ME leaders warned against BOT inertia
Reluctance to hand over control is holding back civil and infrastructure projects, say experts
Governments in the Middle East may have little choice but to partner with the private sector to develop civil and infrastructure projects.
As the region gradually moves towards the concept of privatisation, experts are warning that reluctance from authorities to relinquish control could be the only thing holding them back from fully benefiting from public-private construction processes such as build-operate-transfer (BOT).
According to Rami Ghandour, executive director, Metito, regional governments will eventually have to enter into BOT agreements to successfully develop and maintain infrastructure projects, such as wastewater treatment and desalination plants.
“I can see some resentment from governments in the region for BOT projects because the private sector will be taking on the role of the government, and some authorities won’t like that,” he said. “However, there are few options left. Funds are needed for these projects and the private sector has the money – so we have to enter this field, no matter what.”
A BOT agreement is predominantly used for water or wastewater treatment and power plants, as well as airports, roads and transport projects. A concession period – usually of around 30 years – is agreed before the project is handed back to the government.
Ghandour added that such an agreement allows for private companies to plan and invest better, while the government sets the guidelines and monitors the project.
“In the Middle East you cannot predict accurately how projects will perform from one year to the next,” he said.
“But with BOT, the company knows it’s going to operate the plant, it knows how many people it will need and how much revenue it’s going to make at the end of the year. Whereas the government takes on a regulatory and supervisory role, it may also take a royalty or be a minor shareholder in the project.”
One advantage of a BOT scheme for the government is that most of the risk associated with a project is taken on by the private sector. The private sector also has to ensure that the appropriate human resources are in place.
“There is no risk for the government. The private sector has a higher risk, but its rate of return is higher,” said Spiro Pollalis, professor of design, technology and management, Harvard Design School.
BOT projects are gradually being implemented across the GCC, particularly in Abu Dhabi, Bahrain and Saudi Arabia.
“Although some places are moving faster than Dubai in terms of privatising the water and wastewater sector, such as Abu Dhabi, I think this will eventually happen in Dubai,” added Gandour.