Private investment best way to finance region’s infrastructure projects

Many contractors are looking to export credit agencies from Europe, Asia and the US to assist with project funding.

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Privately financed projects and external funding from the likes of overseas export credit agencies are the two best methods for facilitating the US$100 billion worth of infrastructure projects that are said to exist in the region, according to the head of one of the Middle East’s biggest contractors.

“First, the governments, the oil companies, the mining companies … will have a clear plan now. They have readjusted to the new realities of the world and they have to live with what they have,” Samer Khoury, the president of engineering and construction at Consolidated Contractors Company (CCC), said.

This has meant focusing government investment on the most pressing projects, he said, and then attempting to leverage the cash they have by bringing in other sources of finance.

“For example, if you look at the Bapco refinery [Bahrain Petroleum has tendered a $5bn project to expand the Sitra refinery]. That’s a profit-making project. And they required from bidders to put [forward] more than 80 per cent funding. So, basically, they let contractors like us make consortiums and fund the projects,” he said, speaking to The National on the sidelines of the recent World Economic Forum event at the Dead Sea in Jordan.

Mr Khoury said many contractors were looking to export credit agencies from Europe, Asia and the US to assist with project funding. For instance, he said that CCC is working with British consultancy Atkins on a UK Export Finance-backed bid for a new bridge project in Dubai.

Mr Khoury also said the region’s rapidly growing youth population “will demand to have a continuous investment in social infrastructure”, which he said meant not only schools and hospitals, but metros and airports.

“This will go ahead, and you are now seeing a new trend of PPPs [public-private partnerships].”

CCC recently picked up a private finance deal to upgrade Taif airport in Saudi Arabia, while its project management arm, Morganti, landed a project management role on a PPP project for a new school in Kuwait.

“So basically, the trend [for governments] is why should you worry about it? Let somebody else build it, operate it and you just rent it from them.”

Governments in the Middle East understand the urgent need for more infrastructure investment.

Speaking at the forum on a panel addressing the $100bn infrastructure opportunity in the Middle East, Jordan’s minister of planning and international cooperation Imad Fakhoury said that as a small country without oil revenue, “infrastructure development is an imperative for us”.

“It’s critical for our growth agenda, for poverty alleviation, for our competitiveness – to help us attract investment and to create local development.”

He said the kingdom had embraced PPPs with the help of the International Finance Corporation (which is part of the World Bank), and had successfully packaged more than $10bn worth of projects over the past decade.

“But for me, it’s still not enough to deliver on the increasing needs we have.

“We are about to start pushing the envelope in social infrastructure projects – schools, hospitals.”

Dimitris Tsitsiragos, the vice-president of global client services at International Finance Corporation, said the main challenge faced is in attracting more institutional capital to infrastructure projects. Worldwide, only 2 per cent of the money managed by insurance firms goes into funding infrastructure, he said.

“If you take this region, a lot of the sovereign wealth funds are investing in infrastructure assets outside the region, and they don’t invest in infrastructure assets within the region. Getting institutional investors into infrastructure is the next challenge for us, and it’s the next opportunity.

He also said the development of local capital markets would be a useful way of channelling domestic savings into infrastructure.

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