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Economics & Development | Global Arab Network
Syria - Pursuing partnership with private sector
Global Arab Network - - John Short
Wednesday, 11 November 2009 15:38
damascus_stock_exchange_syria_investment
Syria is embarking on a new era of infrastructure development, pursuing partnership with the private sector in the construction, delivery and maintenance of public services traditionally undertaken and managed solely by the government.

While there is no universally agreed definition of what technically constitutes a public-private partnership (PPP), the concept most broadly involves the tender of public services and public projects to private operators. The arrangement has become increasingly popular around the world as a result of constricted public funding.

According to findings by the World Bank, developing countries such as Syria should be dedicating around 10% of GDP towards infrastructure spending should they wish to fully capitalise on, and keep pace with, their growth potential. Abdullah Dardari, the deputy prime minister for economic affairs, recently told OBG, "We estimate the need to spend a massive $50bn on infrastructure from now until 2015. Attracting and facilitating PPPs is crucial to achieving this."

In late October of this year, Syria played host to conference on and titled Public Private Partnership, in which it unveiled the legislative and institutional framework surrounding PPPs developed so far.

Syrian ministers and international panellists from the likes of the World Bank and IFC were quick to point out that while the financing gap is a major reason behind the pursuit of a PPP, the private sector is often more disciplined and efficient in delivering public services on time, and at better quality and lower costs to the end user

While PPP is in its infancy in Syria, and the government acknowledges that it will be a long learning process until it gets the recipe right, the country has established a PPP unit under the direct supervision of the deputy prime minister as well as separate ministerial PPP agencies to oversee projects in the targeted areas of transportation, electricity, housing, agriculture, health and education.

It has also set up a separate PPP advisory board to consult on legislative developments, constituting both public and private stakeholders as its members. While separately, a PPP procurement law is being drafted with input from the conference to be incorporated in the final result that will be publically unveiled in the near future.

Hassan Mukayed, the CEO of Syrian-Qatari Holding (SQH), a holding company formed in 2007 to undertake large-scale PPP and other projects in a variety of strategic fields, told OBG, "The establishment of a PPP unit with the executive authority to oversee projects is highly important as it allows smooth communication with potentially overlapping authorities."

While the drafting of PPP-specific legislation and establishment of dedicated regulatory bodies are being applauded by the private sector, there is concern over issues related to financing, risk sharing and arbitration.

On the financing side, while Syria has seen the arrival of 11 private banks since the sector was liberalised in 2001, they lack the balance sheets and capital to fund mega projects. Domestic banks have expressed a willingness to participate in PPP project financing, but are reluctant to lend large sums due to limits on the amount they can lend to an individual project, as well as the absence of a treasury bill market in which to generate returns on deposits, and the lack of government-extended guarantees.

In addition, the country does not yet have an independent sovereign rating, which many international lending institutions depend upon for project financing decisions.

Bassel Hamwi, the deputy chairman and general manager of Bank Audi Syria, told OBG that these issues should be resolved, and "Syria did not start having all the elements in place to finance such projects. However, if a project has solid fundamentals and is well structured, securing funding should not be an issue as liquidity in the system is very high."

A key element of a successful PPP is the transfer of risk to the private sector, and investors are also seeking further clarification regarding payment guarantees and termination of contract clauses. Many are also calling for the establishment of an independent arbitration body to oversee dispute resolution.

Syria already has a few examples of successful PPPs working in its favour, including the recent privatisation of the management of the country's Lattakia and Tartous container terminals to France's CMA CGM and the Philippine's ICTS, respectively.

Yarob Badr, the minister of transport, highlighted the benefits of the privatisation decision, telling OBG, "Both players are bringing skills and experience, which results in better fluidity and management efficiency. Both are also well regarded throughout the world, so their name alone serves as a sign of reliability to companies choosing to operate out of the terminals."

Romeo Salvador, the general manager of Tartous International Container Terminal, told OBG that, "At the beginning, the takeover of operations was very difficult as it was new for the country and a first for everyone. On the government and administration side, many people were afraid to make decisions on certain things, which lead to delays. But on the whole, we are happy with the experience to date."

Overall, while a number of important PPP-specific issues have yet to be resolved, there remains little doubt that it can serve as a major platform in the country's future economic development. By drafting the necessary legislation and putting together the required institutional framework, Syria is showing that it is determined to make PPP a success.

Global Arab Network
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