PPP in Egypt, Algeria & Jordan Barry Francis & Rebecca Engwall Wednesday 17 November 2010, Madrid
Focus Country overview PPP history /dormant sectors process appetite for investment studies
Egypt World Bank Classification lower middle income country GDP 177 billion GDP per capita of 2,258 Population 1990-57.7m 2010-78.2m 43% urbanised Economic Growth consistent high inflation & nominal interest rates high unemployment Legal System relatively sophisticated slow moving foundations in civil law tradition Public Infrastructure urgent need to upgrade
Algeria World Bank Classification upper middle income country GDP 125 billion GDP per capita of 3,520 Population 1990 25.3m 2010 35.5m 65% urbanised Economic Growth slow in recent years recovery expected large oil & gas reserves Legal System civil law much unpublished Public Infrastructure 5-year $286bn infrastructure investment programme recently announced
Jordan World Bank Classification lower middle income country GDP 20.6 billion GDP per capita of 3,448 Population 1990 3.2m 2010 6.5m 73% urbanised Economic Growth consistent diversified economy Legal System relatively sophisticated but slow moving court system based on civil law tradition Public Infrastructure pressing need to update
PPP in Egypt Old PPP Model: BOTs & concessions 2006: Establishment of PPP Central Unit (PPPCU) 2010: New PPP law & successful close of New Cairo Wastewater Project
PPP in Algeria < 2009: Successful procurement of water, transport and power projects 2009: New Investment Legislation Investment Plans
PPP in Jordan Jun 2008: PPP programme launched Sep 2008: PPP Committee established Draft PPP law
in Egypt PPPCU has identified the following as priority sectors: Schools Water Hospitals Roads Wastewater Recent postponement of schools PPP: Complexity 345 school buildings PPPCU lack of experience/capacity Likely to be retendered in 2010 on basis of fewer schools
in Algeria As identified by the $286bn 5 yr investment plan: Education & Health Water Transport Power Ambitious? Number of sectors Large amount of investment
in Jordan Power Water & Waste Transport & Ports EPC s objective the PPP programme will encompass all service sectors, utilities and basic services. New services will be offered to the public and existing services shall be improved and expanded, utilising private sector knowhow and capacities at reasonable tariffs & prices A number of PPP projects were withdrawn from tender after selection of preferred or shortlisted bidders: inappropriate or over-ambitious project scope lack of preparation & project viability assessment failure to agree terms.
- Egypt Old PPP models not abolished by new PPP law - uncertainty tried and tested most PPPs procured under sector-specific laws not designed to meet requirements of major infrastructure projects PPP law No preferential treatment for Egyptian bidders Competitive dialogue Internationally recognised approach to risk Detailed provisions to be set out in secondary legislation (Oct 2010)
- Algeria No specific PPP tender process In the past, tender documentation has been of inadequate quality Preferential treatment for Algerian bidders Procuring authority has obligation to ensure transparency, fair competition and lack of bias
- Jordan Privatization Law currently permits BOT, BTO, BOO & BOOT procurement broadly similar to other PPP markets separation of technical & financial proposals will be replaced by new PPP law Draft PPP Law no timescale for enactment all sectors except defence, police, award of justice and core areas of healthcare & education competitive dialogue, required contract terms & guidance on DRP
appetite for investment Egypt (1) Domestic institutional sources of infrastructure equity very limited Relatively fragmented Domestic Banking Sector Capacity to invest in small to medium sized PPPs No long-term fixed rate bank funding available in EGP Relatively short loan maturities (15 years) Lending by International Financial Institutions (ie EIB) would boost available funding
appetite for investment Egypt (2) Security packages Pledges over: shares mortgages Assignment of insurance proceeds Undertaking from Ministry of Finance Bilateral Investment Treaty Egypt:Spain Egypt:UK Arbitration a viable option? Most project loans to date have been in USD in the petrochemicals, ports and other export-earning sectors Government s policy to fund investment spending in EGP to avoid exchange rate risk
appetite for investment - Algeria (1) Resident national shareholding requirement Prohibits foreign investment in nonexport earning activities such as PPP Investment Legislation Notification to & prior review by Algerian investment authorities of the proposed investment Finance must be obtained through the local market Exceptions can be made but no guidance on when exceptions would be permitted
appetite for investment Algeria (2) Security packages Limited range of security available to international lenders The State rarely guarantees its obligations Bilateral Investment Treaties (Spain:Algeria) Algerian authorities unwilling to take political risk Arbitration State-owned banks have provided all PPP debt to date Local banks rarely have necessary experience to assess risks Authority can terminate the contract if ProjectCo sub-contracts all of the works
appetite for investment - Jordan (1) Restricted/ prohibited in certain sectors (ie transport) Minimum foreign contribution JOD 50,000 (approx 50,100) Foreign Ownership Council of Ministers has authority to waive the restriction for important development projects Right for foreign investors to freely repatriate capital, profits & dividends Non-investment grade long-term credit rating limited foreign appetite for lending without Export Credit Agency guarantees
appetite for investment Jordan (2) Potential for robust security package Direct agreements Pledge/mortgage of moveable/immoveable assets Shares pledge Assignment of contracts/ guarantees/ insurance policies/ receivables (NB no floating charges) Bilateral Investment Treaty Jordan:Spain Jordan:UK Arbitration Not usual for the government to provide state-backed guarantee on payment Domestic banks are small and currently have insufficient PPP experience, but expertise can be expected to grow Volatile price inflation
New Cairo Wastewater Project Facts FC: Feb 2010 EGP2.65bn (US$480m) 20yr concession Contracting Authority Ministry of Housing, Utilities & Urban Development / Ministry of Finance Sponsors Orascom Construction Industries Aqualia Debt EGP600m (US$110m) 15 year tenor (CBE lending rate + 300bp) Lenders National Société Générale Bank Commercial International Bank Arab African International Bank Ahli United Bank Egypt First project concluded under the guidance of the PPPCU
Algeria s Desalination Plants Facts 10 plants in operation 43 plants to be built within next 10 years ($14bn investment) Contracting Authority Algérienne des Eaux Public Sector Investor Algerian Energy Company (JV between Sonatrach & SONELGAZ) Project Co AEC has taken shareholdings 49% in the SPVs, with balance held by foreign sponsors (NB Investment Law) Finance Initial Plants: IFI debt + sponsor equity Recent plants: state-owned bank debt (80%) Aim By end of 2011, 10% of the country s potable water needs will come from desalination plants
Jordan Queen Alia International Airport Expansion Facts FC: November 2007 $675m 25yr concession Contracting Authority Jordanian Government through EPC Sponsors Airport International Group Shareholders from France, Kuwait, Greece, Jordan & Abu Dhabi Debt $380m 16 to 18 yrs tenor Lenders Islamic Development Bank IFC/commercial banks Unusual in that a design was commissioned by the government before bidders were invited to submit proposals
Conclusions Egypt Algeria Jordan Investment need PPP law & PPPCU Successful projects Investment need Investment need Keen to attract foreign investment Continuity Old models not abolished Currency Foreign investment Legal system PPP law not yet enacted Lack of experience
Anything else?
Contacts Barry Francis Partner Barry.francis@pinsentmasons.com 00442074187340 Rebecca Engwall Solicitor rebecca.engwall@pinsentmasons.com 00442074906162
Working hard to make it easier LONDON DUBAI BEIJING SHANGHAI HONG KONG SINGAPORE OTHER UK LOCATIONS: BIRMINGHAM BRISTOL EDINBURGH GLASGOW LEEDS MANCHESTER Pinsent Masons LLP is a limited liability partnership registered in England & Wales (registered number: OC333653) and regulated by the Solicitors Regulation Authority. The word 'partner', used in relation to the LLP, refers to a member of the LLP or an employee or consultant of the LLP or any affiliated firm who is a lawyer with equivalent standing and qualifications. A list of members of the LLP, and of those non-members who are designated as partners, is displayed at the LLP's registered office: CityPoint, One Ropemaker Street, London, EC2Y 9AH, United Kingdom. We use Pinsent Masons to refer to Pinsent Masons LLP and affiliated entities that practise under the name Pinsent Masons or a name that incorporates those words. Reference to Pinsent Masons is to Pinsent Masons LLP and/or one or more of those affiliated entities as the context requires. For important regulatory information please visit: www.pinsentmasons.com. Pinsent Masons LLP 2010 www.pinsentmasons.com