Will the 'Arab Spring' Produce a Trickle of a Torrent?

As the "Arab spring" gives way to the heat of the Arab summer, we are able to step back and consider what impact the unrest that dominated much of the MENA region in the first half of 2011 has had on the procurement of water and wastewater PPP projects in the region, and ponder what the future holds for such projects.

Will the procurement, bankability and delivery of such projects be severely curtailed by the recent unrest and each government's subsequent reaction? Or will there be more opportunities in the sector as governments seek ways to stabilise fledgling regimes or pacify the citizens of affected countries?

Invariably, the answer will depend on the specific circumstances that apply to each country. We consider the contrasting fortunes and prospects of three countries below.

Egypt

Until the beginning of 2011 Egypt's PPP programme was seen as one of the key target markets for infrastructure players in the region. In the wastewater treatment PPP sector, New Cairo had achieved commercial close on October 6, had just come to market and Abu Rawash was in the qualification process.

While the procurement process was not always as streamlined as it perhaps could have been, an example being the three qualification rounds for Abu Rawash, there was every reason to assume that these projects would be successfully delivered.

For the time being these projects are on hold. However, while it is unlikely that any meaningful progress will be made until after the dust has settled from the parliamentary and presidential elections in the autumn, there is still very much the need and desire to procure the relevant infrastructure and, as far as we are aware, most bidders remain committed to the country.

The future prospect of these infrastructure projects is made brighter by both the genuine belief that business will be fairer and more transparent under the new regime together with the support that will be provided to the new regime by the World Bank, the IMF and numerous others.

Oman

The unrest that has occurred in Oman does not, in itself, appear to have derailed the Al Ghubrah IWP project, with an advisory consortium having been recently appointed for the project. There also appears to be continued bidder interest in the project.

In turbulent and potentially unsettling times for international investors there is a very strong argument to stick to what has been tried and tested. On that basis, it is reasonable to assume that this project will be structured very much along the lines of previous power and desalination projects in Oman and that it is unlikely to depart significantly from market expectations.

However, reports indicate that one of the consequences of the unrest in Oman is a focus on Omani entities investing in Oman and major projects employing as many Omanis as is possible, not simply the minimum number permitted under the Omanisation law. Whether this is a factor that is delaying the award of Sur IPP is unclear, but it is certainly likely to be a very important factor in future projects, including Al Ghubrah.

Kuwait

Kuwait has been relatively unaffected by unrest or protests and even the recent limited protests appear to be concerned with specific parliamentary issues. Kuwait is pushing ahead with its ambitious PPP programme.

This includes the PPP for the 650,000 m2/d Umm Al-Hayman Wastewater Treatment Plant and associated infrastructure, which is likely to have a capital expenditure in excess of USD$1 billion.

The transaction advisor has been recently appointed and is the same consortium that advised the client on both the Muharraq and Tubli wastewater treatment plant PPPs in Bahrain. Accordingly, there is no reason to suspect that Umm Al-Hayman will present bidders with anything unexpected, save where required by Kuwait's PPP Law.

In that regard, the Kuwait specific requirements should have been developed and to the acceptance of the market under the path-finding Az-Zour North IWPP project by the time that this project comes to market.

Provided that Kuwait avoids the political deadlock that has impeded the delivery of many previous infrastructure projects, then the future of this project looks promising.

Conclusion

With a few exceptions, there is nothing to indicate that the "Arab Spring" has done anything other than delay the procurement of much needed water and wastewater infrastructure in the MENA region. Indeed, there is a strong possibility that the need to provide better conditions for citizens together with the support of the international community will lead to an increase of such projects.

Author's note:Robert Graham is a senior associate in Pinsent Masons LLP's Dubai office.

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