93705 December 2014, Number 138 MENA SHARES GLOBAL KNOWLEDGE ON PROCUREMENT UNDER PUBLIC PRIVATE PARTNERSHIPS Rachel Lipson, Nazaneen Ismail Ali, Ala Al-Kazzaz 1 term engagement between the KRG and the World Bank, as part of the Iraq Technical Assistance and Introduction: This MENA K&L Quick Note Capacity Building Fund (TACBF). The program highlights the key lessons learned from the aims to build capacity and develop practices to bring workshop entitled: “Procurement Under Public private about more efficient and effective management and Partnerships (PPP): A Learning Event for the Water and use of Iraq’s public resources. Over the course of this Energy Sectors,” held in Beirut, Lebanon on October dialogue, PPPs emerged as an area of particular 13-15, 2014. The event was organized by the interest and importance for the KRG. The Governance Global Practice Team at the World Bank government viewed PPPs as a critical opportunity to Office in Beirut in coordination with the Public- close both funding and capacity gaps by Private Partnership Cross Cutting Solutions Area collaborating with the private sector to deliver (GPCDR-PPP-CCSA). The event provided a needed public services and infrastructure. platform to expose clients to best practices on PPP procurement, particularly in projects, sectors, and countries with upcoming PPP operations, as well as in countries that are exploring the possibility of utilizing PPP arrangements and are interested to learn more about the approach and the legal framework to support it. Responding to client needs: The workshop had its roots in the efforts of the Kurdistan Regional Government (KRG) of Iraq to modernize its legal framework for procurement. This has been a long- 1 The authors are staff of the Governance Global Practice, Public Integrity and Openness Department, headed by GGODR Director Robert Hunja. This note was prepared under the leadership of Yolanda Tayler, Practice Manager, who provided guidance and valuable inputs. This event was the result of the hard work of a dedicated and experienced World Bank team. In addition to staff mentioned in the text, Jocelyne Jabbour and Nada Abou- Rizk from the World Bank’s Beirut office provided excellent support to preparing the program and worked hard to make this a successful event. A special thanks goes out to Ghassan Al-Khoja from the Social Protection Global A Successful PPP - The Concentrated Solar Power Practice and the Iraq Technical Assistance Capacity Project in Ouarzazate Morocco (World Bank Photo). Building Fund (TACBF) team for their support and leadership of the Trust Fund program. However, the KRG’s current legal framework does not provide an adequate foundation to establish these kinds of long-term partnerships and contracts. Each collaborating group brought diverse and Understanding the complexity of the subject and valuable perspectives to the discussion. The GGP- task, the KRG Ministry of Planning made a formal PIO staff shared their expert technical knowledge on request to the World Bank for support on this good procurement practices, as well as lessons from important topic. The KRG government was their real-life experience with implementing interested in learning from international examples of challenging legal frameworks and complex legal provisions for PPP procurement. They also procurements. The IFC brought a keen requested support on capacity building for public understanding of the market, what attracts officials in various KRG ministries who would be investors, and extensive client-facing experience. responsible both for writing the KRG’s new Sameh Mobarek, Senior Counsel in the Energy & procurement law and regulations and for Extractives Global Practice added a unique view that implementing future PPP projects - particularly in integrated his PPP experience (including in the the water and energy sectors. Morocco Noor solar project) and combined legal and power engineering training. The PPP CCSA In responding to this request, the World Bank Team contributed a broad international knowledge of PPP surmised that the KRG was likely not the only client and sector legislation and regulation. The CCSA also facing challenges in designing or updating their shared valuable resources with participants, procurement system to facilitate PPPs. Recognizing including their PPP Infrastructure Resource Center that other clients and staff could benefit from this (IRC) data base which features sample public- event, the team decided to extend the invitation to a private partnership (PPP) agreements and global audience. Within just a few weeks, the concessions, checklists, sample clauses, terms of workshop organizers mobilized a diverse team from references, risk matrices, standard bidding across the Bank and the world to convene in Beirut. documents developed by government agencies and The workshop featured participants and presenters sample PPP legislation. Finally, the staff of the from India, Indonesia Lebanon, Pakistan, Sri Lanka, MENA region hosted the event, and provided the United Arab Emirates, staff from Washington important regional knowledge and information to D.C., and included government officials currently make the learning more concrete for the working on PPP tenders and legislation from participants. Yemen, Lebanon, and Iraq, including from both Baghdad and Erbil. The Importance of PPP for the MENA Region: This workshop came at an important time for MENA A “One World Bank Group” Event: Given the countries. Meeting the exponentially growing crucial role that governance arrangements play in demands for infrastructure will continue to strain the successful execution of PPPs, the team brought the pocketbooks of MENA governments in the in expertise to facilitate collaboration across different coming years.2 In the Mashreq countries,3 the parts of the World Bank Group. Nazaneen Ismail required infrastructure investment for electricity Ali, Senior Procurement Specialist in the Public alone is estimated at US$ 130 billion by 20204. Quite Integrity and Openness (PIO) Department of the simply, the public budget will not be able to meet Governance Global Practice (GGP) led the these needs by itself. Therefore, PPP is becoming an preparation and delivery of the workshop from important project financing option for governments Beirut, in close coordination with Mark Moseley, Lead Counsel of the Public-Private Partnership 2 http://www.worldbank.org/en/news/press- CCSA. The International Finance Corporation (IFC) release/2014/10/09/world-bank-group-launches-new- global-infrastructure-facility also played a major role through their PPP Advisory 3 The Mashreq countries include Iraq, Jordan, Lebanon, and Services Division, represented in Beirut by Carrie Syria. 4 Over the Horizon: A New Levant. Farley, Senior Investment Officer. http://beta.cmimarseille.org/highlights/report-over- horizon-new-levant December 2014 · Number 137· 2 in MENA to respond to the large financing needs to an IFC Survey of PPP investors in Africa found that improve infrastructure and service delivery in the “appropriate legal framework for investment” was water, energy, transport, solid waste management the primary factor affecting the decision to pursue and others. In some cases, the public sector investment opportunities in a particular country, budgetary constraints can mean that the only ranking above even the political and economic alternative to a PPP project is no project at all. stability of the country.7 However, the infrastructure financing gap is not the Tailoring the Workshop to Realities on the only reason why governments in MENA have Ground: The Arab Spring provided the possibility started to think more seriously about PPPs. PPPs are of revamping the traditional ties between the state often more effective than traditional projects in and businesses and establish a level playing field8. delivering on-time and on-budget project So far, however, the current political and economic implementation. A European Investment Bank environment has not been conducive to attracting study found that only three of ten PPP projects private investors to MENA. The uncertainty and financed by the Bank experienced time delay and insecurity in the region makes it more difficult to cost overruns (which were borne by private establish adequate risk management frameworks contractor). In comparison, 60% of the 50 public and secure the long-term commitments necessary to infrastructure projects under conventional engage in PPPs. This is particularly true in a country procurement were more than one year late.5 like Iraq, which made it especially crucial that the Similarly, a study of 50 large public procurements in workshop in Beirut was tailored and responsive to the UK found that capital expenditure for the PPPs these unique circumstances. in the sample was only 1% over budget, on average, compared to an average cost overrun of 47% for Since the event focused on procurement traditional procurement.6 Given this context, it’s not arrangements under Public-Private Partnerships surprising that MENA countries like Jordan, (PPP), the sessions aimed to help participants better Morocco, Oman, and Saudi Arabia have embarked understand PPP as a public procurement method on, and in many cases, successfully implemented and explain how to create a competitive and fair PPP projects. Today we see other countries like process. As requested by the KRG Government, the Egypt, Iran, Iraq and Lebanon actively pursuing workshop included comparative examples of private sector investment in infrastructure. different legislative, institutional and regulatory arrangements for procurement, as well as Unfortunately, though, many governments in commentary on the differences between PPP MENA have faced obstacles to successfully procurement and conventional public infrastructure procuring PPPs, including a lack of technical know- projects. Thanks to Sepehr Fotovat (Senior how to implement these complex, long-term Procurement Specialist - GGODR), participants also arrangements, and outdated legal and regulatory learned about the different private sector frameworks. Systemic governance challenges are arrangements for infrastructure projects such as also prevalent, and lack of transparency can open Build, Own and Operate (BOO), Build, Own and doors to corruption as well as major delays and Transfer (BOT); and Build, Own, Operate and inefficiencies. When the private sector perceives Transfer (BOOT). Other sessions focused on a that the system is not open and fair, they are less likely to participate in the bidding process. In 2010 7http://www.pidg.org/resource-library/other- documents/evaluation-of-the-demonstration-effect-of- ifc2019s-involvement-in-infrastructure-in- 5http://www.eib.org/attachments/ev/ev_ppp_en.pdf africa/at_download/file 6 http://www.parliament.vic.gov.au/images/stories/com 8See: mittees/paec/2010- http://wwwwds.worldbank.org/external/default/WDSC 11_Budget_Estimates/Extra_bits/Mott_McDonald_Flyvber ontentServer/IW3P/IB/2014/03/25/000158349_201403250 g_Blake_Dawson_Waldron_studies.pdf 92905/Rendered/PDF/WPS6810.pdf December 2014 · Number 137· 3 general approach to preparing and tendering PPP transactions, as well as on prioritizing different infrastructure projects and how to determine which ones might be suitable for PPP. To illustrate these practices, a number of different case studies were presented from the World Bank’s portfolio in the MENA region and beyond, as well as external examples. These included both PPP “Success Stories,” plus instances in which PPP arrangements had failed to bring about the desired results. The two principal cases featured were Morocco’s -Noor-Ouarzazate Concentrated Solar Power Plant and the New Cairo Waste Water Plant. Anand Kumar Srivastava, PPP Nodal Point on the Procurement Team in Delhi, India, also shared India’s mixed experience with PPPs in water and energy over the past decade and a half, including both operations financed by the Bank as well as projects funded through other means. The Road Ahead: This workshop was only the beginning of a long work plan ahead for the KRG. Implementation of PPP procurement will have to be systematic and gradual, starting with the current commitment to promulgate a proper legal framework. To ensure success, public officials will need to recognize the potential need for private participation, familiarize themselves with other countries’ experience and establish a national capacity building program on how to plan and implement PPP agreements. All of this would have to take place with a keen focus on transparency and accountability. This is crucial to ensure that the expansion of the role of the private sector in delivering needed infrastructure and public services is successful and sustainable. December 2014 · Number 137· 4