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Strengthening Saudi-British cooperation in public-private partnership - ASHARQ AL-AWSAT English Archive
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London, Asharq Al-Awsat- This week will see major British visits to Saudi Arabia: a public-private partnership (PPP) delegation which will visit Jeddah and Riyadh and the Lord Mayor of London’s visit to the Kingdom. The two delegations have independent programmes but will join together for several important meetings in Jeddah and Riyadh. During the visits there will be opportunities to support the financial services elements of the newly-launched Two Kingdoms Strategic Partnership.

I have the honour of leading the PPP mission.

Saudi Arabia and the United Kingdom have long been close allies, and the breadth and depth of Britain’s relationship with the Kingdom continues to increase. Regular and numerous high level visits at Prime Ministerial and Ministerial level underline the importance of our bilateral relationship, while continuing close contact between the British and Saudi royal families highlights the range of the relationship.

Saudi – UK relations have always been important to both economies and continue to be so.

Alderman David Wootton, Lord Mayor of the City of London, preparing for his visit said: “Our relationship with the Gulf is hugely important and this longstanding partnership is one that I hope to continue building upon during my visit there. London remains a leading global financial centre and the single most internationally focused financial market place in the world. We have a wealth of expertise and innovative financing models that can mobilise the two-way flow of capital. We view this relationship very much as one of sharing skills and experiences to grow both our financial sectors. Closer partnership will support the regional goals of economic diversification, growth, and infrastructure development.”

The Kingdom of Saudi Arabia is the United Kingdom’s largest trading partner in the Middle East. The UK is the second largest foreign investor in Saudi Arabia, after the United States. There are currently around 200 UK/Saudi joint ventures with a total investment estimated at around US $17.5 billion.

According to the United Kingdom Office for National Statistics figures, UK exports of visible goods to Saudi Arabia increased by 16% to £3.076 billion (US$4.6 billion) in 2010, and when services are added in this is around £5.4 billion (US$8.0 billion). Saudi exports to the UK increased by 39% to £1 billion (US$1.5 billion) in 2010. It is too early to be confident about the 2011 figures but preliminary statistics form UKTI suggests a further 29% growth in Saudi exports to the UK. These figures do not include UK exports to the Kingdom though ports in the UAE. Saudi investments in the UK are predominantly in property and portfolio investment. If these could be factored in Saudi portfolio and property investment would dwarf the trade figures.

The PPP mission is made up of senior experts with vast international of all aspects of PPP. It is organised by UK Trade and Investmnet (UKTI) and British Expertise. UKTI is the British government agency that works with UK-based businesses to ensure their success in international markets, and encourage the best overseas companies to look to the UK as their global partner of choice. British Expertise is the leading UK private sector organisation for British companies offering professional services internationally.

The aims of the delegation include the continued support of bilateral commercial and political relations. The delegates intend to build on existing and well established relationships and to build new associations.

This PPP delegation will promote Saudi-British partnerships to make use of proven and high-quality British expertise, adapted locally, for the development of key national infrastructure in transport, healthcare, major energy projects, social housing, urban regeneration, education and training to help in the Saudisation agenda.

Although there are many variants of what people refer to as PPP, there are two underlying types of PPP: one is where the private firm takes revenue and/or demand risk and is usually described as a concession – a user-pay PPP; and the other is where the government retains those risks and is usually referred to as a DBFO or annuity-based project.

In my role as chairman of Altra Capital, which specialises in advising on PPP, I suggested at Cityscape Jeddah last year that the best model of PPP for Saudi Arabia may be adapted from the annuity-based DBFO model typified by the Private Finance Initiative (PFI) in the UK, Japan and Malaysia. Saudi Arabia is embracing partnerships between the public and private sectors to meet the needs of rapid increases in population. PPP can set new ideas in motion and optimise resources that can be focussed on developing social infrastructure necessary to evolve from a hydrocarbon based economy to a wider knowledge-based economy. I said then and I say now that PPP offers such huge potential.

The private sector can create high quality knowledge-based jobs for the growing population within a framework that is supported by the public sector; who in turn would develop its ability to design the quality attributes of its increasing social infrastructure. PPP represents improved opportunities to administer and develop the economy alongside a job-rich, flourishing and industrious private sector. New service industries will evolve out of the hydrocarbon expertise that exists in abundance in the Kingdom. Redefining the quality of services, improving delivery standards, and looking for social returns, rather than just quarterly economic returns, are important for achieving success in PPP.

The British delegation will discuss its international experience with their Saudi counterparts; and will set out the opportunity to stimulate and encourage a robust long-term local private sector supply chain to support the PPP projects. Delegates will consider how their involvement in many countries can assist Saudi in developing best practice concepts in PPP.

One of the important policy objectives of the Saudi administration is the encouragement of new small and medium sized enterprises (SMEs). By making Britain’s international experience available it will be suggested that robust long-term local private sector supply chains can be created and there will be dialogue as to how PPP can invigorate progress in establishing new SMEs.

The delegation will include Maxwell Stamp LLC, a leading Management and Economics Consultancy and a founding member of the British Expertise Project Finance and PPP working group. Richard Kupisz, Deputy Chief Executive, commented, “My feeling is that the big projects (IWPPs, power plants, etc) tend to use the big international banks as advisers, so among his objectives will to explore if there is a niche lower down such as mid-caps, SMEs, smaller power plants, water treatment plants. He will be looking to meet and discuss this with potential Saudi Arabian partners.

According to research provided by MEED Insight’s Saudi Arabia Projects Market 2012 the total value of contracts awarded in the kingdom hit $66bn in 2011, a 6 percent increase on the previous year. The steep slowdown in activity elsewhere means that Saudi Arabia is now by far the largest projects market in the region, worth almost as much as the other five GCC states combined.

PPP has rapidly become a major factor in the economic policymaking of GCC countries as they seek to improve and expand their infrastructure against a background of fast growing populations demanding significantly higher living standards. Saudi Arabia represents a huge potential market due to the speed at which PPP has been advancing, mainly in the utilities sector but increasingly expanding to other sectors.

The expanding PPP programmes in the region are of increasing interest to UK companies, providing opportunities for companies across several sectors, from construction to legal and PPP specialist advisers.

This British PPP delegation will meet key decision makers and includes a series of events and opportunities, some of which will coincide with the visit of the Lord Mayor of London.

James Fierro, Chairman and CEO of Recipco Capacity Exchange says that key to his company’s objectives is establish relationships that will enable Recipco to build upon cooperation with SAGIA and develop awareness with members of the Supreme Economic Council, of how Recipco can help to achieve specific economic objectives.

Another delegate is Ian Miller, Managing Director of Carillion Saudi Arabia LLC. Carillion plc is one of the UK’s leading support services and construction companies, employing around 55,000 people with annual revenue of around SAR30bn and operations across UK, Europe, Canada and the Middle East.

With a portfolio of award-winning PPP work in areas vital to society: health, education and regeneration, road, rail, defence and commercial property, Carillion formed a specialist private finance business in 1996 to support the UK Government’s objectives and invest in PFI projects. The business, now known as Carillion Private Finance, provides specialist investment, project finance and concession management expertise to meet its clients’ needs in the UK, Canada and the Middle East.

Carillion are interested in promoting the development of PPP in Saudi Arabia, and believe it is a proven way of ensuring delivery of complex Government projects to defined timescales and budgets. This is because, under PPP, the Private Sector becomes financially accountable for the successful completion of such projects on time, to budget and for their successful long term operations and maintenance. In preparing for the visit Ian Miller said “The use of Private Sector partners to finance, design, construct, operate and maintain projects in Saudi Arabia, will give the Government additional capability to achieve its ambitious development plans”. He also points out PPP projects are ideally suited to providing long term employment opportunities for Saudi Citizens over the life of the built facility”.

The British delegation is looking forward to a successful time in the Kingdom with the objective of a win-win conclusion.

John Davie is chairman of Altra Capital and a visiting professor at London Metropolitan Business School