36351 PRIVATE PARTICIPATION IN MEDITERRANEAN INFRASTRUCTURE NEWS Programme on Private Participation in Mediterranean Infrastructure World Bank/European Commission Issue no. 16 – May 2003 Telecom Egypt The Government of Egypt has put an end to negotiations between state-owned Telecom Egypt (TE) and private GSM operators Egyptian Company for Mobile Services (MobiNil) and Vodafone Egypt. The two companies had offered a joint payment of US$339 million to TE to postpone the launch of TE’s mobile network. The Government is keen to break the two incumbents’ hold over the GSM market but no clear timeframe has been given for the launch of the third license. Under the terms of the mobile license TE acquired for US$340 last year, the company has been entitled to start operations since 1 December, 2002. However, TE is uncertain whether it will be able to secure sufficient numbers of high-value subscribers to compete effectively with the two established operators. (MEED, 16/05/2003, http://www.meed.com) Lebanon The Higher Privatization Council released the names of the six companies interested in bidding for the tender of the two Lebanese cellular networks. The companies are LibanCell, Investcom Holding SAL from Luxembourg, Orange SAL from France, OTE from Greece, Detecon from Germany, and MTC and Wataniya from Kuwait. The Lebanese Government intends to privatize the cellular networks to reduce the US$31 billion public debt. There are over 800,000 mobile subscribers in Lebanon and a further increase is anticipated. (The Daily Star, 16/05/03, http://www.dailystar.com.lb) Morocco Vivendi Universal of France is due to pay €690 million (US$ 775 million) for majority control of Maroc Telecom after abandoning previous plans to sell its 35 percent holding in the Moroccan telecommunications operator. Vivendi Universal faces a put option from the Moroccan Government, obliging it to buy a further 16 percent of Maroc Telecom by September 2003. This will bring its share to 51 per cent. A number of potential investors are seeking clarification whether Vivendi will then sell its 51 per cent holding after September. (Financial Times, 05/05/2003, http://www.ft.com) 1/8 Energy Jordan The Jordanian Government will launch a tender early next month to build a new power plant with a 300 megawatt operational capacity. The plant will be constructed at Khirbet Al Samra area between Zarqa and Mafraq governorates. Construction of the plant is expected to end between 2005 and 2006, at a time when Egyptian gas provided to Jordan is scheduled to reach the central and northern parts of the Kingdom. According to an agreement between Jordan and Egypt, the gas will first reach the southern port city of Aqaba through a pipeline starting at the offshore gas fields on the Mediterranean passing through Al Arish area and then Taba on the Egyptian side. The pipeline will then be extended to the central and northern parts of the Kingdom to supply gas to power generation plants, among them the Khirbet Al Samra, and then to Syria and Lebanon before eventually going to Europe. (The Jordan Times, 08/06/03, http://www.jordantimes.com) Tunisia The United Kingdom’s BG Group plc, a subsidiary of British Gas, has signed a Memorandum of Undertaking with the Government of Tunisia for the development of the US$250 million Barca Power Project in Sfax. BG Group will sell the electricity generated from the 500-MW plant to state power company Société Tunisienne de l’Electricité et du Gaz (STEG), with whom it is negotiating a power purchase agreement. BG Group is scheduled to begin construction of the power plant in the second quarter of 2004, with full commercial operation expected in late 2006. Development of the Barca power plant would facilitate the acceleration of BG’s existing Miskar field, where reserves have significantly increased following successful in-fill drilling and reappraisal in 2002. In addition, BG has confirmed its intention to install a Liquefied Petroleum Gas (LPG) plant at the Hannibal site to supply the Tunisian market. LPG would be bottled and distributed by a local Tunisian company. (BG Group Press Release, 27/05/2003, http://www.bg- group.com) Transport Algeria France’s Aeroports de Paris (AdP) is to start work soon on a contract to update and develop designs for terminal buildings and facilities at Houari Boumediene airport. The company has been selected by the Algerian Airport Services Management Company to work on the long-discussed program to complete and expand the country’s principal international airport. AdP has four months to develop the existing studies, drawn up more than 10 years ago, of the unfinished terminal building. (MEED, 23/05/2003, http://www.meed.com) Lebanon The OPEC Fund for International Development has signed a US$15 million loan agreement with Lebanon to co-finance the rehabilitation and construction of new sections of a major artery linking the capital city Beirut to the Syrian border. The US$246 million project, to be completed by 2009, will be part of the Pan Arab Highway, which aims at facilitating the transport of goods, improve economic activity, and encourage trade opportunities between Syria and Lebanon. Lending terms include an interest rate of four percent per annum, with an annual service charge of one percent on amounts withdrawn and outstanding, maturity of 20 years, and a grace period of five years. Co- financiers are the Arab Fund for Economic and Social Development, Kuwait Fund, Saudi Fund for Development, and the Government of Lebanon. (OPEC Fund Press Release, 30/05/2003, http://www.opecfund.org) 2/8 Morocco The Office National des Aéroports (ONDA), the public office in charge of management and operation of Moroccan Airports under the supervision of the Ministry of Equipment and Transportation, has issued an international tender for selecting a second operator for the provision of ground-handling services at the Casablanca, Marrakech and Agadir airports. The deadline to submit bids is July 15, 2003. (Office National des Aéroports, 02/06/2003, http://www.onda.ma) Water Morocco Moroccan electricity and water distributor Redal, which is owned by France’s Vivendi Environnement, will invest MAD700 million (US$76.1 million) in 2003 to develop its activities. Half of this amount will be invested in the construction of wastewater treatment facilities. Redal plans to construct a wastewater treatment plant in Skhirat, northwestern Morocco, by the end of August 2003. The company supplies water and electricity to the northwestern Rabat-Sale region, which has a population of two million. (L’Economiste, 29/05/2003, http://www.leconomiste.com) Bulletin AfDB/Algeria Algeria and the African Development Bank signed a US$76.85 million loan agreement to finance the Constantine highway bypass phase II project. The project aims to improve the traffic flow by reducing transport costs, travel time and road accidents. The project will contribute to poverty alleviation in Algeria through increased capacity of road infrastructure that will promote national integration between the East, Center and West regions on the one hand and regional integration with countries of the Arab Maghreb Union on the other. The project will also contribute to the development of urban centers and the country's agricultural and industrial activities, provide easier access to major economic centers, and help reduce unemployment, particularly for the youth by creating 3,000 jobs in the Constantine region. (Menareport, 03/06/03, http://www.menareport.com) EIB/Syria The EIB is providing €50 million for the modernization and development of the Syrian Port of Tartous. The works include the rehabilitation of one quay and the main breakwater, dredging, construction of two quays to handle additional traffic, including passenger and cargo terminals, and acquisition of modern handling equipment for containers and general cargo. The project will be implemented by the Ministry of Transport. Enhanced Syrian port facilities will contribute to promoting regional and international trade flows in view of the establishment of a free trade zone in the Mediterranean region by 2010. (EIB Press Release, 23/05/2003, http://www.eib.org/news/press/press.asp?Press=2643) EU/WB The World Bank, in partnership with the Joint World Bank and European Commission Programme on Private partnership in Mediterranean Infrastructure, held a two-day Roundtable on Opportunities and Challenges in the Water/Sanitation and Power Sectors in the Middle East and North Africa Region. The event which took place in Lebanon, gathered over 150 participants from Governments, private sector, and the donors' community. Participants gathered to discuss, exchange experiences and 3/8 ideas, and outline future directions on how to advance reform and attract investment to improve the quantity and quality of water access and power service delivery. For more information on the conference, visit http://www.ppmi.org. EU/Regional The European Commission has approved €57 million in grants under MEDA to reinforce the Euro-Mediterranean regional co-operation. The package includes the MEDA Regional Financing Plan 2003 (€32 million), and the Support Fund to the Facility for Euro-Mediterranean Investment and Partnership (FEMIP, €25 million). The Regional Financing Plan is made up of the Middle East Peace Projects 2003 (€10 million), the Euromed Heritage III Programme (€10 million), the Training of Public Administrations Programme (€6 million), Support to the Implementation of the Agadir Free Trade Initiative (€4 million), and the Euro-Mediterranean Water Information System (€2 million). The €25 million Support Fund to the FEMIP is designed to fund technical assistance activities to be managed by the EIB. (Euromed Synopsis no. 225, 08/05/2003, http://europa.eu.int/comm/external_relations/euromed/publication.htm) WB/Egypt The Egyptian Civil Aviation Ministry is discussing with the World Bank the financing of a project to construct a $400 million third terminal at Cairo international airport. A call for expressions of interest from local and international companies is expected by the end of June, with a tender in the fourth quarter. The terminal is expected to become operational by mid-2006. The complex will include cargo shipping as well as duty-free shopping facilities. The city of Cairo has currently one airport with two terminals with a total capacity of 9.5 million passengers a year. The third terminal will increase the capacity to an annual 25 million by 2010. (various sources) Public-Private Partnerships and Development Grants by Roberto Ridolfi, European Commission1 Following the current trends and market dynamics throughout the world, many countries and local authorities are promoting the involvement of the private sector in the provision of public services by means of various forms of Public Private Partnerships (PPP). This affects all public utilities sectors: energy, water, wastewater and solid waste management; several transport subsectors: railways, toll road, bridges, airports; but also education, health, detention services. Donors and lenders have also become increasingly co-operative and responsive on PPP issues in their assistance programmes and agreements. Private funds can help widen the coverage of foreign assistance programmes, help in achieving the Millennium Development Goals (MDGs), and in the formulation of sound projects. They can also assist to improve identification of adequate investments, these being sometimes overestimated by the local authorities, which tend to over dimension physical infrastructure, both qualitatively and quantitatively, and therefore create 1 Dott. Roberto Ridolfi is Principal Co-ordinator at the European Commission Directorate General of Regional Policy. He is also Associate Lecturer at the Open University (UK). The views expressed in this article are those of the author and do not represent the official position of any Institution. 4/8 constraints to the timely deployment of appropriate investments. Private sector involvement also helps improve technical and management skills of the utility/company, resulting in a more sustainable investment and in a reduction of grant financing. The better rating of good international operators can also generate win-win solutions vis-à-vis the possibility to reduce financial costs. The introduction of a PPP is usually linked to improved benefits to the citizens, i.e., more competition, increased efficiency, and better quality of services delivered. The conclusion on PPPs as tools to improve quality and/or granting increased quantity of services to consumers is therefore positive. The increase in public benefits may be either an increase in capacity to deliver (more users connected) or an increase in the quality of the delivery (less interruption of services, better quality of water, etc.). Nevertheless, the advantages from delegating responsibility to a private operator are not always guaranteed and often come at a price. There are additional costs involved with a private operator, the most obvious being the higher cost of financing equity against borrowing. In countries with sound technical know-how the costs of importing incremental know-how may seem high and should be adequately justified. Indeed, often the additional know-how of PPPs is in areas such as negotiation skills, financial management, regulations and contracts, all aspects that are perceived as an extra financial burden by the government/utility. For public utilities, an expected increase in tariffs at least in the short term, and, in general, the management of tariffs require careful attention to affordability issues, especially at the beginning of the learning curve for PPPs. Good Practices in PPPs. There is no single blueprint for successful PPPs, although certain conditions seem necessary, such as (i) an appropriate legal and regulatory environment; (ii) a strong political commitment; (iii) institutional knowledge; (iv) allocation of risks according to competencies; (v) affordability of cost recovery tariffs based on disposable income; (vi) good contracts; and (vii) clear agreements on the roles and responsibilities of both the public and private sectors. The usual list of topics to be taken into account for the preparation of PPPs is: (i) the allocation of roles and responsibility among the stakeholders; (ii) the analysis of primary and secondary legislation, including the screening of national public procurement rules in selecting the private sponsor (in compliance with regional agreements where relevant); (iii) the exam of opportunities to continue or discontinue administrative rights, under existing law, for public authorities to adjust tariffs; and (iv) ensuring the mobilisation of the best competitive forces against the risk of oligopolies and cartels. For Donors and grant providers accountable to the tax payers, it is imperative to ensure that the benefits of public grants go to the consumers/citizens themselves. Beyond the conditions on the regulatory environment, the following issues should be taken into consideration: (i) establish control criteria and methodologies for evaluating the tenders (technical, financial, legal, organisational, etc.) while addressing the financial aspects trough financial modeling and simulations; (ii) conceive bidding strategies that imply win-win situations; (iii) allow for the proportionality principle to grant broad competition; (iv) conceive solid and feasible award criteria; (v) simulate scenario/sensitivity analysis to revise the risk analysis and risk allocation matrix; (vi) assist the negotiations, parallel negotiations with more tenders (if foreseen), and final negotiations (or finalisation of the contract) with the single preferred tender; and (vii) assist the management of the concession contract with skilled resources well beyond the award phase. 5/8 The negotiations or re-negotiations of existing PPPs is bound to be an important issue for grant providers. The theoretical problem of a public grant to be released or known before the award of a concession is quite simple: the asset (cash, investment, or cash linked to investment) must be made transparent to the competing forces of the market and therefore be factored into the tendering process. Practical difficulties, such as ensuring the good quality of tender documents, good financial modeling, a fair, transparent, and balanced procurement process, hence need to be addressed. More difficult, both conceptually and in practice, is the case of existing concessions, since the issue is internalising the conditionalities of an extra public grant into the existing legally binding document between the parties (i.e., concession contract). The Need for Capacity Building. In order to achieve the stated objectives, ministries and/or local authorities, public utilities, regulators in transition and developing countries, as well as their partners in development, need to: (i) understand the issues surrounding different forms of PPP for delivering services; (ii) analyse, propose, and develop PPPs appropriate to specific circumstances; and (iii) receive, where appropriate and certainly when they seek financial aid, guidance in good practices to approach private sector involvement. One of the most important impediment for a full development of PPPs is the lack of knowledge from civil servants and public officials. This is a challenge virtually for every pubic administration because the financing and management skills necessary for PPPs are typically found in the private rather than the public sector. Moreover, many PPPs are implemented at the local level, where highly specialised skills are in even shorter supply. Many governments in the European Union (EU) tried, and some managed, to address this weakness by establishing PPP units, task forces or special planning bodies that bring together the necessary skills in a single public entity devoted to PPPs. For PPPs to be balanced and flourish, the environment must be conducive and supporting. The public authorities have to check and develop the institutions that should deal with PPPs and train the people that will deal with PPPs. There are clear objectives for institution building: (i) stimulate close co-operation among PPP units; (ii) assist applicant governments that are failing in establishing effective capacities in handling PPPs within public administrations; (iii) support pilot projects which can allow EU and beneficiary countries to match theory and practice; (iv) promote good governance through appropriate and sustainable control systems at grass root level, in order to reduce risks of bad management of concessions and other forms of PPPs. The Role of Donors. Donors must become increasingly prepared to finance institution building and front load studies. It is recommended that such training be financed by grants made available by Donors through flexible and rapid procedures to beneficiaries. Due diligence and front load costs in this type of projects must be shouldered by grant providers. The market shall be accessed and partially defined with the necessary competence and the sustained strength to negotiate with private actors. This is in the best interest of the private partners as they must find a stable, competent and clearly targeted counterpart if they have to invest financial and operational resources. Obviously this is a step to reassure tax payers as well. Donors have a growing and strategic interest in the development of policy, design, and methodological tools related to public private partnership to ensure common playing ground. Besides, donor intervention is strongly requested by the private sector to 6/8 ensure a standardised approach and to catalyse the development of feasible operations. All practitioners have the obligation to monitor the development in this sector while continuing the dialogue and co-operation with public authorities, IFIs, companies, institutes, associations and universities. However, they have also to proceed, where applicable, to finalise deals and projects. Co-operation by the different parties can be conducive to a better understanding of the implications of using public grants to benefit a targeted group of beneficiaries (consumers) and to help prevent fraud and irregularities. It is also important to build awareness and sustainable mechanisms to allow for consumers to monitor and control the quality of service deliveries that are provided inter alia through the use of publicly financed investments. Upcoming Seminars and Training Energy ISES Solar World Congress 2003 - Solar Energy for a Sustainable Future Organiser: International Solar Energy Society Location: Göteborg, Sweden Date: June 14-19, 2003 For more information: http://www.congrex.com/ISES2003/ Africa Energy Forum 2003 Organiser: EnergyNet Location: Lausanne, Switzerland Date: June 22-24, 2003 Fore more information: http://www.energynet.co.uk/aef/AEF2003/index.htm PPI/PPP Infrastructure Financial Analysis and Tariff Setting: Essential Skills Organiser: IP3 Location: Washington, D.C. and New York City Date: July 21-August 8, 2003 Fore more information: http://www.ip3.org/t_workshops_1314.htm Incentive-Based Regulation: Advanced Techniques for Tariff Setting and Adjustment Organiser: IP3 Location: Washington, D.C Date: August 18-29, 2003 Fore more information: http://www.ip3.org/t_workshops_1325.htm Transport The 8th Annual Financing & Investing in Ports Conference Organiser: Euromoney Seminars Location: London, UK Date: September 22-23, 2003 7/8 Fore more information: http://www.euromoneyseminars.com/event_information.asp?eventid=ELE605&eventme nu=true&eventpassed=false Publications and Articles Private Participation in Infrastructure in Developing Countries: Trends, Impacts, and Policy Lessons Author: Clive Harris, World Bank Publication date: April 2003 Fore more information: http://publications.worldbank.org/ecommerce/catalog/product?item_id=2379513 Why ICT Matters for Growth and Poverty Reduction Author: Nagy Hanna, Development Gateway Foundation Publication date: April 2003 Fore more information: http://www.developmentgateway.org/node/133831/sdm/docview?docid=510867 Investment Climate Around the World Authors: by Andrew H. W. Stone , Daniel Kaufmann , Geeta Batra, World Bank Publication date: May 2003 Fore more information: http://publications.worldbank.org/ecommerce/catalog/product?item_id=2660082 Finances et Développement—Le Moyen-Orient: Au seuil d'une ère nouvelle Author: IMF Published: March 2003 Fore more information: http://www.imf.org/external/pubs/ft/fandd/2003/03/index.htm This newsletter is issued on a monthly basis. All material contained in the newsletter reproduces articles and press releases and is intended to provide information on PPI-related news in the Maghreb and Mashrek regions. All material is reproduced without any endorsement or value judgment on the part of the World Bank, the European Commission or its staff. If you wish to receive additional information or to subscribe/unsubscribe, please contact us at ppmi@worldbank.org or fax no +32 2 552 00 25. The newsletter is also available by accessing the PPMI website at: http://www.ppmi.org 8/8