Private funding critical for mega projects in GCC, PwC reveals

construction pwcDwindling government revenues in the GCC mean that funding from the private sector will be critical for large-scale projects to go ahead, a PricewaterhouseCoopers (PwC) survey has revealed

Report titled Delivering during change: Managing challenge and opportunity in the era of ‘lower-for-longer oil prices’, the survey quizzed more than 130 industry insiders across the Middle East from a range of sectors about the challenges they face while delivering major projects, their key priorities and their outlook for the year ahead.

In contrast to the previous year’s results, the 2016 survey showed that the capital projects and infrastructure (CP&I) sector was going through a time of change, with the impact of those changes likely to continue through the year.

“We have also seen that where there is change there are also opportunities. Mega events must continue, economic diversification away from oil and gas by investing in infrastructure must continue and improving the lives of citizens by investing in social infrastructure must continue,” the report said.

“If all these projects must continue, then new methods of financing and delivery will be required. All of this presents an opportunity to offset the obvious current impacts that are being experienced,” it added.

The survey showed that 80 per cent of respondents expect to experience funding restrictions. Given the circumstances and in order to maintain a focus on delivering new projects, governments in the region are increasingly looking at the private sector as a partner to operate and finance infrastructure assets.

“For example, Saudi Arabia is planning to privatise many of its airports, building on the success of its US$1.2bn privatisation of Medina Airport, while Dubai has passed a Public Private Partnerships law to formalise cooperation between the government and private investors on new projects,” the PwC report explained.

Furthermore, 90 per cent of respondents thought that private sector funding of capital projects would be of ‘critical or growing importance over the next year’. They were also largely in favour of increased use of PPPs as a delivery method, the figures showed.

“Nearly 40 per cent think that PPPs increase the likelihood of delivering projects on budget, while 38 per cent think they increase the chances of delivering a project on time. 41 per cent think that they are beneficial as the private sector has more experience.”

The report added that greater involvement from the private sector would bring other benefits, including better project performance and an increase in incentives for delivering projects on time and budget.

However, it pointed out several challenges that would likely lie ahead as GCC countries moved down this route. Greater use of private finance would require a ‘behavioural shift’ from both governments and contractors, PwC experts said, pointing out that governments would no longer be able to change contracts after the award. This means that more work will have to be done upfront to properly formulate exactly what the contract being offered to the private sector involves and a full set of terms articulated.

“But perhaps the biggest challenge will be in attracting private sector investors during a period of weak government revenues. A total of 69% of respondents to our survey said that low oil prices will lead to a drop in appetite from private investors,” the report revealed.

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