WJORLD BANK MIDDLE EAST AND ^& ~A'W NORTH AFRICA ECONOMIC STUV%-Js Work In progress I L D for public discussion M ach |j Cl Getting Connected Private Participationi iln Infr-astrtuc,re in the Middle East and Nor-th Africa .~~ ~~~~~~~~~~ - ='i/ahn R. S_'th jVemat Shqfik j(lnes A. Re.h el . WORLD BANK MIDDLE EAST AND NORTH AFRICA ECONOMIC STUDIES Getting Connected Private Participation in Infrastructure in the Middle East and North Africa Graham R. Smith Nemat Shafik Pierre Guislain James A. Reichert The World Bank Washington, D.C. Copyright (© 1997 The International Bank for Reconstruction and Development/THE WORLD BANK 1818 H Street, N.W. Washington, D.C. 20433, U.S.A. All rights reserved Manufactured in the United States of America First printing March 1997 The findings, interpretations, and conclusions expressed in this paper are entirely those of the author(s) and should not be attributed in any manner to the World Bank, to its affiliated organizations, or to members of its Board of Executive Directors or the countries they represent. The World Bank does not guarantee the accuracy of the data included in this publication and accepts no responsibility whatsoever for any consequence of their use. The boundaries, colors, denominations, and other information shown on any map in this volume do not imply on the part of the World Bank Group any judgment on the legal status of any territory or the endorsement or acceptance of such boundaries. The material in this publication is copyrighted. Requests for permission to reproduce portions of it should be sent to the Office of the Publisher at the address shown in the copyright notice above. The World Bank encourages dissemination of its work and will normally give permission promptly and, when the reproduction is for noncommercial purposes, without asking a fee. Permission to copy portions for classroom use is granted through the Copyright Clearance Center, Inc., Suite 910, 222 Rosewood Drive, Danvers, Massachusetts 01923, U.S.A. ISSN: 0259-210X Graham R. Smith is a principal transport specialist and Nemat Shafik is a manager in the World Bank's Middle East and North Africa Regional Office. Pierre Guislain is principal private sector development specialist in the Bank's Private Sector Development Department. James A. Reichert is a consultant to the Bank. Library of Congress Cataloging-in-Publication Data Getting connected: private participation in infrastructure in the Middle East and North Africa / Graham R. Smith ... [et al .] p. cm. - (World Bank Middle East and North Africa economic studies) Includes bibliographical references (p. ). ISBN 0-8213-3903-6 1. Infrastructure (Economics) - Middle East. 2. Infrastructure (Economics) - North Africa. 3. Privatization - Middle East. 4. Privatization - North Africa. I. Smith, Graham R., 1945- II. Series. HC415.15.Z9C34 1997 363'.0956-dc21 97-7406 CIP Contents Foreword v Abstract vi Acknowledgments vii Executive summary I Better infrastructure to support development 5 Future capital requirements for infrastructure will be large 9 Private participation is key for improving infrastructure performance I 0 What is the best approach? 12 Going from player to referee 17 Annex 1. The World Bank Group's role 18 Annex 2. Summary of conference proceedings 21 Annex 3. Conference program 26 Bibliography 29 . . Foreword Well-functioning infrastructure services are the sinews of economic devel- opment. Efficient power supplies, well-designed transport systems, and eas- ily accessible telecommunications networks support private sector-led eco- nomic growth and strengthen the international links on which such growth increasingly depends. Moreover, these services-along with others such as water supply, sewerage, and solid waste disposal-improve people's lives and broaden their opportunities. The Middle East and North Africa region has made substantial invest- ments in infrastructure. But fast-growing populations and increasing demand from nontraditional sources (especially private businesses) are stretching services to and beyond their capacity. Meanwhile, budget constraints are limiting governments' ability to shoulder the burden of expansion and upgrading. In October 1996 the World Bank and the European Commission spon- sored an international conference of regional leaders and international busi- ness representatives in Istanbul, Turkey, to discuss the region's infrastruc- ture needs and identify the best ways to meet them-with an emphasis on harnessing the innovations, management methods, and investment capac- ity of the private sector. This report, originally prepared as background for the conference, is now being formally published so that its findings can reach a wider audience of policymakers and business leaders in the region and beyond. It is hoped that the findings presented here will catalyze in the Middle East and North Africa the private participation in infrastructure needed to transform service provision and support the accelerated growth the region is striving for. Kemal Dervi§ Vice President, Middle East and North Africa Region The World Bank v Abstract This report, originally prepared for the Conference on Private-Public Partnerships in Infrastructure in the Middle East and North Africa (held in Istanbul, Turkey, in October 1996), analyzes the infrastructure needed for the region's economies to compete in global markets. Drawing on interna- tional best practice, it proposes new approaches to infrastructure provision based on unbundling monopolies, opening up services to private partici- pation, and promoting competition for and in infrastructure markets. Recommendations are made about the new roles to be played and actions to be taken by the region's governments-with support from the World Bank Group-to reduce investors' perceptions of risk and ensure fair and transparent arrangements for awarding contracts and providing services. The report concludes with a summary of the proceedings of the Istanbul conference. vi Acknowledgments This report was prepared by Graham Smith, Pierre Guislain, and James Reichert under the supervision of Nemat Shafik and with advice and com- ments from Amir Al-Khafaji, James Bond, Bruce Fitzgerald, AssaadJabre, Omer Karasapan, Alastair McKechnie, Richard Stern, Bjorn Wellenius, and other World Bank Group staff. The report was edited by Paul Holtz and laid out by Mark Bock of American Writing Corporation. A draft version of the report was prepared for a conference on Private-Public Partnerships in Infrastructure in the Middle East and North Africa, held on October 15-17, 1996 in Istanbul, Turkey. Comments from numerous conference participants were very helpful in revising the report. A summary of the pro- ceedings of the conference appears in annex 2. Both this report and the Istanbul conference were carried out under the general direction of Kemal Dervi§, Vice President of the Middle East and North Africa Regional Office at the World Bank. vii I Executive summary Private participation in infrastructure-including power, telecommunications, transportation, and water and sanitation-brings the promise of better, faster, and cheaper ways of providing the services that link economies and improve lives. This vast potential has revolutionized thinking about the role of government in providing a range of services, fundamentally changing the way these services are pro- vided in many industrial countries and in much of East Asia and Latin America. Most countries in the Middle East and North Africa are in the early stages of preparing or implementing their first transac- tions involving private participation in infrastructure. These transactions present demanding choices and challenges for the region's governments. This paper shows why a strong effort to encourage pri- vate participation is needed and identifies key policy issues governments will have to address. Efficiency is the main reason private participation has become an imperative. Experience in other countries has shown that introducing competition and encouraging private providers can serve con- sumers' demands and save governments money in ways that monopoly public providers are simply inca- pable of. Moreover, the measures needed to make private participation feasible-stabilizing the econ- omy, breaking up monopolies, and introducing sound tariff policies to eliminate underpricing and rationalize subsidies-all have the potential to strengthen incentives for better public performance as well. Better infrastructure for plugging into the world economy Countries need efficient infrastructure to plug themselves into today's integrated global economy. They need the right connectors to other economies-well-functioning roads, ports, airports, power grids, telecommunications networks, and oil and gas pipelines. Most Middle Eastern and North African countries need more of these connectors, and those that they have often need to be of bet- ter quality or more consistent with international norms. Improving the region's connections with the rest of the world will require a major effort in policy reform and financing. Policies that determine the cost and quality of infrastructure services are in the hands of the region's governments. Increasing efficiency and financing the needed improvements will require a partnership between governments and the private sector. Opportunities to upgrade infrastructure are large Middle Eastern and North African countries, especially those with oil revenues, have invested consid- erable resources in infrastructure. But upgrading is still needed in most countries. About 45 million peo- ple in the region-most of them in rural areas-do not have access to safe drinking water. Only 20 percent of urban wastewater is treated, compared with 60-70 percent in the United States and Europe. In 1993 electricity production in the Maghreb was well below the average of countries with similar incomes. And while most lower-middle-income countries outside the region averaged 10 telephone main lines per 100 people in 1994, the Maghreb countries had barely half as many. The quality of service is as much of an issue as the quantity In many countries services are often of poor quality, a deficiency that hits the production costs and com- petitiveness of firms. Investors in the region rank poor infrastructure as the third biggest constraint to investment-after the cost and availability of finance and the level and administration of taxation. They have a point. Until very recently waiting periods for telephone line installation could be very long. In Jordan, Lebanon, and the West Bank and Gaza it could take a citizen the better part of a decade to get a connection, and Algerians had to wait up to eight years. Citizens of Egypt and Yemen had shorter waiting periods than the average for low-income countries-but it still took nearly six years. The recent introduction of cellular phones has begun to ease these shortages (especially for business) while gov- ernments launch efforts to expand and modernize conventional services. In most of the region less than half the paved roads are in good condition, and road safety is a major concern. Fast-growing populations and rapid urbanization will require massive infrastructure investments that are beyond the public sector's capacity to finance Although better management of existing facilities is obviously essential, introducing competition and boosting investment in new infrastructure should also be priorities. Potential infrastructure invest- ments in the region are estimated at $300-350 billion over the next ten years (1997-2006), including $60-1oo billion for the eight economies now borrowing from the World Bank. Given fiscal austerity in much of the region, governments are unlikely to be able to finance all this needed investment. International financial institutions like the World Bank can help, but their capital and exposure limits will prevent them from lending more than about $15 billion. That leaves a a potential market for pri- vate participation of about $50 billion over the next decade. With the right policies and incentives, this market could be larger still. But raising private participation from its current low levels to 15-20 percent of the total will require rapidly implementing the major changes in policy many governments are now initiating. Bringing in the private sector requires governments to play new roles Governments contemplating more private activity in infrastructure provision are grappling with three sets of issues: * How far can competition be introduced in the provision of infrastructure services? * Where competition is not feasible, what are the best ways to involve the private sector? a To what extent are government financial support or guarantees necessary to attract private partners? The answers vary by sector, and the terms of private participation differ across countries and individual projects. For example, governments must choose the appropriate type of private participation (conces- sions, build-operate-own/transfer schemes, full privatization, and so on), the degree of restructuring and nature of regulation required, and the mechanisms for ensuring competition and resolving disputes. To maintain popular support, these processes must be as transparent as possible, with the goal being clear and simple bidding procedures guiding participation in competitive and contestable markets. Moreover, decisions about government guarantees must reflect an overall investment and financing strategy. 2 GETTING CONNECTED Because of the complexity and magnitude of the investments, it is essential that governments get high- quality advice on designing arrangements for private participation in infrastructure. With the better connectors that private partikipation can bring, firms and households will be able to reap the benefits of an increasingly integrated world economy As Middle Eastern and North African countries devote more attention to promoting exports of goods and services, better infrastructure will provide the basis for firms to compete in international markets. As trade liberalization proceeds worldwide, efficient infrastructure services are becoming increasingly crucial to maintaining the competitiveness of agriculture, industry, tourism, and other sectors. With the instantaneous transmission of information that modern telecommunications can bring and with the rapid transit of goods across efficient roads and ports, exporters will stand a far better chance than they do today. Moreover, infrastructure can provide better and cheaper services and inputs to consumers and domestic producers. Recognizing these new realities, the region's governments have started reforming policies and encouraging the private sector to help increase the efficiency and quality of infrastructure services. Doing so will also promote better performance of both the public and private sectors throughout the region. PRIVATE PARTICIPATION IN INFRASTRUCTURE IN THE MIDDLE EAST AND NORTH AFRICA 3 l P rivate participation in infrastructure is growing resources (especially oil) diminishes and is replaced by rapidly around the world. Between 1984 and the production of goods and services oriented to world 1995 some ninety countries privatized nearly markets. With growing populations, rapid urbanization, 550 infrastructure companies and more than eighty and high unemployment, there is enormous pressure to countries had nearly 600 active new private infrastruc- create jobs and raise incomes. A strategy for achieving ture projects. During 1984-94 private investment flows future prosperity must rely on liberalizing markets, to infrastructure projects and entities averaged $60 bil- encouraging private investment, improving education, lion a year (World Bank 1996c). and providing opportunities to the poor (World Bank But barely 1 percent of this investment flowed to 1995a). Doing so will enable Middle Eastern and North the Middle East and North Africa (defined here as African countries to take advantage of regional trading Algeria, Bahrain, Egypt, Iran, Iraq, Israel, Jordan, opportunities and integrate more effectively with Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Europe and the rest of the global economy. Better infra- Saudi Arabia, Syria, Tunisia, United Arab Emirates, structure can provide the basis for achieving many of West Bank and Gaza, and Yemen). The region had these objectives. What are the key issues, and how can fewer than 10 infrastructure projects involving private the countries of the region attract private infrastructure investment-mainly gas pipelines and telecommuni- investment to foster economic development? cations projects-of the more than 600 such projects worldwide (figure 1). There is a growing appreciation, Better infrastructure to support development however, of the substantial benefits that private infra- structure can bring both directly, through the invest- Well-functioning infrastructure facilities and services ments made and management skills brought to bear, that meet a nation's commercial and social needs are crit- and indirectly, through the incentives it creates for ical to economic development. In today's global econo- better performance from public suppliers of infra- my the ability to create modern and competitive indus- structure services. As a result most Middle Eastern and tries and services depends on the extent and quality of North African countries are starting to experiment a country's infrastructure networks. Investors carefully with private participation in infrastructure in a variety consider the quantity and quality of a host country's of sectors, including telecommunications, power, infrastructure when deciding where to locate new activ- transport, and water and sanitation. ities (box 1). Good infrastructure is essential because: Better infrastructure will become even more central to * Manufacturers require sufficient levels of power for the region's development as its dependence on natural production activities * International trade is not possible without advanced Figure 1. The region has had few projects involving privatetlcm uiaon participation in infrastructure telecommunications Number of Projects * Distributors must be able to quickly and efficiently 300 transport their products to market * Tourism operators are directly affected by the relia- 250 : bility, quality, and cost of a broad range of infrastruc- 200 ture services. 150 - - Over the past two decades major advances in telecom- munications, transportation, and storage technologies 100 have helped rapidly expand worldwide trade. Vast so improvements in logistics management have cut the o _ _ costs of inventory andworking capital. Nearly two-thirds LotteAmerica EostAsbe Sahnrown Eastern Europe So MiddLoEos of production in OECD countries is done using "just in and the Caibbeon Africa ondfomr and on Ahka time"delivery. To compete with these developments, the Nore: Number of actualproects orranons Soviet Uni9on Middle East and North Africa must develop better trad- Source: World Bank, Private Infrastructure Database. ing facilities and advanced communications systems. 5 Coverage needs improvement Box 1. Breaking down barriers to private investment The public sector in the region has done a poor job of managing infrastructure. Only the Gulf countries and How do investors decide where to put their capital? Israel provide infrastructure services that are compara- Surveys of investors have identified a number of weak- ble in quality and coverage to those in countries with nesses in the business environment of Middle Eastern similar income levels. Elsewhere in the region-espe- and North African economies-weaknesses that must be remedied if the region is to be seen as an attractive cially in the Maghreb-coverage is lower than in many destination for investment. Among these, poor infra- comparable countries (figure 2). For example, in 1993 structure ranks as the third biggest constraint to invest- kilowatt hours of electricity produced per capita ment-after the cost and availability of finance and the amounted to 0.73 in Tunisia, 0.66 in Algeria, and 0.41 level and administration of taxation. in Morocco-well below the 2.44 average for com- parator countries. Constraint Rank North Africa was undersupplied with telephone Finance (cost and availability) I lines. Lower-middle-income countries outside the Finaxnce (cast and avadilability ) 1 region averaged nearly 10 telephone main lines per 100 Taxation (level and administration) 2 people in 1994; Tunisia had only 5 and Algeria and Poor infrastructure 3 Morocco only 4. Per capita investment in telecommu- Inadequate skills 3 nications in much of the region was well below the Complex regulations 4 norm (figure 3). At the same time, there were marked Legal system 4 differences between countries. In Yemen (where inter- national telecommunications services have been priva- tized since 1971) per capita investment was twice that of peer countries. Figure 2. Infrastrudure coverage in some countries has lcgged behind others with comparable incomes GWH hours produced per 100 inhabitants (electricity), 1993 Telephone main lines per 100 inhabitants, 1994 0.8 * High-income countries Bahrain 25 Bohroin 0 * Lower-middleincome countries t0ar *Kuwolt 8ghicnnmme 0. 6 A Low-income countries Israel 20 ……vera-e SaudiAmbio Highincome 15 0.4 overage - -bona Saudi ArbaLweriddle Morocco Tunisia Oman Lowemddle- 10 ………I - - - - - ----- income overoge inconto smeiang Joidenof 0.2 …-- - - - - Tiso mo iunisia Oman w * Iiwebono- Low4ncome 5 Eg9YA w Lowintome C eYee e-An0eris average 0 eme MOaTrO. Alft ownome 100 1,000 10,000 100,000 100 1,000 10,000 100,000 Log of GNPper capita Log of GNP per capita Kilometers of poved road per 1, 000 inhabitants, 1994 Access to safe drinking woter, 1994 (percent) 4 ScudiArbia 100 olgI-incones -Sau 0 United KGb Essootes income nveeo3e AlgeSin OAmoa - -rsmel 80 i -o-me ------- nos- ne-- ------ 2 Iordan Lebanon 70 mAlgeno .~~~~~~~~~~~~~~~~~- - - - - - - - - - - - -..- - - - - -....- - - - - - - -.-...- - - - - -.-,- Lowencrme overoge WTunisio S0 iover mge Mroaco AVemen Eso 2 740 1,00, 100 ~~~~1,000 10,000 100,000 100 1,000 1,0 0,0 lag of GNPaper cpita lag of GNPoper capit Source: World Bonk data; ITU 1995; IRF 1995; WRI 1996. 6 GETTING CONNECTED Figure 3. Per capita telecom investment has been low not. Moreover, distribution losses often cause water sup- U.S. dollars ply shortages. For example, even though a sizable por- 20 tion of Algeria andJordan's populations has access to safe drinking water, half the drinking water produced is lost 1 5 because of physical leakages and uncollected tariffs. In addition, access to sanitation is inadequate in many areas. 10 Efficiency and quality also must be improved 5 a Access is one thing, but efficiency matters too. Even when governments manage to provide services to most 0 co- of their citizens, the inefficient delivery of such ser- Algeria Morotto luninia Jordan Lebanon Lower- Egypt Yemen Low- middle- income vices-whether because of underpricing or poor man- income overage overage agement-can be a severe drain. For example, distrib- Soure: ITU 1995. ution losses in the region's power networks range from Roads are adequate, although considerable recon- 13-16 percent (figure 4). Lowering system losses by struction is needed. This situation is most acute in even a couple percentage points would mean fewer Lebanon, where car ownership is relatively high (250 power outages and ease pressures on the region's power vehicles per 1,000 inhabitants). Road safety is a major distribution networks. concern. Accident rates are high because road capaci- Until the recent introduction of cellular services, ty and design have failed to keep pace with growing waiting periods for telephone line installation could be traffic. very long. In Jordan, Lebanon, and the West Bank and Most urban populations are connected to a safe drink- Gaza it could take the better part of a decade to get a ing water supply; rural populations, however, often are connection. In 1994 Algerians had to wait up to eight Figure 4. The efficiency of services is also a big problem Flectricity system losses, 1990 (percent) Telephone faults per 100 main lines, 1994 22 Lowincome * Higthncome covnltes 150 20 -er-e… - Lower-middleincome counties Low-income iUOrfirTcoYfonfiesO - overage 1l8 1 00 16 [owePmidale *~~Jordon NTunisio incomeeroge Egypt ordn *Alge Lower-middle- 14 I EMorovco MorcctAo income overage 1Algeno 50 …Lehoo oo Eohrain 12 - - - - flighincome ~~~Tunisia YmnQtr*Kwi ihIcm 10 overage TYeen Oolor * overage Oman * Israel .Unfted Arab Emirates 8 0 100 1,000 10,000 100,000 100 1,000 10,000 100,000 Log of GNP per capita Log of GNP per fapita Paved road in good condition, most recent data avilable (percent) Unaccounted-for water, 1994 (percent) 100 100 90 90 70 *Tunio *Oman 70 60 60 Joidan soemen Morocc aJordan 50 aAlgeria 40 AEgOpt * mAlgeno 40 IL 30 30 Yemen kox*o 3Tun*io 20 *lebonon 20 10 10 0 A 100 1,000 10,000 100 1,000 10,000 100,000 Log of GNP per capita Log of GNPper capita Source: World Bank data; ITU 1995; IRF 1995; WRI 1996. PRIVATE PARTICIPATION IN INFRASTRUcTURE IN THE MIDDLE EAST AND NORTH AFRICA 7 years, and citizens of Egypt and Yemen nearly six years Figure 5. The waiting period for telephone service has tended (figure 5). (By contrast, in most industrial countries the to be long, 1994 waiting period for a telephone connection can be mea- Years sured in days and often in hours.) And even if citizens 10 got phones, they had trouble using them because tele- 8 phone faults were frequent. In Jordan just 45 percent of calls went through on the first attempt. In Lebanon the 6 call completion rate was just 30 percent. Realization of 4 the economic costs of poor telecommunications has led many governments to plan major improvements in 2 service. Jordan, for example, plans to double the num- ber of phone lines by the end of 1997 (box 2). Alge6o Morocco lunism Jordan Lebanon Lowder Egypt Yemen Lowm Although the region's paved road coverage com- income overage pares favorably with other countries, less than half the Souce: IIU 1995, Box 2. Telecommunications in Jordan: Accelerating growth and modernization Although Jordan's telecommunications network ranks vices. During the exclusivity period the company is around the average for emerging economies, there are required to build a network providing coverage to 95 per- more than 100,000 outstanding applications for tele- cent of the country's populated areas. Once the exclusiv- phone service, Basic access is limited, and the more ity period ends, additional licenses will be issued to other advanced services increasingly needed by businesses are cellular operators. The company already has about 25,000 only now being introduced. Moreover, there is consider- customers and is likely to exceed its initial target of 60,000 able potential for improving service quality and reducing customers in ten years. The project, estimated to cost $85 costs. Recognizing these challenges, Jordan's government million, is partly financed by a $15 million loan from the is gradually opening the country's telecommunications International Finance Corporation (IFC), $20 million market to the private sector and to competition. from Jordanian banks, and $3 million in IFC equity. The highly profitable state telecommunications Other new players in the Jordanian telecommunica- monopoly was reorganized in 1996 as a public limited tions market include a joint venture between U.S. Sprint company, Jordan Telecommunications Company (JTC), and local investors to provide Internet services, a second initially 100 percent state-owned. JTC is investing about radio paging operator, and a private contractor for tele- $220 million to double the number of telephone customers phone directories. The provision of customer equipment to 570,000, improve commercial management, and install and of private networks and their interconnection to pub- modern information systems. These investments are part- lic networks have been largely deregulated. The opening ly financed by a 1995 issue of $50 million in seven-year of basic services to competition, a key element of privati- bonds in domestic and Eurobond markets. Repayment of zation in other emerging economies, has not yet been the principal is guaranteed by the World Bank. With World decided. Bank assistance, the government intends to further To support these structural changes, in 1995 the gov- increase private participation in JTC by selling a 26 per- ernment enacted a new telecommunications law and cent stake to a strategic partner by the end of 1997. JTC's established an independent regulatory authority with the license is being revised and financial advisers are being power to issue and enforce licenses, regulate prices, estab- selected to prepare and carry out the transaction. lish interconnection and other rules, set service standards, At the same time a nationwide digital cellular network manage the radio spectrum and numbering system, and is being developed by JMTS, a joint venture between settle disputes. Developing this agency remains an urgent Motorola and private Jordanian investors. In 1994, under priority. A telecommunications policy department had competitive bidding, JMTS was awarded a fifteen-year already been established in the Ministry of Posts and license with a four-year exclusivity period to provide Telecommunications. Technical assistance from bilateral Global System for Mobile Communication cellular ser- donors is helping to build capacity in both agencies. 8 GETrING CONNECTED roads are in good condition. TIis situation reflects on infrastructure-assuming annual GDP growth of inadequate road maintenance programs throughout 3.0 percent among World Bank borrowers and 2.5 per- the region. Between 1990 and 1995, for example, cent among non-Bank borrowers-about $300 billion Yemen's highway agency allocated less than 5 percent will be invested over the next decade (the "base case" of its annual budget to preserving primary and sec- scenario). Although this would probably be enough to ondary roads, and little if any attention was given to replace old assets and expand coverage to keep pace unpaved roadways. Maintaining Yemen's road system with population growth, it would not be enough to would require ten times what is currently being spent close the coverage gaps. (World Bank 1996e). Middle Eastern and North African governments are Many World Bank-supported infrastructure pro- determined to do better. If, for example, the eight jects in the region have been rated unsuccessful or only economies (Algeria, Egypt, Jordan, Lebanon, partially successful upon completion. Physical compo- Morocco, Tunisia, West Bank and Gaza, and Yemen) nents have been implemented (though sometimes with currently borrowing from the World Bank manage to delays and cost overruns), but efforts to strengthen the double annual GDP growth to about 6 percent and to financial management of utilities and otherwise build increase investment in infrastructure to about 5 per- up the institutional capacity of national and local gov- ernments to manage infrastructure have had disap- pointing results. Water and power projects, for exam- Box 3. Problem projets in water and power pIe, have suffered problems with financial management A 1993 World Bank review of water and power projects that reflect endemic weaknesses in national polices on found that nine of twenty-one projects in the Middle the management of utilities (box 3). East and North Africa had serious problems-a worse record than the regional portfolio and worse for the two Future capital requirements for infrastructure will be large sectors than in any other region. The problem? Project utilities failed to meet agreed financial targets. All the utilities in question were essentially bankrupt (generat- Outside the countries of the Gulf Cooperation Council ing insufficient cash flow to cover debt service) and a (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, United burden on governments that had limited fiscal capacity Arab Emirates), much of the region has not spent to subsidize utilities indefinitely. Performance varied by enough on infrastructure over the past several decades. country, however. All five water and power loans to Moreover, a widespread tendency to underprice ser- Yemen had serious problems, and there was a high inci- vices deprives utilities of internally generated cash-a dence of problems throughout the Mashreq. The Maghreb generally performed better, and Tunisia had no key source of investment capital-and extensive gov- serious problems. ernment subsidies undercut incentives for better per- Problems included low employee productivity, tariffs formance and cost recovery. Unless tariffs are raised to set below long-run incremental cost, high unaccounted- support cost recovery, it will be difficult to attract pri- for water or power losses, accumulation of unpaid vate infrastructure investment. accounts receivable (particularly from public sector con- Like the Middle East and North Africa, Southeast sumers), and long delays in conducting financial audits. Asia has had to cope with surging labor forces and Even though the country environment and macroeco- nomic performance help explain some of these prob- swelling urban populations, straining metropolitan ser- lems, political interference in day-to-day operations and vices to the point of collapse. It has responded by allo- capricious regulation were even more of a factor. cating sizable portions of investment to infrastructure Utilities established as civil service departments per- projects, with the aid of private capital. This example formed less well than corporate bodies, and none of the is a good one to follow. Middle Eastern and North countries had anything close to an independent regula- African government spending on public works and util- tory body. A better approach is to entrust water and power systems to private companies or at least to ities should be increased to a level sufficient to elimi- autonomous corporate utilities under an arms-length nate the coverage and efficiency gaps described earli- relationship with rule-bound, predictable regulators. er. If the region continues to spend 3-4 percent of GDP PRIVATE PARTICIPATION IN INFRASTRUCTURE IN THE MIDDLE EAST AND NORTH AFRICA 9 cent of GDP, they could make major strides toward financial institutions can probably finance an addition- ensuring universal coverage and upgrading services al $15 billion. That leaves a potential market for pri- (the "accelerated case" scenario). This high rate of vate participation of about $15 billion (or 15 percent infrastructure investment is not without precedent. of the total)-an amount that can only be achieved if Countries in Southeast Asia have spent an average of governments make a concerted effort to remove barri- 4-5 percent of GDP on infrastructure, and some have ers to entry and other impediments to investment. spent as much as 8 percent (Kohli 1995 and Ringskog In the Gulf countries and the rest of the region infra- 1995). structure needs will be less pressing, given the large The combined GDP of the region's current World stock built up during the oil boom. If these economies Bank borrowers was about $155 billion in 1994. If these continue to grow at a minimum level of 2.5 percent a eight economies begin spending 5 percent of their year, their infrastructure requirements will total about GDP on public infrastructure between 1997 and 2006, $200-250 billion over the next decade (about 3.5 per- investment will exceed $100 billion. Taking Southeast cent of GDP). If, like the Bank borrowers, these coun- Asian spending during the 1 970s and 1 980s as a model, tries succeed in attracting private capital to finance this might mean about 1.7 percent of GDP spent on about 15 percent of their needs, their market for pri- power, 0.8 percent on telecommunications, 1.7 percent vate infrastructure will be at least $35 billion. on transportation, and 0.8 percent on water and sani- Thus the potential market for private infrastructure tation (figure 6). finance in the region could be more than $50 billion Because each country is at a different stage of eco- over the coming decade, more than three times the nomic development and the level of service provision amount provided by international financial institu- in each sector varies, the data in figure 6 are merely tions. Is such a dramatic transformation possible? The indicative. The actual investment mix will depend on answer depends, in large part, on how quickly the the country and sector. For example, citizens of the region's policymakers can develop the legal, regulato- Maghreb countries generally have more disposable ry, and business framework needed to encourage and income to spend on services than in the Mashreq, and attract private investment. in Yemen, with its large rural population, the require- ment for rural water facilities will be greater than in Private participation is key for improving infrastructure Tunisia. Economies that have major reconstruction performance needs-Iraq, Lebanon, the West Bank and Gaza, and Yemen-clearly will have bigger investment needs. National governments have a range of options for Where will governments find the money to finance improving the performance of infrastructure: introduc- the difference between current and desired levels of ing competition in infrastructure services, making state investment? Conventional borrowing from interna- enterprises work better, decentralizing responsibilities tional development institutions and development to cities and local governments, and bringing in the pri- banks within the region will not be sufficient to bridge vate sector. Involving the private sector should be a top the gap. The answer lies with the private sector, which priority, especially since the measures needed to make offers capital and technological know-how to over- private participation feasible-including stabilizing come many of the constraints faced by the region's the economy, breaking up monopolies, and introduc- governments. By allowing private investors to assume ing sound tariff policies-have the potential to a greater role in building and operating infrastructure strengthen incentives for better public sector perfor- facilities and services, governments throughout the mance as well. region will harness a powerful mechanism for meeting the growing demand. Reform state enterprises Of the $100 billion needed by World Bank borrow- The World Bank's World Development Report 1994 sets out ers under the accelerated case scenario, governments recommendations for improving the performance of may be able to finance about $70 billion. International state-owned enterprises. These recommendations 10 GETTING CONNECrED Figure 6. Projected investment requirements are great-potential investment is even greater Billions of U.S. dollars Power Telecommunications 20 12 * Base case scenod- 15* Accelerated cose scenado 10 1s 8 10 6 4 5~~~~~~~~~~~~~~~~~~~~~~~~~ Transport Water and sanitation 20 8 7 15 6 5 10 ~~~~~~~~~~~~~~~~~~~~~~~4 5 ~~~~~~~~~~~~~~~~~~~~~~~2 0 t'~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~0 '0'a ~~~~, ~ ~ o Note: Bose cosescenaoio assumesannuolGDPgrowth of 3 percentforWorld Bank borrowers and 2.5 percentfornon-Bonk borrowers. Investnentallocothons are 1.1 percentof GDPfor power, 0.8 percentfor telecommunications, 1.1 percentfor transpon, and 0.5 percentfor water and sonitafion. Accelerated case scenorio assumes annual GDP growth of 6 percentfor World Bank borrowers ond on addifonoal 0.6 percent of GDP invested in both power and tronsport and on additional 0.3 percent of GDP invested in woter ond sanitation. Source: Author's colculahons. involve adjustments in the system of governance of financial independence, develop administrative and infrastructure agencies, in their degree of financial managerial autonomy, and rationalize the role of the autonomy, and in their cost recovery policies. state in the economy and divest where appropriate. Continued reliance solely on state-owned enterprises The World Bank supported the program with a $240 may not be the best approach, however. For example, million loan. Although the program improved the during 1987-90 Morocco implemented policies and enterprises' financial health and ability to deliver ser- measures to rationalize the public enterprises in charge vices, the sustainability of the improvements is in of the national power, water, and railway companies, as doubt, and there is growing consensus in Morocco that well as two petroleum refineries and the petroleum dis- only increased competition and private participation tribution company. These efforts sought to promote will ensure more lasting improvements in performance. PRIVATE PARTICIPATION IN INFRASTRUCTURE IN THE MIDDLE EAST AND NORTH AFRICA 11 Decentralize United States, Latin America, and Southeast Asia. Such Decentralization also offers opportunities for improv- efforts are only now beginning in the Middle East and ing infrastructure performance. Over the past decade a North Africa, including a few projects supported by the number of countries in Latin America and Eastern World Bank Group (box 4). Contracts have also been Europe have devolved responsibility for municipal awarded to private operators for solid waste and telecom - infrastructure from national to local and regional gov- munications (two competing cellular phone licenses) in ernments. By contrast, services in the Middle East and Lebanon, wastewater in Oman, and a port terminal in North Africa remain a centralized responsibility. (The Yemen. The list of projects under study or preparation is West Bank and Gaza are an exception, where all gov- growing and includes a container port in Oman, private ernment started out as municipal.) Decentralization power in Morocco, Tunisia, and several Gulf countries, seeks to give beneficiaries a greater say in setting service private water in Egypt, Lebanon, Morocco, and Tunisia, levels and tariffs, in the expectation that this will lead to privatization of the Jordanian telecommunications net- a closer alignment of the services offered with con- work, and studies on the award of concessions for toll sumers' willingness to pay: making sure they get what roads in Jordan, Lebanon, Morocco, and Tunisia and for they pay for and pay for what they get. Establishing the port services in Morocco and Tunisia. necessary institutional capacity at the local level is not without its difficulties, however. Parallel efforts have to What is the best approach? be made to match technical capabilities with sound mechanisms of corporate governance and municipal The region's governments are making some important finance systems capable of attracting stable funding. decisions on how to approach private participation in infrastructure. Three sets of issues are being addressed: Privatize * How far can competition be introduced into the Since the late 1980s private participation in infrastruc- provision of infrastructure services? ture has grown rapidly worldwide, including in Australia, * Where competition is not feasible, what are the best Hungary, New Zealand, the United Kingdom, the ways to bring in the private sector? Box 4. Private Infrastructure projects in the Middle East and North Africa supported by the World Bank Group Oman Independent Power Generator European Union, and other donors, including Canada, Under a BOOT arrangement United Power Corp. is Italy, Japan, Norway, and the United States. In May 1996 building and will own and operate a 90-megawatt thermal a four-year performance-based management contract was power facility at Al Manah, as well as 186 kilometers of awarded to Lyonnaise des Eaux following an internation- transmission lines and associated substations. Once com- al competitive bidding process. The private management pleted, the company will sell electricity to the govern- contract started on September 1, 1996. The operator's ment electricity monopoly. The project will cost $204.5 remuneration includes a fixed fee and an incentive fee to million, with a $15 million loan from the International achieve specified performance targets-such as reducing Finance Corporation (IFC), $57 million from syndica- unaccounted-for water, repairing or replacing meters, and tions, and $4 million in IFC equity. lowering accounts receivable-and is financed by the World Bank through the Trust Fund for Gaza and the West Water and Sanitotion Services Project in Gaza Bank, In addition, the Bank is providing operating invest- This project, designed to improve the quality, quantity, ment funds to finance the goods, equipment, work, and and management of water and sanitation services in Gaza, services required to improve services and achieve perfor- will support the operation of the water and sanitation sys- mance targets. A third project component provides tech- tem in Gaza's sixteen municipalities and village councils. nical assistance to strengthen the newly created In addition to $25 million from the World Bank, funds to Palestinian Water Authority and to provide independent expand and improve services are being provided by the auditors to monitor the operator's technical and financial European Investment Bank (30 million ECU), the performance, 12 GETTING CONNECTED * Should the government provide financial support to Figure 7. A broad range of options is available for private private partners? If so, what kind and how much? participation in infrastructure Private Bringing in the private sector Private involvement can take many forms, depending Divestiture hy li(ense on the intended degree of risk to be transferred from I-- the public to the private sector. The spectrum runs 1Buld-own-operate (BOO) from management contracts with performance-related fees to leasing (responsibility for operations and main- tenance but not for major investments) to full conces- sions (responsibility for investment but with an oblig- ation to return the assets to the government) to actual sale of public assets or companies (figure 7). At one extreme the government cedes the least control but retains the most risk, while at the other the government Management hands over all control (except what it retains through regulatory mechanisms) and the private investor or operator assumes most risks. At all levels private investors will act only if the expected rewards are com- e mensurate with the degree of risk. conitas Getting prices rigbt. Private investors will not enter mar- kets unless they have the incentives to do so. One of the Soppy'nd civil most powerful incentives is the perceived potential for woks condtras returns. If prices are not realistic-that is, if underpric- ing impedes adequate returns to the provision of infra- Public structure services-investors are unlikely to step in. Source:GuislainandKerl1995. Although governments may be tempted to set low tar- iffs so that poor people can have access to services, tar- geted subsidies are a better way of achieving this goal. Table 1. Unbundling sectors into their component activities Introducing competition. It used to be argued that the economies of scale inherent in telecommunications, power, and railway networks required large, vertically Physical Power stations Power transmission and distribution integrated monopolies. Technological developments infrostructure Wireless and longdistonce networks now make it possible for separate firms to use each networks Water ftrnspor and distribution other's networks (power transmission, rail, local tele- Warehouses, terminals Roads, roil track other's networks (power transmission, rail, local tele- Port quays and channels phone cables) or to duplicate them cheaply (long-dis- Airport runways tance telephony). Moreover, in many cases the disec- onomies of inefficient state-owned enterprises far Services Telecommunicafion services Port or river dredging outweigh remaining economies of scale. Countries that Passenger and freight Trafic sotety (all modes) have privatized infrastructure have done so by tonspori (hal modes) unbundling old monopolies and opening to competi- Equipment supply tion and private participation those activities that lend themselves to competitive supply, such as long-dis- Market options Normolly privote Choice between private and public tance telephony and value-added services, power gen- Competihion in the market Competition for the market eration, and port operations (table 1). This approach No special regulation Detailed regulaion allows demand to be met without requiring significant Source:Guislain 1997. PRIVATE PARTICIPATION IN INFRASTRUCTURE IN THE MIDDLE EAST AND NORTH AFRICA 13 new investment, relying instead on using existing and leasing contracts for water treatment plants, assets more effectively. which typically run five to seven years, the threat of Awarding concessions. In some markets or market seg- the license being transferred to another entity on expi- ments (water distribution) a sole provider may still be ration may help discipline the concessionaire. the best option. But even in those cases the government Concessions that have longer lives and that involve can create incentives for private operators not to abuse providing services to the public are the most likely to their monopoly by making the market contestable, that warrant creation of a special regulatory body. An elec- is, by putting it up for bid periodically in the form of a tricity regulator, for example, could issue and enforce concession (or franchise) or by ensuring that barriers to licenses and concessions, set prices when there is entry are kept low (box 5). This approach can be insufficient competition in the market, monitor the thought of as competition for the market, as distinct financial viability of operators, set service standards from competition in the market. and monitor compliance, arbitrate disputes between Developing regulation. Where competition is limited, operators and between operators and consumers, and governments must provide some form of regulation. A provide information and advice to the ministry of license or concession contract to provide an infra- energy (Tenenbaum 1995). structure service usually will provide for indexation of An effective, arms-length regulator is almost as rare tariffs and establish mechanisms for resolving dis- as an efficient, depoliticized state-owned enterprise. putes. For independent power producers with long- Rather than rely on regulators, it is safer to open as term arrangements to sell power to state-owned utili- many activities as possible to competition-not ties, regulatory provisions may be imbedded in awarding exclusive rights to concessionaires-so that transaction-specific contracts between the govern- operators are subject to the discipline of market forces. ment and the producer. Under management contracts Even though the threat of competition makes conces- Box 5. Private providers-Better services at lower prices Until 1993 the greater Buenos Aires water and sewerage Proper classification of users and water metering will network was owned by a public entity, Obras Sanitarias improve demand management and help lower per capita de la Nacion. With World Bank assistance, the entire sys- consumption. The company also plans to reduce water tem was privatized using competitive bidding for a thirty- losses by repairing physical weaknesses in the system. Use year concession. The winning bidder, Aguas Argentinas, of poor-quality ground water will be eliminated, and the promised a 27 percent reduction in tariffs. city's wastewater will be treated, improving the health of The tender requires Aguas Argentina to invest about the population. $4 billion in rehabilitation and expansion over the life of Aguas Argentinas has expanded the water network to the concession, allowing the connection of all residents 600,000 new residents, eliminated water shortages, and lacking water and sanitation services. Voluntary redun- increased drinking water production by 26 percent. Annual dancy programs have cut the company's workforce from revenue increased by 35 percent between 1993 and 1994, 7,800 to 3,500 employees. The IFC helped finance the from $216 million to $293 million, and net income went initial two-year investment program, which included from a deficit of $23 million to a profit of $25 million. The essential repairs and rehabilitation, acquisition of new company's ability to fine customers for late payments and to equipment, and a portion of the retirement plan and pre- suspend services for nonpayment increased the collection operational expenses. The IFC also has advised the com- rate from 81 percent to 93 percent. These results have made pany on financial restructuring and mitigated some of the Argentina's experience a model for water privatization in risks inherent in a long-term, phased project that other developing countries. The IFC plans to provide addi- depends on continued access to financing and requires a tional assistance with the post-privatization program by transparent and effective regulatory environment. The arranging financing from nontraditional lenders-includ- IFC plans to work closely with Aguas Argentina to devel- ing domestic and foreign pension funds and insurance com- op its access to both domestic and foreign capital panies-for the 1996-97 investment program. markets. Source: Donaldson 1995. 14 GETTING CONNECTED sions less attractive and hence reduces the capital ous and the level of potential government support is value likely to be bid, this loss of revenue to the gov- unclear (IFC 1996), the potential for inefficient out- ernment must be weighed against the potential for comes requires that competitive processes be given greater benefits to users. For example, to bridge the preference whenever feasible. transition to a competitive market the license for cel- Closely linked with the selection process is the lular phones in Jordan grants exclusive rights for just question of how much the government should specify the first four years of a fifteen-year license, while the the services to be supplied. Public sector responsibili- network is put in place (see box 2). Once the exclu- ty for design can range from a full, detailed design (as sivity period ends, additional licenses should be issued is conventional under public sector procurement sup- to other cellular operators. ported by the World Bank) to preliminary design or Deciding on bidding and contract requirements. Entry performance specifications. In cases where the govern- processes that are not transparent run the risk of polit- ment provides no design, the private sponsor is likely ical backlash later, even if the project still provides ben- to conclude a design-and-build or turnkey contract efits to the country. Competitive bidding is the most with a supplier. Less public sector responsibility for transparent approach but must be adapted to the com- design allows the private sector to propose innovative plexity of project finance transactions and the desire to solutions and better match design specifications to derive maximum benefit from the flexibility and inno- market demand. The competing proposals that result vation that private entrepreneurship can bring. The may be hard to compare, however. International Finance Corporation's experience with Selling existing facilities. Great Britain was the first financing private infrastructure, growing quickly from country to comprehensively privatize power and water a small base since the beginning of the 1990s, illustrates services. It did so by unbundling the power system into the importance of tailoring concession award its main components (generation, transmission, distri- approaches to country and project circumstances: bution) and floating the shares of the new companies * International competitive bidding is better suited to large, on the stock market. Ten regional water companies long lead-time projects where government capacity to were sold in the same way. Argentina, Chile, and manage the process has been developed and there is Hungary are among the developing countries that have widespread interest from sponsors. Competitive bid- opted for this "big bang" approach to selling off assets, ding may also be preferable during the early stages in but others may lack the capital market, regulatory developing countries, when establishing transparency capacity, and legal framework it requires. Other coun- and credibility is essential. tries that have privatized utilities have done so incre- * Under competitive negotiation the government selects mentally, using pilot transactions to test their approach several short-listed bidders using specific criteria and and to gauge investor interest and public acceptance. then negotiates with each. In Pakistan, for example, the In some countries the proceeds from sales of public government set a ceiling rate for power based on the assets and bids for concessions have accrued to the maximum tariff that it would accept ($0.065 per kilo- national treasury. In others these proceeds have been watt hour), and invited bids. It received offers totaling used to service the public enterprise's debt or plowed 20,000 megawatts in potential projects and is pro- back into the new company. Under Bolivia's innovative ceeding with 5,000 megawatts, including several pro- "capitalization" program, for example, half the shares jects financed by the IFC. of public enterprises have been put out to bid, and the * Negotiated entry is often used for a country's first few pri- proceeds are used to renew and expand the company's vate infrastructure projects, since there is usually insuf- assets. ficient knowledge to specify terms for a competitive Identifying sources of private fnance. A number of financ- tender. Negotiations are used to determine what is ing methods can be used to mobilize private capital for required to attract private sector interest. Although this infrastructure: debt and equity, domestic and foreign. approach has sometimes been necessary in sectors Civil works contractors, equipment suppliers, and util- where the expected return to private equity is not obvi- ity operators have been the main source of equity for PRIVATE PARTICIPATION IN INFRASTRUCTURE IN THE MIDDLE EAST AND NORTH AFRICA 15 private investment in infrastructure and are likely to Establishingcollateralandotbersecuritymechanisms. Abasic remain so. Portfolio equity (infrastructure funds) and principle of infrastructure finance is that lenders take revenue bonds require relatively sophisticated capital security not on the assets of the parent companies of markets that are able to meet the information needs of the project sponsors (corporate or balance sheet investors who have no special stake in infrastructure. financing), but on the revenues and assets of the com- Long-term lending instruments are needed in local pany set up to own and operate the service in question. capital markets to meet the substantial local currency This arrangement may require countries to change laws financing needs of infrastructure projects that require governing collateral, particularly if once-public assets loans extended over ten to fifteen years. (such as a stream of revenue from electricity con- Expanding the sources of finance for private infra- sumers) are to be pledged to a foreign lender. Foreign structure projects will require developing the better lenders often require that project revenues intended for market information provided by credit rating agencies. debt service be channeled through an offshore escrow Many sovereign governments in the Middle East and account, which may require that foreign exchange reg- North Africa have received ratings, including Bahrain, ulations be liberalized. Egypt, Israel, Jordan, Kuwait, Oman, Qatar, Saudi Arabia, Tunisia, and the United Arab Emirates. None Determining government contributions to private infrastructure projects of the utilities in the region has yet been evaluated by One of the main reasons for seeking private investment the international rating agencies. But there is a poten- in infrastructure is to reduce claims on the government tially good fit between, on the one hand, the desire of budget. Government support may sometimes be war- institutional investors (such as pension funds and insur- ranted, however. One case is when the project has ance companies) for long-term investments with pre- large external benefits-such as the environmental dictable returns and, on the other, the revenue poten- benefits of a sewage treatment plant-that cannot be tial of power and water utilities and toll roads. The captured in the operator's revenues. Another is when discipline required to acquire and hold on to an invest- the project's potential is strong but private investors ment-grade bond rating is a powerful incentive for perceive much higher risk than the government sound financial performance. Raising a company's rat- because there is no history of private investment. In ing from BB to BBB (the lowest investment grade rat- both cases the govemnment's contribution should be ing) can lower borrowing costs by 130-140 basis just enough to bring the expected returns up to a min- points and greatly widen the market to which the com- imum threshold. Negative competitive bidding, in pany has access (figure 8). which the contract is awarded to the bidder seeking the smallest government contribution, is a transparent Figure 8. Higher credit ratings mean lower borrowing costs way of setting the "right" level. It should be remem- Industrialbondyieldspreadsandintermediate U.S. Treasurybills bered, however, that projects with weak economics- 500 a borderline expected rate of return and much uncer- 407 tainty-are poor candidates for private financing, and 400 34 _ government efforts to use partial financing to prop them up are unlikely to succeed. 300 Government financial support can take many forms, 222 including equity guarantee, debt guarantee, exchange 200 * _ _ rate guarantee, grant, subordinated loan, minimum rev- 1oo 87 enue or physical throughput guarantee (such as in a 40 41 60 power purchase agreement), guarantee of performance o _ _ s _ _ ___ of public enterprises or other public entities, revenue AAA AA A BBB BB B ccc enhancements (such as income from duty-free shops at Note: Spreads are for senior unsecured debtwith less than fifteen years to maturity, us of an airport), and concession extension. These mecha- September 30, 1 996. Source,:Stondord & Poo(s Fixed Income Research. nisms have varying abilities to facilitate private financ- 16 GETTING CONNECTED ing, resulting in varying government financial expo- * Builduplocalcapitalmarketsbystrengtheningpru- sure. The World Bank Group offers a variety of instru- dential regulation of banks and disclosure and audit ments to help governments attract private investment requirements and removing impediments to private on the most favorable terms (see annex 1). sector securities issues, particularly to pension funds and life insurance companies. Going from player to referee * Improve foreign exchange management by promot- ing convertibility, transferability, and forward markets. The role for governments in private financing of infra- * Review taxation to ensure consistent and fair treat- structure is to set the rules of the game and ensure a ment rather than special, case-by-case regimes and tax level playing field. instead of being a monopoly breaks. provider of infrastructure services, governments should * Review legislation governing collateral and other focus on defining rules that enable private investors to security mechanisms, including off-take contracts and compete to provide the best services to consumers. To guarantees (sovereign and partial), insurance (political create the right incentives and disincentives, govern- risk and commercial), and offshore escrow accounts. ments should: Initial efforts at private participation in infrastructure * Strengthen the regulatory regime by abolishing investment may require appointing a special agency, such monopolies where possible, promoting and protecting as a ministry of privatization, to oversee this agenda of competition in the market, and regulating monopolis- actions. This entity should be supported by a team of tic activities (including concession terms, interconnec- advisers, consultants, and lawyers to get the best available tion tariffs, and so on). expertise and ensure an effective, coordinated approach. * Develop procedures for awarding infrastructure National governments also have a role to play in concessions by setting guidelines for competitive bid- bringing the private sector into municipal services. ding and direct negotiations, disseminating criteria and Leases and concessions granted at the municipal level procedures for evaluating competitive bids, establish- have worked well in decentralized systems (such as ing criteria and mechanisms for government contribu- Spain's) thanks to a framework of administrative law. If tions, and so on. these laws do not exist, early contracts can be difficult, a Bring the legal and judicial framework in line with especially those involving long-term private financing. the requirements of private investment in infrastructure Central governments can promote private entry in local by reviewing the appropriateness of business legisla- services by defining process rules (such as requiring that tion (including company and bankruptcy laws), allow- local concessions be tendered competitively) and devel- ing for private and foreign ownership of infrastructure oping contract models that help local governments assets, providing effective dispute resolution mecha- reduce the cost of individual transactions and make nisms (including international arbitration), and ensur- fewer mistakes. They also can support a few pilot trans- ing the capacity of the courts to process suits fairly and actions by, say, helping local governments secure expert expeditiously. advice or by providing noncommercial risk guarantees. PRIVATE PARTICIPATION IN INFRASTRUCTURE IN THE MIDDLE EAST AND NORTH AFRICA 1 7 Annex 1. The World Bank Group's role Eastern and North African countries (figure A.1). Between fiscal 1987 and fiscal 1996, $3.5 billion in The World Bank Group stands ready to help govern- IBRD loans and IDA credits were approved for forty- ments that want to mobilize new sources of investment four projects. Yemen is the only IDA country in the capital for infrastructure by opening up markets to region; the average IBRD loan to the other countries competition and allowing private entry. Available assis- was $100 million. Loans and credits typically financed tance includes conventional IBRD loans (or IDA cred- about 40 percent of total investment. Only Morocco its for low-income countries), IFC loans and equity has been a steady borrower, with eleven infrastructure investments for private firms, advice on improving the operations during this period. Algeria and Yemen, the legal and institutional framework for managing priva- next most frequent borrowers, each had seven projects. tization and awarding concessions, and guarantees The others all had six or fewer. from MIGA and the IBRD (box A. 1). The World Bank Lending has varied considerably over the past Group also provides advice on unbundling infrastruc- decade, going from as little as $43 million in fiscal 1990 ture monopolies and introducing competition in infra- (the year of the Gulf war) to as much as $770 million structure sectors, and on improving the legal and insti- in fiscal 1993 (figure A.2). The variability is largely due tutional framework for managing privatization, to the sporadic pattern of requests for infrastructure awarding concessions or licenses, and regulating the finance. At different times regional conflicts and social reformed sectors. unrest have kept Iran, Jordan, Lebanon, and Yemen The Bank already has a sizable portfolio of (mostly away, and Egypt has mostly relied on bilateral financ- public sector) infrastructure projects in nine Middle ing. The West Bank and Gaza began receiving World Box A. 1. World Bank Group guarantees MIGA's political risk insurance can play an important role guarantees, a new instrument in the World Bank Group's in reducing private investors' perception of risks. Political toolkit, cover risks to debt service on loans from foreign risk insurance covers investors' equity, loans, and loan investors. Two options are offered. A partial risk guaran- guarantees, as well as loans by financial institutions, tee (also known as a contractual compliance guarantee) against expropriation, war and civil disturbance, and for- protects against such risks as a state-owned power dis- eign exchange inconvertibility. MIGA also covers various tributor failing to pay its bills for electricity delivered by types of service agreements. In addition to small invest- an independent power producer or a government failing ments in Egypt, Morocco, and Saudi Arabia, MIGA activ- to keep its promises to allow regular indexation of tariffs. ity in the Middle East and North Africa has covered All commercial risks are left with the concessionaire. A investments in large projects in Kuwait (petrochemicals) partial credit guarantee (also known as a late maturity and Tunisia (oil and gas). guarantee) covers all risks but only in the years beyond In the Tunisia project MIGA provided $64.8 million in what private banks would otherwise be willing to lend for, political risk coverage for British Gas's investment in the giving them sufficient comfort to lend for, say, ten years form of a loan guarantee. The insurance protects British instead of seven. Gas should it have to pay under its guarantee of a com- The first transaction in the Middle East to benefit from mercial bank loan as the result of a covered political event. a World Bank partial credit guarantee was the issue by the MICA is reinsured for up to $14.9 million by the United (state-owned) Jordan Telecommunications Corporation, Kingdom's Exports Credit Guarantee Department. The in late 1995, of a $50 million, seven-year floating rate project involves the construction and operation of off- note. The guarantee of principal repayment at maturity shore platforms, an undersea gas pipeline, and an onshore enabled the issue to be floated with a significantly longer natural gas processing plant. term than current market terms for foreign currency bor- The IBRD's partial guarantees also help lower private rowings in Jordan, and represents the longest term investors' perception of risks. Political risk insurance cov- achieved to date by any Middle Eastern borrower in the ers investors' equity against expropriation, war and civil Euromarkets. disorder, or foreign exchange inconvertibility. Partial Source: World Bank 1996b. 1 8 GETTING CONNECTED Figure L1. World Bank infrastructure loans to the Middle East Figure A.2. World Bank infrastructure lending to the Middle East and North Africa, 1987-96 and North Afrita, fiscal 1987-96 Millions of U.S. dollars 800 700 16% (4) M rwu ~~~~~~~600 West Bank / ! i _ 301,' (11)500 4% (4) 400 300 200 Jolds KV 100 4%(3) 0 > ;5z °1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 ing to transfer significant ownership and control to the Note: Numbers in parentheses ore the number of projects in eauh Cut/ private sector. These services help ensure acceptable terms for investors under appropriate regulatory and Bank Group assistance in fiscal 1994, from a special legal frameworks. trust fund on IDA terms. Iraq and Syria did not borrow The IFC has invested in two infrastructure projects at all during this period. The strong expansion in infra- in the Middle East and North Africa: a power genera- structure lending over the past five years suggests that tion plant in Oman and a cellular phones project in lasting peace in the region could open the way for Jordan. Although these are only a small portion of the much higher and more sustained levels of investment. IFC's rapidly expanding infrastructure portfolio (about Over the next four years the Bank expects to make 150 projects worldwide), the IFC could provide much infrastructure loans to the Middle East and North greater support if the region's governments do more to Africa totaling $550 million a year, although there is encourage private participation in infrastructure. scope for much higher levels of support if suitable pro- The Foreign Investment Advisory Service, a joint jects arise. initiative of the Bank and the IFC, has organized con- The IFC has the most experience, worldwide, in ferences on private financing of infrastructure in Asia, financing private infrastructure projects (mainly in Eastern Europe, and Sub-Saharan Africa, and is avail- power, telecommunications, and water) in developing able to do the same in the Middle East and North countries. It can take equity positions, provide loans, Africa. The service also advises governments on the and syndicate loans to raise additional funds. Through policy framework for foreign investment in infrastruc- its catalytic effects each dollar of IFC financing is asso- ture to facilitate the implementation of such projects. ciated with an average of nine additional dollars in new A summary of the World Bank Group's products and infrastructure investment. The IFC also provides priva- services for infrastructure development is shown in tization advisory services for client governments seek- table A. 1. PRIVATE PARTICIPATION IN INFRASTRUCTURE IN THE MIDDLE EAST AND NORTH AFRiCA d9 Table A.1. World Bank Group products and services for infrastructure development IBRD IFC MIGA Debt finance Public x Private x Equity and quasi-equity finance x Investment funds With government guarantee x Without government guarantee x Loan syndication: Syndicated loans mobilize third-party funds for projects in developing countries. x Political risk guarantees: Coverage is provided for equity and quasi-equity (such as shareholder loans and loan guarantees), x commercial bonk debt, and other forms of investment (such as technical assistance, production sharing agreements, operating leases) for the following polifical risks: currency transfer restriction, expropriation, war and civil disturbance. Partial risk guarantees: Cover the lenders against the risks arising from nonperformance of sovereign contractual obligations x or from force majeure related to a project. Partial credit guarantees: Extend maturities beyond what creditors would provide by guaranteeing late date repayment or by x providing incentives for lenders to roll over medium term loans. Policy or institutional reform: Advice to client governments on reform of sector policies and institutions in infrastructure through x technical assistance programs, economic and sector work, and technical advice in project preparation. Financial advisory services: Fee-based advisory services to governments for privatization and structuring of private entry x into infrastructure. Includes help to governments in redesigning sectors and implementing transactions. Advice to corporate clients: Independent of project financing, advisory services that cover broad financial and industry-specific issues. x Includes formulating business plans and debt reduction strategies, revising accounting proctices, and restructuring physical operations. Enabling environment: Advice, technical assistance, training, and financial support for the design and implementation of legal, x financial, and regulatory frameworks to facilitate privote sector participotion in a country. Foreign investment advice: Advice to governments in developing cross-sectoral policy frameworks to facilitate private paorticipation x x x in infrastructure. 20 GETTING CONNECTED Annex 2. Summary of conference proceedings In his keynote address Kemal Dervis, the World Bank's Vice President for the Middle East and North Conference on Private-Public Partnerships in Infrastructure in the Africa, noted that many of the region's economies are Middle East and North Africa showing the first signs of an economic upturn after some Istanbul, October 15-17, 1996 fifteen years of stagnation. Regional GNP is expected to grow by 5 percent in 1996. To sustain this resumption Private capital must join public efforts to upgrade infra- in growth, Dervis called on the region's lower- and mid- structure if Middle Eastern and North African countries die-income countries (the World Bank's active borrow- are to achieve rapid economic growth. After almost fif- ers) to set a long-term target of 6 percent annual GDP teen years of stagnant economic performance, the growth and to adopt policies that can sustain such a rate region appears poised for an economic turnaround. of growth. If this target is achieved, per capita incomes Successful macroeconomic stabilization and more will be 75 percent higher in 2010 than in 1995. Making growth-oriented structural policies are improving the this happen will require a concerted effort to raise both outlook for many countries. But better infrastructure is the level and the efficiency of investment throughout a necessary foundation for sustained economic recov- the economy. This will be particularly true for invest- ery-and without private participation the region will ment in infrastructure. Recent developments in other be unable to realize the scale and quality of required regions have shown the feasibility of major improve- investment. ments in performance resulting from attracting large These were the findings of a conference on Private- volumes of private finance into infrastructure. The infra- Public Partnerships in Infrastructure in the Middle East structure needs of the low- and middle-income coun- and North Africa held in Istanbul, Turkey, on October tries in the region will be massive: up to $16 billion a 15-17, 1996. The conference, sponsored by the year over the next fifteen years under the high-growth European Commission and the World Bank, enabled scenario. Of this, the market for private capital will be potential private investors, governments, banks, and at least $3 billion a year. other interested parties to exchange views on the con- The European Commission, represented by Marc tribution private participation in infrastructure can Pierini, Chief of Economic Cooperation for the make to the region's economic growth. The conference Mediterranean, welcomed recent initiatives by the highlighted the importance of high-quality infrastruc- region's governments to open up their economies and ture services for economic development and interna- to strengthen trade links around the Mediterranean. It tional competitiveness, the size of future infrastructure affirmed the European Union's readiness to support this markets, the benefits private participation and compe- process with substantial technical assistance, as well as tition can bring, the various forms they can take, the bilateral association agreements with individual coun- lessons to be learned from comparable experiences in tries. The commission announced that, in cooperation other parts of the world, and the policy issues govern- with the World Bank, it would be expanding its efforts ments must address as they open up their infrastructure to promote private infrastructure in the southern to private participation. Mediterranean region. The Arab Fund for Economic The conference was attended by nearly 200 partic- and Social Development likewise welcomed recent ipants representing almost every country in the region. government efforts and stated its readiness to support Attendees included seven ministers as well as repre- the region's reform and development efforts. sentatives of public utilities and other enterprises responsible for providing infrastructure services; min- A clear and unanimous message-Private participation in infrastruc- istries of infrastructure and planning; civil works con- ture is essential tractors, equipment suppliers, and private operators of All the ministers who spoke on national strategiesfor private infrastructure services; commercial banks and interna- participation in infrastructure-from Algeria, Egypt, Jordan, tional financial institutions; and financial and engi- Morocco, Tunisia, the West Bank and Gaza, and the host neering consultants and law firms. country, Turkey-affirmed their governments' political PRIVATE PARTICIPATION IN INFRASTRUCTURE IN THE MIDDLE EAST AND NORTH AFRICA 2 1 commitment to opening up infrastructure to a much session on telecommunications demonstrated that infor- higher degree of private participation. A broad consen- mation infrastructure (telecoms and information tech- sus was that the volume of investment required could be nology) is a key element of the new knowledge-based achieved only through a much higher inflow of private economy. Economic development is increasingly capital and that efficiency improvements required about knowledge; the information revolution holds increased competition in the provision of infrastructure, inestimable promise for people in the developing The governments provided participants with vivid world. The session underscored technology and mar- examples of current and planned infrastructure opera- ket forces as driving forces of the information revolu- tions involving significant private participation, sharing tion, as well as the new opportunities they offer to the lessons of their experience. It was made clear that emerging economies, particularly through increased the trend toward private participation in infrastructure investment triggered by sector reform. in the region is already strong and accelerating rapidly. Telecommunications services are best managed and Caution was expressed about the need to avoid financed by the private sector. Demand for these ser- unregulated private monopolies, and to ensure that vices is strong, and the investment requirements can- governments do not abrogate their responsibilities for not be completely fulfilled by the public sector. infrastructure services. There was a strong sense, how- Investment must come from private sources, especially ever, that governments should concentrate their efforts when enormous technological advances and dramatic on social policy objectives rather than on commercial cost reductions make competition-even in local tele- functions that are best delivered by the private sector. phone services-a real possiblity that countries should All the participants agreed that competition, wherever take advantage of. possible, is the best regulator, and that better definition Thus regional actors in the sector need to move from and management of risks are essential for successful pri- a public utility model to a framework compatible with vate participation in infrastructure. All the ministers competitive private involvement, in which the govern- stressed the need for transparency in the awarding of ment is a referee rather than a player. Government pol- contracts to the private sector and in the regulatory icy should focus on organizing and regulating compet- process. Views varied on the extent to which govern- itive markets while ensuring that basic social needs ments should provide guarantees or otherwise retain (such as access to telecommunications for low-income responsibility for specific risks. groups) are met. The first day concluded with a panel from the pri- The parallel session on motorways noted that the vate sector and the International Finance Corporation underlying economics of toll roads vary considerably speaking on private perceptions and expectations on private par- depending on function, physical characteristics, and ticipation in infrastructure in the region. It was emphasized market demand. Predicting traffic demand (especially that private investors far prefer transactions that can be on new roads) and difficulties in obtaining rights of brought to financial closure quickly. To avoid drawn- way make toll roads especially risky. A project with out and inconclusive negotiations and so enhance a weak economics in the public sector is no more likely country's credibility, expert financial and legal advice to succeed in the private sector. can help put governments on a more equal footing A recently completed review of eight privately when negotiating private infrastructure transactions financed toll motorways around the world shows that with major international investors. The clearer is a concession award procedures range from competitive country's regulatory framework and the more credible bidding on price (for example, the lowest average toll) its macroeconomic management, the lower are the for a fully specified project to negotiation with pre- returns investors require from investments. qualified firms on the basis of multiple criteria, leaving many design decisions to the bidders against a perfor- Sedoral sessions revealed major opportunities mance specification. Speakers with experience in The second day of the conference was devoted to par- industrial countries stressed the merits of flexible pro- allel workshops on the main infrastructure sectors. The cedures that encourage innovation in project design 22 GETTING CONNECTED and execution. Others stressed that in developing fairly predictable demand. Expectations are for growth countries with no track record of build-operate-trans- in new private power projects, although privatization of fer (BOT) arrangements, transparency and the need to existing state power companies has not yet begun. The establish the government's credibility argued for com- long-term sustainability of the power sector will require petitive approaches. downstream reforms in transmission and distribution to The presentations showed that government financial create creditworthy customers and depoliticize tariff support can take many forms, including donation of setting. Innovation in BOT arrangements is already evi- existing highway sections, minimum traffic guarantees, dent in the region. Approaches have included accessing subordinated loans, and grants or shadow tolls, as well local financial institutions and markets in Oman and as allowing concessionaires to develop service areas and minimizing guarantee requirements in Morocco by pro- other real estate. Experience with a motorway in viding access to receipts from creditworthy customers. Thailand illustrates that a failure to specify clearly in the Participants envisioned major opportunities for concession agreement who will be responsible for what regional trade in power and gas. Increased trade would (including in the event of delays) can trigger major con- also help promote competition and efficiency. Some flicts as a project develops. This risk is particularly participants, however, argued that political risk miti- applicable to acquisition of right-of-way and construc- gation will be needed for investors in risky transna- tion permits, which are best left with governments. tional projects in the early years. This area could hold The session on water and wastewater treatment, like the a major role for the international financial institutions, other sectoral sessions, emphasized that private partic- requiring them to develop instruments to support ipation can take many forms in the spectrum from lim- transnational as distinct from national projects. ited to full assumption of risks and rewards by the pri- The session on municipal services noted the consider- vate parties. The most common arrangements in the able scope for private delivery of infrastructure ser- sector are management contracts, concessions, and vices at the subnational level. Where local govern- BOT arrangements. ments are responsible for infrastructure services, it Representatives of the private companies that were should be remembered that they are often less credit- recently awarded contracts to operate water and sani- worthy than national governments and less familiar tation services in Gaza, Tunis, and Antalya (Turkey) with contracting procedures and regulatory options, noted a general reluctance of governments to move and that information about them often is not readily boldly with privatization of water and sanitation ser- available. Thus local governments' capacity for con- vices. The lack of commercialized utilities, chronic tracting and regulating needs to be strengthened. underpricing of services, and shortages of water may Central governments could play a key role in this make divestiture or utility concessions difficult in some effort by standardizing national accounting, budgeting, countries. But there is scope for build-own-operate and auditing systems to improve information flows in (BOO) arrangements for major facilities and perfor- local governments; establishing a common national mance-based management contracts for utilities as framework for procurement procedures, use of model transitional arrangements. The session included a live- contracts, and regulatory guidelines; encouraging the ly debate on how to strike the proper balance between formation of associations of local governments to make price and technical competence when evaluating com- it easier for small towns to contract jointly, helping with peting bids for water concessions. It was emphasized risk pooling mechanisms and pooled risk funds; and that consumers' willingness to pay for water is often making available noncommercial contractual compli- underestimated, since the poor often have no choice ance risk guarantees. The workshop concluded that but to buy water from private suppliers at tariffs that such efforts are worthwhile because competition in local are several times those of public suppliers. services can generate large efficiency gains. Studies The workshop on power andgas recognized that ener- show that when the private sector is involved in solid gy is a promising sector for private investment, with sub. waste collection, for example, it can provide services stantial scope for competition among generators and costing 10-40 percent less than public monopolies. PRIVATE PARTICIPATION IN INFRASTRUCTURE IN THE MIDDLE EAST AND NORTH AFRICA 2 3 The session on ports, railways, and logistics noted that of the various players is shaped by enforceable con- today's trading patterns have created demand for speed tracts, the process of awarding concessions is transpar- in handling and for the integration of services, both of ent, and regulators are independent from the firms they which the private sector is much better at than public regulate. Autonomy is aided by secure and stable fund- enterprises. Although governments are likely to remain ing of the regulatory agency. A shortage of regulatory responsible for basic port infrastructure, such as break- skills among civil servants can be eased by contracting waters and dredging, private operators could take out the oversight and monitoring function. responsibility for the superstructure of specialized A session on the spectrum of public-private partnersbips terminals. (optionsfor private sector involvement) showed that the spec- There are several opportunities for private ports in trum is growing richer as new instruments and con- the region, including in Tangiers, Aden, and the Red tracts are found to apportion responsibilities and risks. Sea. Experience in preparing a private container termi- The number of approaches has grown (BOO, BOT, nal project in Aden has shown that, even in a country and so on), as has the range of instruments for chang- with limited experience and skills for awarding and reg- ing the intertemporal characteristics of project financ- ulating concessions, success is possible if project eco- ing. An example of the latter is the German build-trans- nomics are strong and sponsors are knowledgeable, fer program for roads, in which the government committed, and able to draw on substantial equity dur- assumed responsibility for debt service at the end of the ing the development phase. construction phase. Still, important obstacles remain to The recent concessioning to private operators of the use of such innovations, including insufficient long- many railways in Latin America, as well as of some term finance in local capital markets, the reluctance of important railways in Africa and elsewhere, has made institutional investors to take on the greater risks of it clear that railways also can benefit from private par- project finance, and the sometimes confusing array of ticipation if the transactions adhere to the general prin- options for government support to private infrastruc- ciples required for the other infrastructure sectors. ture projects. The conference's final session, on mobilizing finance and Competition, regulation, and risk allocation should guide managing risk, explored further the need to develop local publi-private partnerships capital markets to reduce foreign exchange exposure. The third day of the conference addressed financing Because infrastructure projects mostly generate local and regulatory questions in plenary sessions. On gov- currency revenues, reliance on foreign borrowing cre- ernment policy toward private participation in infrastructure (reg- ates a currency mismatch, with high risks in case of ulatory and contractual issues) many participants stressed devaluation. In most Middle Eastern and North African the importance of unbundling sectors into their con- countries investors have no or limited access to local stituent parts to allow competition in the market wher- financial markets, equity markets are shallow, and debt ever possible and competition for the market where markets offer short maturities at best. Financial sector markets remain monopolistic. Competition can ensure reform is thus required to open up these markets, efficient outcomes in areas such as power generation, remove barriers to entry (including for foreign insur- wireless and long-distance telephone services, ware- ance companies and banks), foster domestic savings, houses and terminals, and passenger and freight trans- and reduce the crowding-out effects of public sector portation. But regulation will be required for transmis- borrowing. sion and distribution networks for power and water and Speakers from several banks stressed that finance for roads, rail track, airport runways, and port quays will always be available for good projects, but that pri- and channels. vate financing cannot make a project profitable that is Although the breaking up of monopolies creates a economically unviable in the public sector. The region more complex web of contractual relationships among must reduce the perceived risks of investing in its infra- service providers and the government, regulatory tasks structure. Participants identified a number of instru- become much simpler to the extent that the behavior ments for achieving this goal, including the partial risk 2 4 GETTING CONNECTED guarantees and partial credit guarantees that the World Arab Emirates) have received sovereign credit ratings. Bank is making available to projects in which govern- Credit rating agencies are being established in Egypt ments are willing to provide counter guarantees. and Tunisia. Judicious use of guarantees and other enhancements as The conference closed with a strong endorsement of a transitional arrangement should be part of a coherent private participation in infrastructure in the Middle East strategy for encouraging private participation in infra- and North Africa. Despite the complexity of such part- structure. Participants also noted that infrastructure nerships it is clear that the inefficiencies of public infra- projects become considerably less risky after construc- structure monopolies cannot provide a basis for rapid tion and the start-up of operations, suggesting that dis- future growth. As experience with private participation .tinct financing instruments should be tailored to the in infrastructure accumulates in the region, the speed start-up and implementation phases. and simplicity of transactions should accelerate. Development of local debt markets and a greater Although the region's current level of private participa- role for institutional investors will depend heavily on tion in infrastructure is low by international standards, better market information on default risks. Obtaining the trend-as illustrated by recent sector reforms and a credit rating from one of the international rating the awarding of concessions and licenses in many coun- agencies can lower borrowing costs and widen access tries, and by the new private infrastructure initiatives to capital markets. The impact of ratings on borrowing announced by the ministers attending the conference- costs is enormous, with the spread on bonds falling by is most encouraging. The European Commission and 130-140 basis points between Standard & Poor's BB the World Bank Group are committed to supporting the and BBB ratings. None of the region's infrastructure countries of the region in building their capacity to projects has yet received a credit rating, but several design and implement such reforms and transactions countries (including Bahrain, Egypt, Israel, Jordan, through policy advice, technical assistance, loans, guar- Kuwait, Qatar, Saudi Arabia, Tunisia, and the United antees, and equity contributions. PRIVATE PARTICIPATION IN INFRASTRUCTURE IN THE MIDDLE EAST AND NORTH AFRICA 25 Annex 3. Conference program Tuesday, October 15, 1996: Opening sessions Plenary session Speakers Keynote Addresses Recep Tayyip Erdogan, Mayor of Greater Istanbul Looking to the Future: Private/ Kemal Dervis, Vice President, Middle East and North Africa, World Bank Public Roles in Providing Abdlatif Al-Hamad, Chairman and Director General, Arab Fund for Infrastructure Services Economic and Social Development Marc Pierini, Chief, Economic Cooperation, European Commission Strategies for Private Participation Abdelaziz Meziane, Minister of Public Works, Morocco in Infrastructure in the Middle East Nabil Sha'ath, Minister of Planning and International Cooperation, and North Africa Palestinian Authority Choir: Kemal Dervis, Vice President, Nawal El-Tattawy, Minister of Economy and International Cooperation, Middle East and North Africa, Egypt World Bank Ayfer Yilmaz, Minister of State, Turkey Rima Khalaf Hunaidi, Minister of Planning, Jordan Mohamed Ghannouchi, Minister of International Cooperation and External Investments, Tunisia Smaine Dine, Minister of Infrastructure and Regional Planning, Algeria Private Participation in Infrastructure: Assaad Jabre, Director, Infrastructure Department, IFC Private Perceptions and Expectations Fouad Sultan, Chairman, Al Ahly for Development and Investment, Egypt Chair: Assoad Jabre, Director, John Sellers, Director of Project Finance, Paribas, Paris Infrastructure Department, IFC Joseph Battat, Foreign Investment Advisory Service Seminar sponsored by the World Bank and the European Commission with the collaboration of Servicios de Asesoramientos Financieros y Economicos S.A. (SAFESAI, Spain 26 GETTING CONNECTED Wednesday, October 16, 1996: The main sectors Session topic Speakers Telecommunications James Bond, Division Chief, Telecoms and Informatics, World Bank Chair: James Bond, Division Chief, Judith O'Neill, Partner, Ried and Priest, United States Telecoms and Informatics, World Bank Mohsen Khalil, Telecommunications Division, IFC Jean-Francois Soupizet, Telecommunications Directorate, European Commission Pierre Avril, Director, Middle East and Africa, France Telecom Renzo Mazzeo, Director, International Affairs, STET, Italy Lennart Broman, Director, International Projects, Telia Overseas, Sweden Motorways Gregory Fishbein, Mercer Management Consulting, United States Chair: Abdelaziz Meziane, Minister Karim Ghellab, Ministry of Public Works, Morocco of Public Works, Morocco Paul Chambert-Loir, Director, International Activities, Cofiroute, France Patrick Quinn, Group Vice President, Louis Berger International, United States HikmetTuglu, Head, Motorway Department, Ministry of Public Works, Turkey Water and Wastewater Treatment Alfred Watkins, MENA Technical Department, World Bank Chair: Amir Al-Khafaii, Division Chief, Jamal Saghir, Middle East Private Sector Development and Infrastructure North Africa Private Sector Development, Division, World Bank Finance, and Infrastructure, World Bank Marc Fornacciari, Vice President, Mediterranean/Africa, Lyonnaise des Eaux Abdel Guennoun, President, National Water and Sanitation Authority, Tunisia Hasan Subasi, Mayor of Antalya, Turkey Power and Gas Richard Stern, Director, Infrastructure and Energy Department, World Bank Chair: Richard Stern, Director, Michael Palmieri, Power Division, IFC Infrastructure and Energy Department, Ron Croll, Budget Director, Ministry of Finance, Israel World Bank Simon Blakey, Director, Cambridge Economic Research Associates, Paris Jacques Degouve, Senior Vice President, Asea Brown Boveri Project Finance, Zurich Abdelaziz Dali, Secretary General, COMELEC, Algeria Municipal Services (Tourism and Anthony Pellegrini, Director, Transport, Water, and Urban Development Solid Waste) Department, World Bank Choir: Anthony Pellegrini, Director, Solid woste services: Jan Drozdz, MENA Technical Department, World Bank Transport, Water, and Urban Tourism infrastructure: Samih Sawiris, Vice President, ORASCOM, Egypt Development Department, World Bank RaFi Benvenishty, Senior Adviser to Minister of Finance, Israel Urbon transport: Salem Miladi, Director General, Ministry of Transport, Tunisia Ports, Railways, and Logistics Ports: Zvi Raanan, Hon. President, Wydra Institute for Shipping Research, Haifa Chair: Graham Smith, MENA Mohamed Halab, Director General of Port Operations, Morocco Technical Department, World Bank George Tharakan, Middle East Private Sector Development and Infrastructure Division, World Bank William Tolbert, President, Meneren Corporation Logistics Centers: Dr. Joseph Vardi, Chairman, Intertechnology Group, Israel Railways: Graham Smith, MENA Technical Department, World Bank Municipality of Greater Istanbul: Presentation of Needs for Private-Public Partnerships PRIVATE PARTICIPATION IN INFRASTRUCTURE IN THE MIDDLE EAST AND NORTH AFRICA 27 Thursday, October 17, 1996: Financing issues Plenary session Speakers Government Policy toward Private Pierre Guislain, Private Sector Development Department, World Bank Participation in Infrastructure: David Brodet, Managing Director, Ministry of Finance, Israel Regulatory and Contractual Issues Youssef Fassy Fehri, Coordinator in State Enterprises Department, Ministry Setting the rules of the game of Privatization, Morocco Chair: Marc Pierini, European Commission Spectrum of Public-Private Partnerships: Michael Elland-Goldsmith, Partner, Clifford Chance, Paris Options for Private Sector Involvement Laurie Mahon, Managing Director, Global Project Finance, Chase Securities, From management contracts to BOTs New York Chair: Alastair McKechnie, Division Chief, Ulrich Stucke, First Vice President, Deutsche Morgan Grenfell, Frankfurt Middle East Private Sector Development and Infrastructure, World Bank Mobilizing Finance and Managing Risk Frans van Loon, Director, Emerging Markets Group, ING Amsterdam Financing instruments; development of Patrick Walsh, Chief, Middle East Division, European Investment Bank foreign and domestic capital markets; Vipul Bhagat, Capital Markets, IFC Islamic banking; guarantees, insurance, lqbal Ahmad Khan, General Manager, Islamic Investment Co. of the Gulf and security mechanisms; credit rating Ian Mackintosh, Managing Director, Standard & Poor's, London Chair: Nemat Shafik, Manager, Private Amir Al-Khafaji, Division Chief, North Africa Private Sector Development, Sector Development Team, MENA, Finance, and Infrastructure, World Bank World Bank (losing Session Concluding remarks, challenges ahead, Kemal Dervis, Vice President, Middle East and North Africa, World Bank follow-up actions Marc Pierini, Chief, Economic Cooperation, European Commission 28 GETTING CONNECTED Bibliography ITU (International Telecommunications Union). 1995. 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