Shar­ing the risks

In­fra­struc­ture could get a much needed boost from PPP

Executive Magazine - - Front Page -

A new law passed this sum­mer could help fa­cil­i­tate sorely needed in­vest­ment to fix the coun­try’s in­fras­truc

ture. The leg­is­la­tion, a frame­work for pub­lic-pri­vate part­ner­ships (PPP), puts into law new op­tions for shar­ing risks be­tween com­pa­nies and the gov­ern­ment when in­vest­ing in, build­ing, and op­er­at­ing new pub­lic works.

Ziad Hayek, sec­re­tary gen­eral of the Higher Coun­cil of Privatization (HCP), tells Ex­ec­u­tive that Le­banon needs at least $6 bil­lion to re­vi­tal­ize its in­fra­struc­ture. The coun­try’s roads are jammed with traf­fic, it has no longterm garbage so­lu­tion, and its elec­tric­ity sup­ply is un­re­li­able. Amongst other pro­posed in­fra­struc­ture projects, the gov­ern­ment has re­cently an­nounced in­ten­tions to ex­pand ca­pac­ity at Beirut’s air­port and to re-open Tripoli’s Rene Mouawad Air Base to pas­sen­ger traf­fic.

Le­banon has had dif­fi­culty struc­tur­ing PPP projects, and the new le­gal frame­work should help clean up that process. Le­banon has al­ready had a few PPPs: Jeita Grotto, the waste treat­ment plant in Saida, and LibanPost. But judg­ing their suc­cess through the lens of the new PPP frame­work, Hayek says, those ex­am­ples—at least in the case of LibanPost—have de­vi­ated from the terms and con­di­tions of their con­tracts, and are not great ex­am­ples. “We want to make sure that when we talk about PPP, we re­ally have fully suc­cess­ful projects that live up to the let­ter of [the] con­tract, that pro­vide pe­ri­odic re­ports on op­er­a­tion and how they are meet­ing key per­for­mance in­di­ca­tors, that are held re­spon­si­ble for [meet­ing those] in­di­ca­tors, where any pay­ment from the gov­ern­ment is de­pen­dent on their meet­ing those in­di­ca­tors.”

WEAK FI­NANCES

Prime Min­is­ter Saad Hariri stressed Le­banon’s des­per­ate need for new in­fra­struc­ture at an April aid con­fer­ence in Brus­sels. There, he asked donors to fund a $12 bil­lion “large-scale cap­i­tal in­vest­ment pro­gram (CIP)” to help Le­banon re­build its econ­omy and con­tinue sup­port­ing the more than 1 mil­lion UNHCR-reg­is­tered Syr­ian refugees liv­ing in the coun­try. Since then, the gov­ern­ment has not ar­tic­u­lated any in­fra­struc­ture in­vest­ment plan, but has in­di­cated that it wants around 25 per­cent of fi­nanc­ing for the CIP to come from PPP ap­proaches, says Pe­ter Mous­ley, a PPP spe­cial­ist at the World Bank’s Beirut of­fice (see Q&A page 30). “We’re an­tic­i­pat­ing the gov­ern­ment will move for­ward with this CIP, [and] that they will be want­ing to reach out more to po­ten­tial pri­vate in­vestors,” he tells Ex­ec­u­tive.

While the gov­ern­ment has known for years that it needs to fix its in­fra­struc­ture, it has not been able to set much money aside for cap­i­tal ex­pen­di­tures. Ac­cord­ing to the most re­cent num­bers from the Min­istry of Fi­nance, only 4.4 per­cent (or less than $600 mil­lion) of the more than $13.5 bil­lion in to­tal pub­lic spend­ing for 2015 went to cap­i­tal ex­pen­di­tures, a per­cent­age that has not var­ied much since at least 2011. Last year, Le­banon spent al­most $5 bil­lion more than the rev­enue it brought in; about a third of that went to in­ter­est pay­ments on debt, pub­lic worker salaries, ben­e­fits, and pen­sions, and to cover losses by the na­tion’s elec­tric­ity utility, Elec­tric­ité du Liban. The coun­try cov­ers its deficit by is­su­ing debt, which to­tals nearly $77 bil­lion as of July. In Au­gust, Moody’s, a credit rat­ing agency, down­graded Le­banon’s bor­row­ing grade to a B3 rat­ing, in­di­cat­ing that it con­sid­ers Le­banon’s fi­nances to be weak. In a press re­lease, the com­pany stated, “The prin­ci­pal driver of the down­grade is the rise in the coun­try’s debt bur­den. Moody’s es­ti­mates Le­banon’s 2018 gov­ern­ment debt to reach close to 140 per­cent of GDP [...] gov­ern­ment debt will re­main close to 700 per­cent of gov­ern­ment rev­enues next year.”

Would Le­banon’s credit rat­ing be an ob­sta­cle to fi­nanc­ing a PPP project?

Zouk power-plant

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