Saudi Arabia: PPPs – Please Explain

During this week in Saudi Arabia I had the opportunity to become deeply immersed in the debate surrounding PPPs and their applicability to the Saudi 20 – 30 vision. In meetings with a number of government officials and business leaders at the Saudi 5th Engineers Society Conference and at their offices I had numerous opportunities to engage in the current debate about what a Public-Private Partnership (PPP) is.

There seems to be some confusion on what PPPs are, their value, and their purpose. Some of the discussions I held with a range of PPP practitioners and wannabe practitioners revealed the following about perceptions that are held concerning PPPs included the following:

• PPPs can be equated to privatization – the most common perception
• PPPs are undefined partnerships between the private and public sectors where the public sector is supposed to provide some benevolent benefit to the public sector – the optimistic perception
• PPPs as contractual service or infrastructure delivery mechanisms that involve a long term commitment, appropriate distribution of risk, and involve a fair share of private investment in a public sector project (the most common mentioned being BOTs)

The debate was engaging and at times animated. However there is a rush to embrace the idea of PPPs. The danger is how these divergent perceptions will impact the rush towards PPPs.

It was envigorating to participate in a forum that was sponsored of the Ministry of Housing and which engaged so many members of the public and private sectors, in one place at the same time. I am not sure that such an opportunity would have generated so much interest in the USA for example.

I would like to share some of my observations:

• Is there a broad institutional PPP culture in Saudi Arabia? Barely – there have been at best less than ten mention worthy PPPs and a few more IPPPs that have PPP elements
• Is there a national institutional champion for PPPs? Maybe, but it depends who you are listening to. There are government ministries that are interested, including the Ministry of Housing, the Ministry of Finance, and the Ministry of Planning and the Economy. There seems to be a leaning towards the Ministry of Planning and the Economy being the lead, but only time will tell how this evolves
• Is there collaboration and cooperation between the government ministries? There is a sense of the need for collaboration, but only recently an understanding that if large PPPs are launched with different stakeholder ministries that roles and mandates will need to be reviewed and updated.
• What about a national PPP Unit? Currently there is no identifiable one, but there are government ministry level PPP strategic initiatives that should be supported and coordinated by a national PPP unit of sorts. The big question will be where it makes sense for a national PPP unit to be housed. I would advise the national leadership to decide whether a national PPP unit is desirable and who should house it.
• Is there a common understanding of what a PPP is? Maybe – I was concerned to discover that often officials from the same institutions had different perceptions on what a PPP is.
• Is there a tangible national PPP practice in Saudi Arabia? At best individual fledgling ones, but there is almost no pipeline of PPP projects that could lead to best practices being introduced through lessons learned.
• Is there enthusiasm? I would say that there is a resounding interest in PPPs and uncurbed enthusiasm. This is both encouraging and alarming and it will need tempering that should require a measured pace instead of a headlong stampede into PPPs before an enabling environment and national PPP support program is established.
• Is there an enabling environment? It depends on whom you speak to. There are laws in place that could define the implementation of PPPs, but I feel that many of them are not fine-tuned enough to be of much direct value to PPPs as they are practiced in other countries which do have a legal framework.
• Is there national PPP standard practice guidelines? Not yet. There is a common consensus that this is necessary, sooner than later.

I want to stress that I am not painting a picture of gloom. Saudi Arabia is a little like the “wild West” at the moment regarding PPPs, but the “sheriff” will be riding into town sooner or later to impose some law and order.

If I got to be “sheriff” for one day, what would I do? These are my suggestions:

• Clearly define collaboratively what PPPs are to avoid misconceptions on how they operate and what they can deliver
• Elevate PPP champions to an economic national council or a similar existing body that can advise and drive the debate towards a formalized strategy. This should not be a voyage of discovery in a rudderless ship drifting in circles in the doldrums
• Develop a legal framework that brings all the different legal laws and ordinances together in one place
• Create an independent national PPP unit that can best serve the needs of all Ministries and which can create an “enabling PPP environment” that will be standardized, fair, and unambiguous. This unit could also be a mentor and capacity builder for the nation
• Create a decision making council (with members from the national PPP unit) that can select meritorious projects based on bankability, Value for Money (VfM), and which are financially viable, and sustainable
• Champion institutional capacity building that brings different practitioners (e.g. lawyers, engineers, financial experts, and others) together for PPP compatibility training. If Saudi institutions do not make a concerted collaborative effort to build capacity, their initiative will have many false starts and many unnecessary failed projects
• Embrace failures and turn them into learning experiences
• Remember that PPPs require the participation of the private sector partners and stakeholders as well. It is important that the national PPP strategy leaders in the public sector actively engage the private sector, so as to ensure that sound business practices are introduced that are compatible with private sector needs as well

Do you need a national legal framework for PPPs to be successful? Not necessarily but preferably. Turkey for example is only now developing a legal framework, yet it is delivering more PPPs than Europe combined. You may ask – How is this possible? It is possible because in the present absence of the legal framework, the government of Turkey has consciously created a “pseudo” enabling environment where different government bodies have chosen to support PPP initiatives because of this missing element, so that the private sector feels that they will have environment that is conducive to PPPs.

Maybe this is the stop gap measure that the Kingdom of Saudi Arabia should follow while it navigates the difficult passage toward a structured national practice.

What an interesting week – the saga continues! I will keep you posted.

Should you wish to know more about PPPs, please feel free to email me at [email protected].