove that they have the ability to finance long-term debt in order to attract PF loans from foreign investors (World Bank 2006).

The successful transition to democratic system is likely to propel the MENA region into economic prosperity. The mostly young populace that brought about political upheavals in the Arab Spring of 2011 is projected to increase by over 60% by 2050 leading to a combined MENA population of about 690 million people. This increase will consequently require massive investments in new infrastructure projects. The assets in MENA region are ageing and the population is rapidly shifting into new areas with critical asset sectors including social infrastructure, transport and utilities. Consequently, it has been projected that $500 billion will be spent in the region by 2020 to develop and maintain infrastructure projects under the PPP model.

Future pipeline projects will require over $500 billion investment from Qatar, Kuwait, Saudi Arabia and UAE in water, transport, power utilities, clean energy, gas and crude oil alone. The volume of these investments demands a bigger pool of lenders given the absence of investment-grade bond funding in MENA region. As such, it is crucial that key national legal agenda be re-structured into novel institutions, based on democratic tenets, in order to create market confidence and attract foreign investment. Country risk profiles, forex rates and political issues are also current constraints as all political wings within the MENA region scramble for eminence during this transitional phase of institutional social, legal and political change (Orsi 2011, p.86).

The potential of renewable and non-renewable energy in MENA region

There is a great potential for renewable energy in the MENA region, especially electricity generation from solar technology. In addition, a number of MENA countries have to harness renewable energy from hydropower resources (i.e. Tigris-Euphrates basin in Syria and Iraq) as well as wind resources (i.e. Atlantic coast in Morocco and along the Red Sea). What’s more, most of renewable energy sources in MENA region are unexploited. For instance, in 2008, less than 3% of electricity in MENA region was harnessed from renewable sources. However, according to IEA (2010), some MENA countries surpassed this average, including Morocco (6%), Syria (7%) and Egypt (12%).

Therefore, MENA’s renewable energy sources pose a viable opportunity for private sector investment and development. The International Energy Agency (IEA) has projected that MENA region has the potential to increase (up to 33% by 2035) its use of renewable sources for electricity generation, with investments likely to surpass $400 billion by 2035 provided sound policies on renewable energy are put in place. As figure 7 shows, the MENA region posses 60% of projected 1.4 trillion barrels of global crude oil reserves and over 45% of the global natural gas reserves (IEA 2010). Thus, there is growing interest from foreign investors who seek PPP projects in the region to improve infrastructure and use it to transport oil and clean energy resources (Orsi 2011, p.78).

The application of PPP models for infrastructure projects development in the region is a viable option that can facilitate access to long-term equity and debt financing since over $100 billion is required to finance infrastructure PPP projects in the near future. Thus, PPP is the best option that can be exploited to fund infrastructure projects in MENA region. The PPP model entails the establishment of an autonomous entity funded and managed by the private sector. The project is created and service is dispensed to the public in exchange for compensation guaranteed by the level of service delivered (Orsi 2011, p.86).

The adoption of PPP model in MENA region is also limited by access to development funds such as UN Development Programme, World Bank, Asian Development Bank and African Development Bank. This is principally due to their geographic criteria, sector-specific criteria, insistence on sovereign guarantees and requirements that funds be made available for specific outcomes. Usually, these lending institutions prefer to finance projects from markets as opposed from their own purses. These conditions adversely impede the MENA region since it is unable to raise enough capital for gigantic projects mentioned above. Meanwhile, the political upheavals in MENA region and massive pressure on government budgets have made the private sector perceive any PF investment as a risky venture. Consequently, it has become extremely difficult to finance key infrastructure projects in MENA region (Dadush & Dunne 2011, p. 132). Although many people can access public amenities, the reliability and quality of services is a major problem that impedes the region’s competitiveness and economic growth (Bhattacharya & Wolde 2010).

Present situation, select projects and critical areas of opportunity

MENA countries spend about 5% of GDP/year on energy and water infrastructure projects. On the other hand, countries such as China spend about 15% of GDP per year on similar projects. There is an urgent need for countries in MENA region to upgrade their infrastructure spending (up to 10% of GDP per year) in order to boost their competitiveness and sustain economic growth. The significance of partnering with the private sector is a viable option since it augments PPP with the suitable risk allocation. The participation of the private sector in infrastructure projects is a viable cost-effective alternative that can spur economic growth and create more employment opportunities within the MENA region (World Bank 2011).

PPP Experiences in Selected MENA Countries

Tunisia

Tunisia was once referred to as the Switzerland of North Africa since it was among the most stable Arab countries. The country was known to attract foreign direct investments (FDIs) for infrastructure development such as social and power projects. Among the most viable infrastructure projects underway are found within the Independent Power Producer (IPP) sector (Orsi 2011, p.90).

PPP projects in electricity generation

The demand for electricity in Tunisia is increasing yearly. Consequently, the government has initiated an aggressive program to boost its production capacity of electricity and clean energy by lending emphasis on expansion of combined cycle gas turbine (CCGT) as well as pursuing PPP projects in collaboration with its gas and electricity firm Societe Tunisienne de l’Electricite et du Gaz (STEG). The new government also plans to set up three new combined-cycle plants at Bizerte, Sousse and Ghannouch. In addition, the government plans to invite tenders to the construction of a 350-500 electricity facility subject to a BOO basis. The new plant is expected to commence operation by mid 2014 and provide additional energy requirements to spur economic growth in the country (Orsi 2011, p.91).

The EL Med/Cap Bon IPP is another impending project. A tender is already in progress for a 1200 megawatt power plant that will be constructed in Al-Haouria. Upon competition, the power plant is expected to supply electricity for domestic use as well as export power to Italy. Upon completion, approximately 800 megawatts of power from the new power plant will be transmitted to Italy (from 2015) through a 200 kilometer subsea transmission cable. The remaining 400 megawatts will be used for domestic market. In addition, the cable facilities of the new power plant are capable of exporting about 200 megawatts of electricity to Europe and MENA region. In addition the government plans to construction a new electricity facility in Sousse, under public private partnership, that will generate over 400MW. The electricity produced by this new plant will augment the current electricity supply for industrial consumption. The plant is expected to commence production in early 2013 and STEG will provide the initial outlay of the project while the successful bidder will assume a 12-year operations and maintenance (O&M) contract (Orsi 2011, p.92).

PPP projects in natural gas production

There are new prospects for production and distribution of gas that could result in augmented natural gas and renewable energy PF projects. For example, production of natural gas from the Hsadrubal field, via a joint venture between Enterprise Tunisienne D’Activites Petrolieres (ETAP) and British Gas Tunisia Limited (BGT), commenced in 2009. Currently, there is no infrastructure in place to transmit natural gas to population settlements in the north, center and south of the country. Consequently, the government plans to construct a 320 kilometer pipeline to link a gas-collection plant in the south with the current facilities in the north. The pipeline will supply gas for both local use as well as export. The pipeline will be constructed by ETAP and three other international oil firms to be selected through a competitive bidding procedure (Orsi 2011, p.93). In addition to the existing Independent Power Projects, the government is supporting other energy projects so as to realize its long-term energy requirement goal (3,540-MW capacity). For example, the government signed MoU with BGT in 2004 to build a 500 MW power plant near Sfax. The project is expected to cost approximately $250 million. In addition, BGT has been contracted to construct LPG facility that is expected to supply gas to both industrial and household sectors in the country (Al-Nasa’a 2007; Orsi 2011, p.93).

Legal and commercial issues in PPP projects

Both local and foreign investors interested in IPP must be conversant with the legal and commercial issues in Tunisia, including privatization program. It is important to note that the Government of Tunisia has reformed over 150 public corporations ever since it launched its privatization campaign in 1987 (Orsi 2011, p.94). The new regime aspires to propel the privatization program into new heights in order to attract more FDIs into the country. In addition, the Tunisian’s parliament has enacted several investment laws to attract foreign investments into the country as well as promoted the participation of private sector in infrastructure development. In spite of the political upheaval that occurred in Tunisia, the business environment is, nonetheless, somewhat stable and constantly on the recovery path (Orsi 2011, p.94).

Bilateral Investment Treaties

The new regime has signed bilateral investment treaties (BITs) with over 80 countries. In this respect, Tunisia’s Association Agreement (TAA) with the EU provides crucial investment security for EU investors with the sole purpose of providing a free-trade region between EU countries and Tunisia. In addition, foreign investors are required to consult Tunisian Central Bank with respect to various aspects related to approval of funding of IPP or PPP project finance as well as when financing any debt/equity (Orsi 2011, p.95).

It is important to mention that, the World Bank not only participates directly in the development of infrastructure projects in MENA region but also lends its support through a network of government agencies, development partners and civil society organizations found within the MENA region. Through this network, the World Bank aspires to build capacity, encourage exchange of ideas and assist MENA countries learn about mechanisms of social responsibility and participatory governance that are crucial to the attainment of economic development in MENA region (World Bank 2011).

Egypt

PPP in the Energy Sector

Demand for power supply in Egypt became apparent in 2011 when supply interruptions increased as a result of hostile summer temperatures. As a result, a consortium was formed by several bidders to secure a contract for the construction of 1500 megawatts Dairut independent power project (IPP). The Ministry of Electricity and Energy is expected to finance the project while the Egyptian Electricity Transmission Company (EETC) will distribute the power under a 20-year power-purchase agreement (PPA). The IPP project will have currency guarantees to persuade international banks to finance it. On the other hand, the PPPs will be financed through ban teams that will be created between local and foreign companies which were selected in 2010. On the basis of these internationalized PPP projects, it is obvious that Egypt aspire to augment its power production capacity (Loayza & Odawara 2010). Currently, PPP projects appear to be best alternative for new PF-related infrastructure projects in the MENA region. It is expected that local banks will play a key role in these PF deals since the risks involved are lower compared to those of Greenfield PPPs. What’s more, the initial capital outlay is not extremely high. Nonetheless, since the PF schemes require long-term dollar financing, support from international banks (i.e. IMF, World Bank) will be needed (Orsi 2011, p.97).

As part of the strategy to promote PPP, the state operator, General Petroleum Corporation and Royal Dutch Shell have collaborated to expand natural gas to the Fayoum region. The Royal Dutch Shell will operate on a 20-year concession agreement to expand and supply natural gas pipelines to both commercial and residential end-users. Generally, the Independent Power Projects (IPPs) in Egypt have somewhat been successful. This is evidenced by the fact that investment returns have generally been at par with development results (i.e. consistent and competitively priced power). Nonetheless, the prospects for future IPP investments in the country are deemed untenable by the government. The government has opted to construct new power plants using national electricity utilities. The government’s decision to opt out of IPPs is partly due to the country’s vulnerability to foreign-denominated financing that increased domestic PPA outlays as the local currency crumpled (Eberhard & Gratwick 2007).

PPP in the water Sector

Egypt faces a number of challenges with respect to water supply and sanitation. Nevertheless, this sector has huge potential for PF expansion as evidenced by the urgent demand for water by the domestic, industrial and agricultural sectors. Nevertheless, Egypt has made significant achievements in the water sector. For example the amount of water distributed in urban areas increased from 88 percent to 98 percent between 1990 and 2006. On the other hand, the distribution of water in rural areas rose from 30 percent (in 1990) to 81 percent in 2006 (Sommer 2008). In spite of the rapid population growth, these remarkable accomplishments have been realized with a somewhat high level of investment in infrastructure projects.

Nonetheless, numerous challenges abound in the water sector and which could be addressed through PPP. For instance, over 60 percent of the country’s population lacks proper sewerage infrastructure. As such, approximately 17,000 children die annually (from diarrhea) as a result of lack of access to sanitation infrastructure. In addition, ineffective management of sanitation utilities, including waste water treatment facilities, remains a critical challenge which could be addressed through foreign investment and PPPs. However, the participation of the private sector in the management of water and sanitation infrastructure in Egypt has been confined to BOT agreements for big projects. Nevertheless, PF for novel infrastructure projects is ongoing and is expected to bring about positive changes in the water sector (Orsi 2011, p.99).

The Gabal El-Asfar Waste-Water Treatment Plant (GAWWTP), based in Cairo, is nonetheless a promising project that will hopefully result in the construction of more similar projects. The African Development Bank Group (AfDB) approved this project in 2009 for 53 million Euros to be used as the initial capital outlay. The main objective of the project is to boost the quality of wastewater released into the country’s drainage system as well contribute to better sanitation for the entire population residing in Cairo East. The project is in harmony with the 2008-2012 Medium-Term Strategy of AfDB which lends credence on better governance and infrastructure development as well as encouraging PPP in infrastructure projects (Orsi 2011, p.100).

Libya

Opportunities and challenges facing PPP in Libya

In spite of the positive outlook in Libya’s energy sector, there exist several risks, principally from the business environment, that potential investors must consider. It is important to note that the key impediment stems from Libya’s unpredictable business environment that is in dire need for reforms. Currently, Libya has a score of 45.7% with respect to risks in BMI’s infrastructure business environment scale. On the other hand, it has a reward score of 53.2 out of 100 on the same scale which implies that Libya has massive prospects for PF investments (Orsi 2011, p.101).

In 2003, the UN lifted sanctions on Libya and led to massive investor interest in the country. Since then, the government has actively promoted foreign private investment. Although the previous regime provided stability and security to FDIs, indistinct investment laws and illogical decision-making have been prevalent in Libya. According to the 2010 Corruptions Perception Index report prepared by the Transparency International, Libya is ranked as the worst country in the MENA region (at position 146 out of 178 countries ranked). In addition, Libya is ranked 100 out 139 by the World Economic Forum in terms of competitiveness. Although the government recently liberalized the economy, the current socio-political upheaval may hamper this progress. Nevertheless, once the new government restores social and political stability, foreign investors will flow in to seize opportunities in the country’s natural gas, water, oil and clean energy resources (Orsi 2011, p.103).

PPP in the energy sector

The public sector, private sector and other development partners have partnered to construct a number of energy infrastructure projects in Libya. For example, a new integrated energy hub project is currently underway and Abu Dhabi’s Al-Maskari Holding has agreed to fund the project at a cost of $3 billion. The Abu Dhabi-based company plans to construction an underwater cable that will be used to export electricity to Europe. Upon completion, the project is expected to produce electricity and solar power from fuels including natural gas. There is no doubt that Libya is endowed with massive resources for solar projects as well as clean energy projects that can generate enough electricity for domestic consumption and export to Europe (Orsi 2011, p.103).

Jordan

Jordan Gas Transmission Pipeline (JGTP)

The JGTP is a 30-year concession that entails designing, financing, constructing, maintaining and operating a natural gas pipeline that stretches from Aqaba to Amman and the Syrian border. Upon completion, the pipeline is expected to supply natural gas to power generation plants as well as to other industrial consumers in Jordan. In addition, the JGTP will be used to export natural gas to Lebanon and Syria. Exclusive rights will be granted to the Project Company to market gas to large industrial clients as well as the power sector. The project sponsor financed $300 million of the project’s outlays via equity, $124 million from other sources and a 12-year structured loan amounting to $160 million (Al-Nasa’a 2007).

As-Samra Wastewater Treatment Plant

This project entailed designing, constructing, procuring, operating, maintenance and financing a new wastewater treatment plant in As-Samra subject to a 25-year BOT agreement. The private sector investors (Infilco Degremont Inc) were provided with a guarantee by the Multilateral Investment Guarantee Agency (MIGA), a World Bank member. Not only was this BOT project the first of its kind in Jordan, it was the country’s first PPP in the financing and management of a public infrastructure project. In addition, the As-Samra Wastewater Treatment Plant was the first BOT project in the Middle East that used PPP and donor financing. Some of the institutions that financed the project include a bank syndicate, the As-Samra Plant Consortium, GOJ, and the US Agency for International Development (Al-Nasa’a 2007).

Morocco

Guerdane Irrigation Project

In 2004, the world’s first PPP irrigation project was initiated in Morocco. The government initiated an extremely transparent and competitive bidding process to select a private partner to undertake the PPP irrigation project in Guerdane region. The project included a 30-year concession to construct, co-finance and manage the project’s irrigation network in order to distribute water from a dam facility to approximately 600 farmers in Guerdane region. The cost of building the project was estimated at $85 million. The Moroccan government provided approximately $50 million to finance part of the cost (Al-Nasa’a 2007; Weirowski & Hall 2008)

It is important to note that surface water is urgently required to irrigate approximately 10,000 hectares of farming land in Guerdane. Currently, farmers in the region rely on the rapidly declining ground water from the Souss basin to irrigate their crops. The bid for the project was awarded to Omnium Nord-African (ONA), a Moroccan industrial corporation. Since Moroccan suffer from persistent drought, the contractual agreement for the project was reasonably structured to provide the most competitive water tariff structure for consumers. Upon completion, the cost of water supply from the new project will significantly be lower compared to what farmers currently pay for groundwater supplies (IFC 2004; Weirowski & Hall 2008)

Concessions in Tetouan and Tangiers

In 2001, Amendis, a Vivendi-Water led consortium was awarded two 25-year concessions to manage electricity distribution systems and WSS in Tetouan and Tangiers regions in northern morocco. Under the terms of both concessions, the consortium will be responsible for the development, rehabilitation and upgrading of the water and electricity distribution and wastewater system infrastructure. In addition, the consortium is expected to develop infrastructure to meet the needs of the growing population of both regions. Nevertheless, there are some legal and institutional impediments that limit private sector involvement in infrastructure development in the country (Zouggari 2003). Although Morocco has a somewhat better institutional framework compared to other countries in MENA region, it lacks specific laws that address concessions. Other impediments to PPPs in the country include lack of consistency in tender bids and inability of relevant authorities to manage the PPP/concession process at different phases (i.e. negotiations, tendering and compliance monitoring). Nevertheless, it deserves merit to mention that the Moroccan government has managed to transcend these drawbacks and initiated productive partnerships with the private sector (IFC 2004).

Kuwait

The BOT model has of late been the most preferred strategy to finance infrastructure projects in Kuwait. For example, in 2001, the government signed a 30-year concession deal for the construction of the Sulaibiya Wastewater Treatment and Reclamation Plant, considered the biggest in the world. The plant was officially launched in 2005 and generates over 80 million gallons of water, surpassing the WHO’s specifications. The Sulaibiya project incorporated local currency financing by domestic banks. In addition, it was the first project of its kind to be developed under the PPP arrangement in Kuwait (Al-Nasa’a 2007).

Saudi Arabia

Saudi Arabia plans to engage the private sector in the development of infrastructure projects in the water sector. The government’s PPP program entails a proposed five-year management agreement for Riyadh city. It also includes the establishment of a National Water Company that will be used to integrate water and wastewater utilities in the country. According to the PPP strategic plan, the private sector will participate in the construction of two wastewater treatment facilities under a BOT model for Riyadh. In addition, the plan will include the expansion of Al Hayer treatment plant capacity to 1, 200, 000 m³/d as well as increasing the capacity of Al Kharj plant to 400000 m³/d. The government also plans to corporatize the National Water Company as well as prepare it for IPO (either as a single firm or a collection of regional firms). Nonetheless, there are numerous setbacks within the water sector. For instance, the sector has one of the lowest water tariffs in the world while transport and production costs in the sector are among the highest in the world. Therefore, the government has opted to use a PPP approach in order to transform this sector and boost overall performance (Al-Nasa’a 2007).

Concentrated Solar Power in MENA Region

Concentrated Solar Power (CSP) is a form of renewable energy technology that is currently being implemented in the MENA region. However, financial and technical support from the World Bank, IFC and other development partners (i.e. EU) will play a crucial role with regard to the successful implementation of CSP projects in Middle East and North Africa region. For example, the African Development Bank (AfDB) and World Bank prepared a MENA CSP Investment Plan (MENA CSP IP) which was approved in 2009 by the Clean Technology Fund (CTF). This is a milestone climate mitigation plan that is expected to co-finance two transmission projects and nine commercial-scale power plants in five MENA countries (Tunisia, Morocco, Jordan, Egypt and Algeria). The MENA CSP IP project is projected to cost over $5.5 billion, out of which $750 million will be provided by the CTF. The main vision of the project is to turn MENA region into a major consumer and exporter of electricity generated from CSP (Gazzo et al., 2011).

Transformational Opportunities for CSP in the MENA Region

MENA region stand to gain from the substantial scale-up of concessional climate financing envisioned under the UNFCCC (United Nations Framework Convention on Climate Change). The funding provided by CTF for MENA region is projected to spur other ambitious CSP projects in MENA region following the recent 2010 Cancun Agreements which have paved way for additional financial assistance framework. According to the Cancun climate agreement, $100 billion will be set aside every year from 2020 onward. This fund will be generated from various sources, such as bilateral and multilateral sources, and public and private sources (Gazzo et al., 2011).

The MENA CSP IP project is central to the complex political accord between the EU and MENA region. It is expected that the commercialization of solar energy from this project will create an essential pillar for MENA-EU economic integration and thus presents a major prospect for MENA region to earn revenues from electricity export. Upon completion, member countries within the EU will procure electricity generated from the CSP IP projects thereby reducing overreliance on oil. The Transgreen/Medgrid Initiative, Desertec Industry Initiative as well as the 2009 EU Renewable Energy Directive are first steps in that direction. In addition, the political initiative of the MENA CSP IP project may serve as an umbrella for these initiatives at the bilateral stage. What’s more, the MENA CSP IP project will help MENA’s oil-producing nations to embark aggressively on CSP investment plans to free oil and natural gas from the energy sector for long-term energy export (Gazzo et al., 2011). These aspects could distinctively position MENA region as a global frontrunner in terms of CSP production as well as spur domestic production while generating demand for installed capacity.

CSP Value Chain of Domestic Production in MENA

The constructions of three CSP plants are currently in progress in Algeria (Hassi R’mel region), Morocco (Ain Beni Mathar) and Egypt (Kuraymat). Given that these projects are first of their kind in the region, assessing their use of domestically manufactured components offer crucial knowledge that can be used for future projects of similar kind (Gazzo et al., 2011; Adamantiades & Besant-Jones 1995).

Egypt: Kuraymat

It is important to note that approximately 60% of the value of the solar field is produced domestically. The local industry is solely responsible for the engineering, procurement, grid connection, electrical cables, civil works and construction of the CSP components. In addition, project engineering is supported by Fichtner Solar and Flagsol Company. Nonetheless, the private sector is providing a number of key components, including steam generator, heat transfer fluid and mirror receiver. Egypt is also attempting to attain more local content in recently constructed wind parks. What’s more, projects with a substantial percentage of locally manufactured components are prioritized during the tendering and bidding process. This strategy could also be applied for CSP projects (Gazzo et al., 2011).

Morocco: Ain Ben Mathar

All major equipments and components for the CSP project are imported by foreign firms due to low technology transfer in the country as a result of limited involvement of domestic industry in the initial projects. Most of the foreign component suppliers made their initial foray in the MENA region by selling their components in Morocco (Gazzo et al., 2011).

Algeria: Hassi R’mel

Approximately 90% of all CSP components and equipments are imported. Consequently, the local industry does not partake in the production of solar energy. Nevertheless, it is expected that future solar energy projects will employ locally manufactured steel mounting system. Even though Algeria has some knowledge about project development for traditional power plants, foreign companies are usually contracted for project engineering, procurement and construction (EPC). Under the present CSP project, Sarpi (a local firm) will supply electronic equipment for the plant. Algesco, an Algerian engineering firm, has been contracted for turbine maintenance during the operation. However, Abener will handle the main operation and maintenance (O&M). In spite of the fact that the Algerian industry has the ability to play a significant role in domestic production of CSP components and equipments, the level of local private sector participation is extremely low in the current CSP project (Gazzo et al., 2011).

From the examples above, the participation of local industry in CSP projects is extremely low, particularly for Ain Beni Mathar and Hassi R’ Mel, since majority of the components are imported by foreign firms. It appears that the main objective of these projects is to deliver an operational ISCCS under strict deadlines but not to develop domestic CSP-related industry. On the contrary, the Kuraymat ISCCS attained 60% local manufacturing as a result of the active participation of local industry. For example, Orascom Industries and Fichtner Solar and Flagsol were selected as local EPC contractors for theoretical design, engineering and procedural advice on the CSP plant assembly. Given that Orascom is an Egyptian firm, other local companies, such as NSF, were subcontracted for the steel structure. The knowledge gained by local companies through their participation in the CSP project is a valuable asset that will prove useful for future energy projects (Gazzo et al., 2011).

Although the construction of CSP project was executed by foreign companies, it is expected that the Kuraymat ISCCS plant will be used as a reference project for the construction of future CSP plants in the MENA region. In spite of the unfavorable CSP environment, it appears that domestic industry already has the capability to develop and construct CSP projects. However, there is an urgent need to develop capability of local industry CSP production. The governments in MENA region must formulate and implement sound policies that promote: (1) collaboration between local and foreign firms to permit knowledge transfer; (2) participation of local EPC contractors so that more local companies can be involved in the CSP value chain; and (3) provide incentives to foreign companies that form joint ventures with local firms to facilitate transfer of knowledge and experience (Gazzo et al., 2011; Adamantiades & Besant-Jones 1995).

Prospects for Domestic Subsidies and Production of Foreign Firms

Foreign companies will play a significant role in the PPP with respects to the development of domestic industries in MENA region. Currently, project developers and EPC firms have established local offices in MENA region adjacent to CSP projects. These companies have also enlisted foreign engineers and workers for CSP projects in MENA region (Gazzo et al., 2011). The prospects for domestic production for various blocks in the CSP value chain is shown in figure 8.

National strategy to promote PPP in energy projects

It is crucial that MENA countries develop effective national plans that must be coordinated with energy policies. These strategies must consist of plainly defined and well-communicated targets for considerable R&D efforts, market diffusion of CSP and the establishment of a distinctive strategic fund for the development of CSP sectors in MENA region (Adamantiades & Besant-Jones 1995).

Financial assistance

Financial aid will be vital, particularly for implementing training programs for the domestic manpower as well as for the technical adjustment of manufacturing plants. In order to attract the private sector in the CSP projects, the MENA governments must provide tax rebates and low-interest loans to encourage local production of renewable energy components in the region. In addition, funds could be made available to facilitate transfer of knowledge (i.e. through procurement of licenses). It is highly doubtful that the private sector will venture into the production of CSP business as a result of the complexity of these components. Therefore, MENA governments should introduced tax rebates (i.e. facilitating VAT refunds and reducing corporate taxes) in order to attract investments in CSP technology from both the private sector and foreign firms (Adamantiades & Besant-Jones 1995).

Improved access to CSP information

The private sector and foreign investors will require better access to information about CSP technology as well as certainty regarding market environment. Therefore, the establishment of a renewable energy association or regional CSP centers that deal with issues related to latest technological breakthrough in CSP, alternatives to CSP production and development in the CSP market will promote access to information (Gazzo et al., 2011).

Improved innovative capacity

The establishment of regional innovation centers and technology clusters/parks is required to develop innovative capacity of the CSP sector as well as promote R&D and networking between the public and private sectors. This will enable small and medium-sized companies to gain access to up-to-date technological breakthroughs and conquer innovation hurdles (Gazzo et al., 2011).

Promoting joint ventures

It is vital for MENA countries to make agreements with the international community (i.e. via joint ventures) to spur the development of an all-inclusive CSP knowledge in the region as well as to gain from the massive experience of foreign companies. In addition, MENA governments could help local firms in the private sector to find suitable foreign partners to form joint ventures (Gazzo et al., 2011).

Introduction of local content clauses in CSP project

The CSP project tenders should include local content clauses in order to encourage long-term demand for CSP components. This move will consequently promote the participation of the private sector, which has better knowledge of service networks and supply chains within the MENA region. The deployment of the private sector in CSP projects will enhance the participation of domestic firms in the supply chain of CSP projects. Enhanced domestic content could be upgraded into full contract for local firms in future CSP projects (Gazzo et al., 2011).

Comprehensive training programs and quality assurance standards

MENA governments should encourage training institutions (i.e. universities and colleges) to introduce courses on CSP technology to train the potential labor force, especially engineers. In addition, quality assurance standards for CSP components should be implemented to meet international standards as well as reinforce the competitiveness of CSP sectors in the MENA region (Gazzo et al., 2011).

World Bank activities in the MENA region

The World Bank is actively engaged in the MENA region through capacity building and financial assistance. For instance, the Bank is currently funding infrastructure projects in the energy and water sectors in selected MENA countries (i.e. Yemen, Iraq, West Bank and Gaza) in line with the MDGs objectives. In addition, the Bank is actively engaged in sector policy discussions in countries (i.e. Yemen, Morocco, West Bank and Gaza) where it has longstanding collaborations. The Bank has also participated in capacity building and restored basic services (i.e. energy and water infrastructure) in conflict and post-conflict nations such as Iraq and West Bank and Gaza (Yamouri 2010).

In addition, the World Bank has lent credence on utility reform as well as upgrading water sector finances mainly via expansion of PPPs. For example, WSS projects are currently in progress in seven MENA countries. The Bank was able to successfully secure management agreements in Jordan and West Bank and Gaza. A similar deal was achieved in Yemen which resulted in the corporatization of the water and sanitation services. The Bank has also initiated several water resource management projects focusing on inter-sectoral coordination, environmental protection, monitoring and management of groundwater. The Bank has committed approximately $2 billion for funding 29 water projects in eight MENA countries. Approximately 64% of this amount will finance WSS project while 36% will be used to support irrigation, management of water resources and other related areas (Yamouri 2010).

Research Methodology

Introduction

This chapter describes the methodology employed to explore the impact of PPPs in water and energy infrastructure projects in the MENA region.

Data Collection Technique

The data used in the present study was mainly retrieved from secondary sources, such as books, journals, reports published by credible organizations (i.e. World Bank, IMF, and IFC) as well as other sources from the internet. A desk research was particularly preferred given the general scope of the research topic. It was impossible to use primary data in the present study since it would have required massive investments in time and other resources to collect data within the MENA region.

The Benefits of Secondary Data Analysis

As noted above, the present research will mainly use secondary data, drawn from qualitative sources, to address various objectives and research questions that have been identified in chapter one. Jupp et al. (2000) states that:

Secondary analysis is a form of an investigation which is based upon existing sources of data and can be distinguished from primary research and analysis where the investigator collects the data himself/herself firsthand (p.57).

There are many advantages of using secondary data particularly when dealing with certain topics that require extensive research, such as the present one. The use of secondary data analysis for the current dissertation was the obvious choice of methodology due to several factors outlined above. The major benefit of using secondary data in research is that, since the research has already been done, findings are readily accessible in reports, journals, books and other sources thus decreasing data collection costs as well as time spent on gathering information (Jupp et al., 2000, p. 58). Within this study, the research questions focus on varying factors over extended periods of time and explore changes that have taken place in the MENA region. Given the financial and time constraint of the present research, it is crucial to draw information from previous studies that had adequate time and resources to carry out broad and expensive research on the same topic (Thomas 2009, p. 4).

Another benefit of using secondary data is that most of it is of good quality as long as it is retrieved from reputable sources. Bryman (2004) states that, “many of the data sets that are employed frequently for secondary analysis are of extremely high quality” (p. 202). Therefore, secondary data analysis enables a researcher to use a variety of different information from various sources and then reanalyze them to produce new or different conclusions from those made by the initial researcher. In addition, secondary data analysis is not only cheaper and faster but also eradicates several extremely intricate situations that are prevalent in the primary data collection. For instance, researchers who employ secondary data in their research do not encounter problems such as bias, rejection, non-response or other respondent-based challenges (Sarantakos 2005, p.298; Jupp et al., 2000, p.42).

Limitations of Secondary Data Analysis

Nonetheless, in spite of the numerous advantages of secondary data analysis as a research method, it also has a number of problems. One of the major disadvantages associated with using secondary data analysis is “lack of familiarity with data” (Bryman 2004, p.205). Another problem relates to the intricate nature of data since the secondary analyzer lacks control with respect to data quality. Even though it has been stated above that high quality is one of the advantages of secondary data, care must be observed since some secondary data may lack the desired quality. Although the Internet may offer a wide range of data, the authenticity of some data source must be observed closely. Data collection from trustworthy Internet sources, such as World Bank, IMF and IFC websites will ensure validity of the information collected. Nonetheless, it is important to note that some research may be agenda-based. Therefore, the issue of bias merits consideration when using findings of other researchers. Another problem in using secondary data relates to the fact that someone’s research may be construed in a different manner by another person. Hence, vital information may be taken out of context (Jupp et al., 2000, p.42).

Even with respect to academic journals, book and periodicals, which are frequently used for secondary data analysis, there are several disadvantages (Jupp et al., 2000, p.42). For instance, these sources can swiftly become irrelevant and incorrect with respect to current issues and changes in government policies which are constantly updated and altered. Peer-reviewed journals are one of the secondary sources that can be used to alleviate problems of reliability since they are frequently published by credible sources. In addition, peer-reviewed journals offer trustworthy and latest sources of secondary data collection (Thomas 2009, p. 5; Jupp et al., 2000, p.42).

Generally, it is obvious that secondary data analysis have some disadvantages compared to primary research techniques (Jupp et al., 2000, p.42; Jupp et al., 2000, p.42). Carrying out interviews with various stakeholders (government, public sector, foreign sponsors, international institutions, etc) in the Middle East and North Africa region would have been an ideal path while exploring the present topic. Having the ability to acquire information by interviewing various stakeholders engaged in the PPP infrastructure projects in the MENA region would have provided a valuable insight into the real impact of these projects in the region. Nonetheless, after considering the limitations facing the present study, it became apparent that any primary data collection that could have been undertaken would not have been of assistance towards this study. As a result, the major part of study for the current dissertation will exclusively rely on secondary data analysis.

Findings and Analysis

The PPP concept is widely acknowledged as a means of achieving rapid economic development. Majority of MENA countries are unable to provide basic infrastructure services due to financial constraints (Table 2). Klijn and Teisman (2002) assert that international experiences have revealed that PPP framework enables rapid and efficient implementation of infrastructure projects. PPP is grounded on the concept of mutual added value whereby actors anticipate extra benefits will offset cost of cooperation (Klijn & Teisman 2002). As noted earlier, there exist huge gaps between public expectations aroused by governments in MENA region among the masses and what can be feasibly delivered.

Most of the MENA countries experience financial constraints and lack capacity to speed up service delivery (Estache 2002), reduce poverty levels and fight underdevelopment. Financial impediments and inadequate capacity to act enhance the time response rate of these governments to surmount developmental challenges and is deemed to be an obstacle to the competitiveness of MENA governments in executing development plans in the energy and water sectors (Binza 2005, p.14). It is against this backdrop that MENA region is slowly embracing PPP concept in order to access financial resources and technical knowledge required to undertake infrastructure projects in energy and water sector in a cost effective way (Klijn & Teisman 2002).

This study sought to examine factors that contributed to the successful implementation of PPPs in energy and water projects in the MENA region. In this regard, some MENA countries have implemented institutional and legal reforms to promote public private partnerships in public projects. For instance, the Tunisian government has reformed its privatization program to attract more FDI into the country. A number of investment laws have also been enacted to promoted private sector participation in infrastructure development (via public private partnership framework) as well as attract capital and technical knowledge from foreign investors. In addition, the new regime has signed bilateral investment treaties with EU countries to create a free-trade region and attract more EU investors to the country. Foreign investors can easily access information relating to PPP projects from the Tunisian Central Bank (Orsi 2011, p.95).

The World Bank and other financial institutions (i.e. IMF, IFC and AfDB) have also contributed to the successful implementation of PPP in infrastructure projects in MENA region. The World Bank has provided financial resources and technical capacity that are crucial to successful implementation of PPP projects in MENA region. For instance, in 2009, the World Bank and AfDB co-financed the development of nine commercial-scale power plants in five MENA countries under the MENA CSP Investment Plan. In addition, the World Bank is currently funding infrastructure projects in the energy and water sectors in selected MENA countries (i.e. Yemen, Iraq, West Bank and Gaza) in line with the MDGs objectives (Yamouri 2010).

The present study also sought to examine factors that hindered the successful implementation of public private partnerships in other development sectors. Most of the risks associated with PPP venture stem from the complexity of the arrangement involved in major infrastructure projects (Grimsey & Lewis 2002). In addition, risks can change over the duration of the project (table 3). Various risks stemming from unstable political environment, market mechanism failure and business environment have had adverse effect on the implementation of public private partnerships in other sectors. For example, the main impediment to public private partnerships in Libya’s energy sector stems from unpredictable business environment.

In addition, massive corruption, indistinct investment laws and illogical decision-making have prevented the adoption of PPP in other sectors (Al-Nasa’a 2007). Furthermore, some MENA countries lack sound legal structures that define the role of private sector in PPP projects. Thus, the absence of an effective privatization law and weak market mechanism has discouraged potential investors from venturing in other areas of the economy under the PPP framework (Klijn & Teisman 2002). The adoption of PPP model in MENA region is also limited by access to development funds such as UN Development Programme, World Bank, Asian Development Bank and African Development Bank. This is principally due to their geographic criteria, sector-specific criteria, insistence on sovereign guarantees and requirements that funds be made available for specific outcomes (Klijn & Teisman 2002).

This study sought to explore the preferred mode of engagement used in the PPP framework. There are various forms of PPP arrangements adopted for infrastructure development in Middle East and North Africa region (i.e. BOT, BOO and concessions). A classic example of a BOT arrangement is the As-Samra Wastewater Treatment Plant in Jordan (Al-Nasa’a 2007). The Al Hayer treatment plant (Saudi Arabia) and the Sulaibiya Wastewater Treatment and Reclamation Plant (Kuwait) are also projects implemented under BOT. MENA governments have also engaged the private sector in developing infrastructure projects under a BOO arrangement. The Bizerte IPP project is an example of a BOO arrangement initiated by the Tunisian government under the PPP arrangement (Orsi 2011, p.91).

The present study also sought to explore extra advantages, in terms of service delivery to the public, in using public private partnerships rather than pure public investments. This study has demonstrated the apparent benefits of infrastructure projects developed under the PPP framework. For instance, the construction of Guerdane Irrigation Project in Morocco is expected to boost water supply to farmers in Guerdane. Upon the completion of this project, farmers will be able to access water at a lower cost compared to what they pay currently (IFC 2004). In addition, the implementation of MENA CSP IP project in five Arab countries is expected to distinctively position MENA region as a global frontrunner in terms of CSP production as well as spur domestic production while generating demand for installed capacity (Gazzo et al., 2011). In addition, PPP arrangements enable public sector access a large pool of financial resources and technical expertise provided by the private sector.

Suggestions and Recommendations

Introduction

According to a report prepared by the World Bank, Sustainable Infrastructure Action Plan (2009-2011), there is a considerable gap in the delivery of infrastructure service in many developing countries, including the MENA region (IFC 2009). What’s more, approximately 880 million people around the world do not have access to safe and clean water. Over 1.5 billion people lack electricity supply while another 2.5 billion cannot access appropriate sanitation facilities (see figure 9). The MDGs lend credence to the significant role of infrastructure development in reducing poverty levels by identifying targets for sanitation services and water supply to be attained by 2015. Even though other infrastructure services, such as telecommunications, transport and electricity, are not clearly defined under the MDGs, they remain essential ingredients for attaining environmental, health, gender, education and poverty objectives outlined under the UN Millennium Declaration (IFC 2009).

Some of the infrastructure challenges facing developing countries include poor quality of service delivery and negligible investment in the infrastructure development projects, estimated at 7% of GDP/annum. These countries require technical and financial assistance to deal with the challenges prevalent in their core infrastructure sectors. The PPP model is critically needed to develop and increase access to elementary services in order to boost the standards of living among the poor masses in developing countries. Various international organizations, such as IMF, World Bank and International Finance Corporation (IFC), have initiated a number of infrastructure development projects in MENA region and other developing countries. For example, during the FYE2007, the IFC-funded infrastructure projects benefited over 650 million people. Approximately $5.3 billion was paid by client companies in the form of taxes while IFC facilitated about $10 billion in extra financing from other sources (IFC 2009). This chapter will therefore present suggestions and recommendations, based on previous discussions in chapter two, that may aid replication of PPPs in other development projects within the Middle East and North Africa region.

Recommended Action Plan

Effective Strategies in Agricultural Water Use

There is an urgent need to strategize for the unexpected changes in the manner in which water is used in the agriculture sector. There is no doubt that the amount of water supplied to the agricultural sector is likely to drop as a result of long spells of drought and the ever expanding population. As a result, farmers will be compelled to either adapt when surface water becomes extremely unreliable or their aquifers are depleted. However, it is feasible to mitigate the transition, to some level, via the adoption of sound policies that boost water productivity by increasing investments in upgraded irrigation infrastructure. In addition, these policies should promote information-sharing on existing water resources for more sustainable and pragmatic hydrological planning. What’s more, countries in the MENA region may consider implementing social security strategies to protect the poor population in rural areas. Such a move will ensure that water resources are evenly distributed in all areas and farmers will have a steady supply of water for domestic and agricultural use (Yamouri 2010).

Improvement in Water supply and WSS

It is crucial that MENA countries make efforts to enhance water supply systems as well as expand wastewater services in remote areas. The ability of most governments in the region to provide essential infrastructures for supplying water and WSS services will be severely compromised by the rural-urban migration. Enhancing the performance of the water sector is principally an institutional issue. As a result, these countries will need to collaborate with the private sectors in order to achieve self-sufficiency in the water sector (Yamouri 2010).

Institutional and Policy Structures

Relative progress has been made by MENA regions with regard to institutional framework in comparison to other areas of PPP supportive environment. Nonetheless, more effort is still required since small action has been launched in some MENA countries. In addition, an apparent policy framework is obviously required in order to reveal commitment of MENA governments to PPP. The policy framework should evidently outline the PPP goals, principally enhanced efficiency and higher quality of services. In addition, the policy should clearly indicate that the purpose of public private partnerships is not just to solve government fiscal constraints. More important, the policy framework should be disseminated extensively and efficiently in order to assist all stakeholders get acquainted with the requirements and procedures of public-private partnership arrangement (Al-Nasa’a 2007).

Legal Structure Reforms

There is an urgent need for a legal structure that clearly outlines the forms of private sector involvement that are feasible as well as the tasks that fall on the various government entities. The legal structure must also deal with challenges such as where the PPP profits will be invested. In addition, the legal framework must plainly distinguish between privatization and public private partnerships. Even though it might be feasible to conduct some initial transactions using the current laws (i.e. privatization laws), it is vital to develop new laws that are PPP-specific and which deal with long-term partnership agreements that describe PPP in not only energy and water sectors but also other areas such as transport and telecom sectors (Al-Nasa’a 2007).

Macroeconomic Management

Macroeconomic management is another area that deserves serious consideration given that a handful of MENA countries have shown progress in developing contingency management of PPP. It is also important that MENA countries develop capacity to make well-timed decisions on PPP, including the capacity to develop a suitable pipeline of projects, on the basis of the market conditions, macroeconomic environment and other priorities of each country (Al-Nasa’a 2007).

Mechanism to Address Market Failure

Subsidies

The MENA governments must implement effective subsidies when revenues and tariffs are inadequate for full cost recovery. Under this situation, subsidies can be substantiated provided that they are precise, focused and performance-based. Nonetheless, MENA governments must continue to supply basic services if Output Based Aid (OBA) models and suitable tariffs cannot be adopted. This should be the case especially when it is impossible to accurately measure outputs (Al-Nasa’a 2007).

Market Regulators

In circumstances where full cost recovery can be realized using subsidies, the role of competent market regulators will be crucial to guarantee the private sector that tariffs will stay viable. In addition, market regulators play a crucial role in markets characterized by natural monopolies (i.e. WSS sector) in order to safeguard the rights of all stakeholders (i.e. private sector and end-users). A number of MENA governments (i.e. Saudi Arabia, Egypt, Jordan and Morocco) have already set up autonomous regulatory agencies in sectors characterized by public private partnership arrangements (Al-Nasa’a 2007). Similar arrangements should be introduced in other key areas in the economy such as transport, health and telecommunication sectors.

Project Implementation

It is important to make sufficient arrangement during project implementation phase to ensure that any public private partnership project is successful (Al-Nasa’a 2007). Therefore, the planning, procurement and implementation phases of PPP projects should be addressed adequately by all MENA governments. The MENA region performance on the abovementioned issues is depicted in figure 10.

It is important that adequate resources and time are allocated in the preparation phase of the process to ensure accuracy. Feasibility study must be carried out to evaluate all potential procurement alternatives and service delivery, including PPP. In addition, it will be crucial to carry out a comprehensive risk assessment given that PPP is subject to a number of risks. A cost-benefit assessment should also be done in order to make a decision on whether to progress with PPP in sectors where it is feasible. Since the outcomes of the cost-benefit analysis may vary as a result of government priorities (i.e. environmental protection, social protection, etc), it will be crucial to carry out market analysis for the planned infrastructure project to find out whether the private sector is interested in the project (Al-Nasa’a 2007).

Further Suggestions and Recommendations

There are strong indications that the water policy reforms initiated in several MENA countries are moving in the positive direction. Some MENA countries have made significant progress compared to others. The advantages of bridging the water divide between the poor and the rich is producing positive environmental and socio-economic outcomes in some MENA countries. In some cases, unpopular political decisions are required to bring about long-term benefits in terms of equitable, sustainable and efficient use of water resources in the MENA region. MENA countries need to urgently prioritize challenges in the water sector within their development agenda. These challenges should be integrated with those in other sectors and addressed appropriately. What’s more, there is an urgent need for a cross-sectoral strategy (sectoral and macroeconomic analysis) to solve challenges in not only water and energy sector, but also other development sectors such as health, transport and telecommunication sectors (Attia et al., 2009).

The political system in MENA countries must promote water and energy reforms and take advantage of the opportunities offered by the global changes and challenges (i.e. financial and energy crises, climate change and global trade opportunities) by adopting sound policies with respect to water-demand management, cost-recovery strategies and accountability. The nature of water allocation among various sectors (i.e. agriculture, household and industrial sectors) must be revised with respect to the changes in social and economic development patterns of each country without compromising energy, water and food security challenges within the region. The remedies to energy and water solutions in the MENA region exhibit overarching and strong governance aspect that must be prioritized in the energy and water reforms. These reforms should also be captured in the general development agenda of the region. What’s more, MENA countries should instigate a stepwise process to institutionalize collaborative accountability within the public private partnership arrangements. This endeavor should be at the hub of reforms in other sectors such as transportation, health and tourism sectors (Attia et al., 2009).

The private sector and other development partners should be involved in the reform process, particularly in the preparation and implementation of new policies in all key sectors. In addition, MENA countries must have consistent and state-of-the-art databases that reveal their current progress with respect to MDGs accomplishment status. The work started by the Arab Water Council should be applauded and supported by all MENA countries. In addition, the public should be educated on important issues such as:

1. appropriate sanitation as a basic right;
2. accomplishing MDG goals; and
3. the positive impact of reducing the gap between the poor and the rich in the region.

In order to achieve satisfactory water supply and sanitation coverage, MENA governments must introduce subsidies whereby charges for such services reflect income classes. This will bring about social integration within the region since the demands of the underprivileged are addressed by the elite class. A similar social integration approach should be enlarged regionally and adopted by all MENA countries. For example, development banks and rich countries within the MENA region should provide financial resources to an Arab Water MDG Fund that can be used to finance infrastructure projects in poor countries within the MENA region (Attia et al., 2009).

Summary, Conclusion and Practical Implications

Summary

This chapter presents summary, conclusion and practical implications for the present study. The purpose of the present study was to explore the Impact of public private partnership projects in energy and water sectors in the MENA Region. The main objectives of this study were: (1) to examine factors that contributed to the successful implementation of PPPs in energy and water projects in the MENA region; (2) to examine factors that hindered the successful implementation of PPPs in other areas of the economy; (3) to explore the preferred mode of engagement used in the PPP framework; (4) to explore any extra advantages, in terms of service delivery to the public, in using PPPs rather than pure public investments; and (5) to make suggestions and recommendations that may aid replication of PPPs in other development sectors within the MENA region

The specific research questions for the current study were:

• What are the key factors that have aided successful implementation of public private partnerships in energy and water projects in the MENA region?
• What factors have hindered adoption and successful implementation of public-private partnerships in other areas of the economy?
• What is the preferred mode of engagement used in this partnership?
• Are there any extra advantages in terms of service delivery to the public in using public private partnerships rather than pure public investments?

Conclusion

There are various definitions of PPPs (Akintoye & Beck 2003, p.31; Grimsey & Lewis 2004, p.181). However, in this study, public refers to public sector organizations (i.e. central, provisional and local governments) while the private sector refers to profit-making organizations. The current research lends credence to the partnership between local governments in MENA region with profit-making organizations that are awarded tenders to develop and maintain infrastructure projects in the water and energy sectors.

The MENA region is currently facing many challenges. For example, the region holds the distinction of being the driest region in the world. Consequently, there are several key issues that need urgent attention in the water sector. For instance, unproductive policies in the sector have resulted in mismanagement of water sources in the region. In addition, water resources in the region are used inefficiently. For example, some countries within MENA region consume more water than their recyclable supplies.. In addition, over 45% of water is lost through leakage in water supply infrastructure. As a result, more than 50% of water (set aside for irrigation farming) is lost through poor water infrastructure (Yamouri 2010, p.1). To worsen the matter, some MENA countries lack adequate financial resources to undertake large infrastructure projects in the water sector.

In addition, MENA countries face several issues in their energy sectors. Most remote areas lack constant power supply while the growing urban population within the region is expected to put extra pressure on the existing power supply infrastructures. Nonetheless the region has immense potential for renewable energy, particularly production of electricity from solar technology. This is evidenced by the fact that, in 2008, less than 3% of electricity was harnessed from renewable sources in the region (IEA 2010). However, political, macroeconomic, market mechanisms and institutional impediments have limited the region’s prospect for harnessing electricity from renewable sources such as wind and solar. It is against this background that several MENA countries have adopted PPPs to develop and maintain infrastructure projects in energy and water sectors. Other international development partners (i.e. World Bank, IMF, IFC) have provided financial and technical support to enable MENA countries solve challenges prevalent in the water and energy sector.

Critical Reflection on the Aims and Objectives

The aim of this was to explore the impact of PPPs in energy and water projects in the MENA region. Five objectives were formulated to guide the present study. With regard to the first objective, this study has demonstrated that sound macroeconomic policies, efficient privatization laws and support from international organizations (i.e. World Bank, AfDB and IFC) are some of the factors that played a key role in the successful implementation of PPP projects in the MENA region. These factors played an integral role in the successful implementation of infrastructure projects, such as Egypt’s GAWWTP project, Jordan’s JGTP project and Morocco’s Guerdane Irrigation Project. With respect to the second objective, this study demonstrated that unstable business environment (such as in Libya), market mechanism failure, ineffective investment laws and credit risks can have negative impact on infrastructure projects under the PPP arrangement.

The present study explored the preferred mode of engagement used in the PPP framework in MENA region. This study established that BOO and BOT models are commonly used in MENA region for infrastructure development under PPP. A classic example of BOT project is As-Samra Wastewater Treatment Plant in Jordan. On the other hand, PPP projects developed under the BOO model include Bizerte IPP project in Tunisia. This study also explored extra advantages, in terms of service delivery to the public, in using PPPs rather than pure public investments. It was found that PPP projects benefit the public in terms of efficient service delivery at affordable cost. For example, the Guerdane Irrigation Project in Morocco is expected to boost water supply to farmers in Guerdane. In addition, farmer will be able to access constant water supply at reduced cost.

This study also sought to make suggestions and recommendations that could aid the successful replication of PPP in other sectors of the economy. To this end, the present study made several recommendations to achieve this objective. Some of the major and recommendations include: (1) improvement in water supply and WSS; (2) institutional and policy reforms; (3) legal structure reforms; and (4) sound macroeconomic policies. The present research has also made a number of suggestions to address market failure in MENA region. These include: (1) effective subsidies; (2) competent market regulation; and (3) effective project implementation strategies.

Limitations to the study

The main limitation of the present research relates to the fact that it was based entirely on secondary data analysis because of financial and time constraints. Accordingly, primary data analysis was not used in the present research because it would have required substantial time and financial resources which are presently not available. Nevertheless, the researcher endeavored to use credible sources such as scholarly books, journals and reports from credible organizations (i.e. IFC, World Bank, IMF). The data gathered from these sources provided precious information that was used to explore the impact of PPPs in infrastructure projects in MENA region.

Practical Implications

This research is significant for all stakeholders with respect to successful implementation of PPPs in energy and water projects in the MENA region based on perceptions of various stakeholders involved and to enable enhanced replication of various PPP models in other sectors. This research will also produce knowledge that will be of significant help to decision makers, practitioners and scholars interested in PPP within the local and regional context. The current research will contribute to the understanding of the impact of PPP models in the provision of public infrastructure by investigating the experiences of MENA countries. The findings of this research will provide an opportunity for other developing countries to explore the potential impact of PPP models in infrastructure development before they can be adopted.

The present research goes beyond academic frontiers and provides insight into the requisite technological capacity required for the proper functioning of PPP models in other infrastructure projects. The private sector participation is crucial to the success of the public private partnership framework in infrastructure service delivery and the present research incorporates the qualitative value that is added by the private sector in the development and maintenance of infrastructure projects. The qualitative aspects, such as knowledge-sharing and quantitative aspects such as financial and manpower resources will also be of great benefit to MENA countries that plan to introduce public private partnership models in health, transport and telecom sectors.

The impact of the present research will be potentially high among Middle East and North Africa countries that are yet to adopt public-private partnership models in other sectors (i.e. health, transport, tourism and telecom) of the economy. Therefore, this research acts as a guide to the most crucial aspects of PPP models that these countries will face as they implement these models in other sectors. Legislative reforms is one critical aspect that these countries will likely face in their attempt to adopt PPP models in other sectors. They will be compelled to amend existing privatization laws in order to attract financial and technical support from the private sector. The findings of this research will also help MENA countries formulate effective institutional, market and macroeconomic policies that promote PPP framework in other sectors of the economy. The overall aim of this study is to help MENA countries develop well-organized political, economic, institutional and social structures that promote public private partnership model in infrastructure development in other sectors.

Research Gaps

The current research focused mainly on the success and failure of PPP framework in the development and implementation of water and energy infrastructure projects in the Middle East and North Africa region. The main source of information for the present study was secondary data. Future studies should attempt to carry out a similar study using primary data. However, such as endeavor will require massive investments in time and money. Currently, there are no studies carried out to explore the potential impact of PPP framework in East and Central Africa. It is worth mentioning that East and Central Africa is one of the poorest regions in the world given that it lacks adequate natural resources to invest in infrastructure projects. In addition, most parts of the region (i.e. Somalia, Congo Republic and Sudan) are currently engaged in civil wars. What’s more, there is rampant corruption and mismanagement of resources in the public sector. Given the limited participation of the private sector in socio-economic development, future studies should consider investigating the potential impact of public private partnerships in infrastructure development in the region.

Appendix

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