Egypt's PPP law one step closer to seeing the light

Annelle Sheline
6 Min Read

CAIRO: A law regulating public-private partnerships (PPPs) has received initial approval from the People’s Assembly (PA), ushering the legislation toward further consideration and bringing it one step closer to ratification.

The legislation would permit the private sector to construct and operate infrastructure projects. While the government would provide periodic funding, private sector companies would bear the bulk of infrastructure’s heavy cost burden.

The PPP program has already awarded contracts to two projects under the Tenders and Auctions Law, but the projected law would increase the efficiency with which projects are implemented. Forty potential PPP projects currently wait in the pipeline for approval, as well as LE 82 billion in government funds to facilitate their construction.

With help from the International Finance Corporation, (IFC), Egypt’s first PPP, a wastewater treatment plant in New Cairo, recently reached completion.

Yomna El-Hamaky, Shoura Council member and head of the economics department at Ain Shams University, stated, “This is good legislation for Egypt especially because we are [currently] suffering a budget deficit, yet we urgently need certain public services like sanitation and water facilities. We have progressed significantly in water facilities over the last years, but still we desperately need sanitation services. PPP’s are an important measure to save the government budget for other important investments.

She admitted that the legislation has faced some opposition: “One of the fears mentioned by some opponents of this law is that the price of services might change because private companies would offer the service. We asked the government about this, they answered that service prices will be specified and monitored by the government.

El-Hammaky explained that she had raised a concern over the extent of the control granted to large corporations over the infrastructure and economy of Egypt. To counterbalance undue corporatization of public services, she suggested requiring or incentivizing large companies to offer sub-contracts to small and medium enterprises, both allowing smaller local companies to benefit from investment monies as well as decentralizing control.

“Unfortunately, this was rejected due to the fear that regulating large companies would discourage them to agree to participate in PPP’s and invest in Egypt, she explained.

El-Hammaky also expressed concern that private companies would not be held accountable for the quality of the construction or services provided, although clarified that the government promises to oversee the construction and operation process in order to protect citizens from the potential of abuse or neglect by private companies.

However, Brotherhood MP Hamdy Hassan expressed doubts at the government’s ability or commitment to protect the best interests of Egyptians: “We don’t trust the government; it has stolen from the Egyptian people before through its privatization programs.

Hassan expressed his belief that PPP’s could represent a positive development in theory, but argued that those responsible for implementing the contracts had proven that their interests do not lie with improving the lives of citizens.

A buzzword throughout the past year in both Egypt and other countries anxious for infrastructural development, PPP’s have yet to demonstrate their long-term efficacy as a means of enhancing national infrastructure and improving quality of life. Yet for many governments – especially as capital remains scarce following the global financial crisis – few options remain.

On his recent visit to Cairo, CEO of the International Finance Corporation (IFC) Lars Thunell voiced unequivocal support for cooperation between the public and private sectors, particularly in African countries where governments’ inability to address the dearth of functional infrastructure becomes ever more apparent as investors attempt to enter African markets.

“Infrastructure is a critical sector for development and poverty reduction and requires vast sums of investment in developing countries, Thunell said.

The IFC partnered with the Infrastructure Consortium for Africa, the Islamic Development Bank, and DevCo, a multi-donor program affiliated with the Private Infrastructure Development Group to host a seminar on PPP’s in Cairo last week, bringing together various African officials to discuss the possibility of public-private partnerships in the transport sector with an emphasis on the development of ports.

Alex Rugamba, coordinator of the Infrastructure Consortium for Africa (ICA) stated, Africa’s economic performance is intricately linked with the development of the continent’s infrastructure. As identified in the Africa Infrastructure Country Diagnostic study, Africa’s ports system needs to be enhanced in order to accommodate growing trade volumes and provide better regional transport linkages. The objective will be to reduce the current high costs and delays in the port system. The ICA will continue focusing on facilitating infrastructure financing in Africa, including private sector investment.

According to the IFC, the Middle East and North Africa region has the lowest amount of private infrastructure investment in the world.

In sub-Saharan Africa, a recent World Bank study estimated that the region needs $93 billion annually in infrastructure investment to meet demand.

International law firm Allen and Overy recently released a Global Guide to PPP’s, in an effort to “highlight key issues for the growing number of governments using PPP projects as a delivery method, according to a statement released by the firm.

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