Fostering Infrastructure Investment in the MENA Region Managing Risk in Uncertain Times

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Published on December 17, 2013

Author: OECDpsd

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Presented at the inaugural conference of the MENA-OECD Investment Security in the Mediterranean Working Group, 9 December 2013, by the Confederation of International Contractors' Associations.

MENA – OECD INVESTMENT SECURITY IN THE MEDITERRANEAN (ISMED) WORKING GROUP INAUGURAL CONFERENCE Fostering Infrastructure Investment in the MENA Region Managing Risk in Uncertain Times 17/12/2013 Managing Risk in Infrastructure projects in the MENA Region 1

Managing risk in Infrastructure project in the MENA region  The PPP: contractual mode well adapted to large, complex and innovative infrastructures  Risk management: is more a matter of good understanding of the PPP’s basic concepts than of peculiarities of the MENA zone 17/12/2013 Managing Risk in Infrastructure projects in the MENA Region 2

 Introduction: a fast overview of the PPP in the other zones (1)  Situation in the UK:    Situation in LDCs:   Some success, mostly failures Situation in North America:    Development and brake: UK Treasury note leading to PF 2. Main Issues and changes: transaction and financial costs, lack of transparency, speculative profits, inflexible standard contracts, reevaluation of risk allocation, etc. Development in Canada (essentially PFI/PPP) Very little in the USA but seriously considered Situation in France:   17/12/2013 Numerous concession/PPP in operation: not much controversy. Development of PFI/CP/PPP: some controversy: stadium, hospital, public building complex. Managing Risk in Infrastructure projects in the MENA Region 3

 Introduction: PPPs are controversial. Why? (2)  The PPP delivery method is made of sets of complex elements, hardly never aggregated in a single contractual arrangement: very little practice in most countries  Concessions and other PPPs remain to be defined in most jurisdictions: no satisfactory definition at international level.  Conclusion: It is necessary to clarify at the outset the meaning of PPP (too much confusion leading to inappropriate conclusions and hazardous decisions). 17/12/2013 Managing Risk in Infrastructure projects in the MENA Region 4

 A growing consensus between international practitioners  Two families  PFI or CP/PPP: Recovery from public funds over the years and no transfer of the operation of public service.  Concession/PPP: Recovery entirely or mostly from end users of the service, structured transfer of a full operation of a public service (but not privatization).  The rationale for the definition  Some common features between the two families but:   17/12/2013 Substantial differences on the risk and reward matrix Substantial differences in bid preparation, procurement, contract conditions, public service obligations, regulation, etc. Managing Risk in Infrastructure projects in the MENA Region 5

 The need of PPP in public infrastructure service sector: the PPP gap and its consequences  Evaluation of the current situation of PPP projects in emerging and LDCs  Projects in distress:  More than half of them after only 2 years of operation, for contracts which should have lasted for several decades.  Projects in the drawing board but never implemented:  75% of the projects announced and more or less prepared from an engineering side are aborted.  Projects which could have been developed but never considered: any statistic?  Likely more than 50% of all other projects announced. How to approach this critical matter for reaching the development objectives? Focus in MENA region: PPP is no more an option, but a top priority 17/12/2013 Managing Risk in Infrastructure projects in the MENA Region 6

 Developing pipelines of resilient PPPs: is an illusion? (1)  Lessons learnt  Projects insufficiently prepared by the public bodies:  absence of correct identification of needs,  too often vague definition of the objectives and the functionalities which the project will have to fulfill,  insufficient measure of the likely impact of the project on the economy of the zone,  return on the public finances over the project life cycle,  budgetary sustainability,  research for elements demonstrating relevance of the choice of this form of Govment Procurement compared with the other traditional forms of Govment Procurement,  quality of the technical studies, the traffic / attendance, design, etc. Focus in MENA region: PPP is no more an option, but a top priority 17/12/2013 Managing Risk in Infrastructure projects in the MENA Region 7

 Developing pipelines of resilient PPPs: is an illusion? (2)  Lessons learnt  Pricing and willingness / capacity to pay from users for the projects undertaken through the concession style contract.  The misunderstanding or the deficient application of “best practices/Golden rules/ policies” adapted to this nature of project, a contract law and contractual clauses inappropriate.  Institutional and legal architecture to be improved. Focus in MENA region: PPP is no more an option, but a top priority, 17/12/2013 Managing Risk in Infrastructure projects in the MENA Region 8

 Developing pipelines of resilient PPPs: is an illusion? (3)  In spite of apparent financial constraints and prima facie perception of risks, the future of PPP in the core public service infrastructure sector is promising.  The list of core issues preventing large scale PPP development goes well beyond a traditional list of issues and related solutions and best practices proposed.  Unless main core issues are addressed in a holistic manner, there are insufficient chances to have better statistics on PPP in many areas.  For many core issues, the formulation of related best practices remains to a large extent to be designed in an authoritative manner.  PPIAF reference book on PPP of 2012: “the state of knowledge [on PPP] is not well enough developed to prescribe best practices”. Focus in MENA region: PPP is no more an option, but a top priority 17/12/2013 Managing Risk in Infrastructure projects in the MENA Region 9

 Prioritization needed in order to make a “leap frog” for the success of pipeline of PPP projects (1):  Not to spend too much further on capacity building or assistance programs since key messages to be delivered in an integrated manner have not yet reached out the international community, or the consultancy world.  TOP PRIORITY IS TO AGGREGATE USEFULLY AND, AS EFFICIENTLY AS POSSIBLE, THE LESSONS LEARNT THROUGH THE WORLD AND TO FORMULATE BEST PRACTICES OFTEN OF UNIVERSAL USE.  Then put those best practices, including related guidance note and various documents and templates, at the disposal of the international consultants and international community for contributing to the drafting regional or State laws, or securitizing existing projects or projects in the pipeline. Focus in MENA region: PPP is no more an option, but a top priority 17/12/2013 Managing Risk in Infrastructure projects in the MENA Region 10

 Prioritization needed in order to make a “leap frog” for the success of pipeline of PPP projects (2):  In a nutshell, the core issues which prevent pipelines of PPP development in LDCs can be summarized as follows:  project planning and prioritization  project preparation  content of bidding documents/procurement  contract conditions  underlying legal principles  central level institutions  local level institutions  use of outside really qualified experts and consultants  Concession/PPP Self-Evaluation Index 17/12/2013 Managing Risk in Infrastructure projects in the MENA Region 11

Conclusion I A widely shared report A working program proposal by a team of selected PPP’s experts A carefully designed methodological approach aggregating lessons learnt and tested  The content of the work program (1)  Gathering representative and useful raw materials adapted to MENA region      17/12/2013 Identifying the materials Searching or gathering the materials Sorting and reviewing the materials Analyzing the materials Blueprint of concept notes or position memorandums Managing Risk in Infrastructure projects in the MENA Region 12

Conclusion II A widely shared report A working program proposal by a team of selected PPP’s experts A carefully designed methodological approach aggregating lessons learnt and tested  The content of the work program (2)  Drafting concept-notes and memorandums  For the purpose of packaging and disseminating the information  For the purpose of training  For the purpose of e-learning 17/12/2013 Managing Risk in Infrastructure projects in the MENA Region 13

Conclusion III A widely shared report A working program proposal by a team of selected PPP’s experts A carefully designed methodological approach aggregating lessons learnt and tested  To set up a high level expert group addressing the issues  The need of a neutral, high level and truly experienced international/regional expert team.  The need of an expert team able to work efficiently in a coordinated manner.  The very limited number of international/regional experts able to qualify for working in such a team. 17/12/2013 Managing Risk in Infrastructure projects in the MENA Region 14

Conclusion IV A widely shared report A working program proposal by a team of selected PPP’s experts A carefully designed methodological approach aggregating lessons learnt and tested  How to achieve these high standard goals?  Respect strict obligation to become a full member:  A prescriptive charter offering the best guarantees of: - Professionalism, - Neutrality, - Efficiency, - Cost limitation. 17/12/2013 Managing Risk in Infrastructure projects in the MENA Region 15

Thank you for attention Joint presentation and proposals by: Institute of International French Legal Experts (IFEJI) Marc Frilet : Vice-President & Confederation of International Contractors’ Association (CICA) Roger Fiszelson : Director General 17/12/2013 Managing Risk in Infrastructure projects in the MENA Region 16

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