Private Public Partnerships Have Merit in the GCC according to A.T. Kearney

Management Consultancy says research shows that PPP structured investments can unlock value up to AED20 bn typically hidden in assets 

Dubai (22 March 2010) —  As GCC countries look to expand and fast track economic development, governments and industries are consistently driven to identify effective ways to catalyze and finance this progress. A.T. Kearney, one of the world’s leading management consulting firms says structured correctly Private-Public Partnerships can be utilized to unlock value typically hidden in assets, benefiting all key stakeholders; citizens, asset owners and operators.

“It is well known that a variety of Public-Private Partnership models, also known as PPPs, can help expedite financing needs. What is less recognized is the potential of PPP’s to maximize the value obtained from the partial or total privatization of publicly held assets,” said Christian von Tschirschky, principal, head of Utilities Practice, A.T. Kearney Middle East.

Confronted with pressures to expand and maintain transportation utilities and other government owned infrastructure projects such as schools and hospitals, governments are continually looking for funding opportunities which will enable modernization of their existing operations. Regional governments can finance hard infrastructure projects such as utilities, roads, ports as well as soft infrastructures such as hospitals and schools, through bond issuing, preferential commercial rates or through PPPs.

“PPPs are actually a proven means for infrastructure development internationally when a government cannot or chooses not to solely finance its own projects. A recent A. T. Kearney case study in the GCC shows that PPP structured investments may catalyze new private industries in the GCC or UAE, through addition of businesses worth AED10 to 20 billion. Approximately 70 percent of those investments could come from the private sector with government underwriting,” confirmed von Tschirschky.

Governments can help the market identify and unlock value typically hidden in assets, benefiting all key stakeholders: citizens, asset owners and operators. Middle East utilities have already begun successfully using PPPs to support their infrastructure developments to the benefit of society at large. For example, Metito and Dubai Electricity and Water Authority (DEWA) have successfully implemented PPPs to build water plants. The RTA in the UAE is another good example of how organizations in this region can successfully make use of the PPP business model.

“The opportunities in the GCC for the PPP business model are ample. There are apparent opportunities in all Utility sectors but PPPs may also unlock value for other sectors i.e. airport operations. In addition to the business process and operational improvements that best-in-class operators can inject into these sectors, many of these facilities can benefit from top line growth from adjacent services. For an airport operator adjacent services for airport operators could be retail, parking and advertising,” explained von Tschirschky.

The success of PPP models in infrastructure in Western Europe and early successes in the US such as; Chicago O’Hare Airport, the Dulles Greenway and the Indiana Toll Road, have all given increased confidence to not only private equity investors and hedge funds, but also to commercial banks. However, other international PPP projects in Jakarta and Manila were not so successful, due to minimal involvement of local communities and lack of regulation. It is essential that the regulatory environment is conducive for PPPs for them to succeed.

“Infrastructure is considered a very stable, long term investment representing an attractive alternative to real estate, to potential institutional investors. PPPs are a great opportunity for governments in the GCC and should be further exploited to the benefit of citizens, residents, private infrastructure companies and governments,” concluded von Tschirschky.

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About A.T. Kearney

A.T. Kearney is a global management consulting firm that uses strategic insight, tailored solutions and a collaborative working style to help clients achieve sustainable results. Since 1926, we have been trusted advisors on CEO-agenda issues to the world’s leading corporations across all major industries. A.T. Kearney’s offices are located in major business centers in 37 countries. From our fast growing Middle East offices in Abu Dhabi, Bahrain, Dubai and Riyadh, A.T. Kearney actively contributes to the operational excellence and profitable growth of the private sector industries and services in the region as well as the agility of governments. For more information, visit www.atkearney.com or follow A.T. Kearney Middle East on Twitter profile: AT_Kearney_ME.

About Christian von Tschirschky

Christian von Tschirschky is a principal with A.T. Kearney Middle East and Head of the Regional Utilities Practice. He is a member of the extended executive board of A.T. Kearney Middle East.  For the past 12 years he has been a member of the global A.T. Kearney utility practice and works for clients in the Middle East, Europe and US. He supports clients in strategy development, pre- and post-merger situations and to increase operational effectiveness in the fields of renewable energy such as solar as well as electricity, gas and water. He has extensive project experience along the whole value chain from generation to distribution including all support processes. He has international experience in the field of E-Energy, Smart Metering, Smart Grids and Demand response. He holds a diploma degree in business administration from the University of Passau, Germany, and the University of Helsinki, Finland.