Public Private Partnership – High Council for Privatization and PPP

WHAT IS PPP?

PPPs consist of long term agreements between the public and private sectors aiming at the provision of public services by relying on the private sector’s competence and its financial capabilities and expertise. Such partnership is not a partnership in capital nor in profits, but rather a partnership in risks, whereby the public sector transfers some of the project’s risks to the private sector and retains other risks according to each party’s ability to manage these risks.

Contrasting PPP to standard traditional procurement, the latter specifies inputs, fixing as such all variables of a project except for the price, which determines the winning bidder, whereas PPP specifies outputs taking advantage as such of all the benefits that the private sector can bring to a project, and putting all variables, including price, subjected to scrutiny.

PPP is often misperceived as privatization by the public. While privatization involves the sale of assets the receipt by government of a payment for the assets transferred, PPP involves the acquisition of assets and the payment by government for services rendered by the private sector and for the amortization of the acquisition price of the asset.
As such, privatization involves the transfer of all risks and benefits to the private sector, while PPP consists of risk sharing with the private sector.

Another misconception involves comparing the cost of government funds or the sovereign debt rate to private financing which includes a component of equity return. such comparison is flawed since
– It assumes that the project cost is the same regardless;
– It does not quantify and account for risks;
– It does not include the cost of impact on overall sovereign debt; and
– It does not include overall benefits to the economy.

FRAMEWORK IN LEBANON

Law 228 has defined privatization as transferring the ownership or management of a public project, totally or partially, to the private sector, including the concession structure or similar modern structures designed to develop and manage economic projects for a certain period. While Law 228 has granted the HCP the authority to tender projects under the concession or similar modern structures, it has not defined a specific tendering mechanism. For this reason, the HCP’s Secretariat General has worked since 2007 on the public private partnership (PPP) law which aims at defining a detailed and coherent tendering mechanism for PPP projects based on international best practice, while ensuring transparency and professionalism.

The PPP Law 48, enacted on September 7, 2017, governs all PPP projects including power and telecommunication PPP projects, and makes it optional for municipalities to subject their projects to the provisions of this law. As per the law, a PPP project is defined as any public benefit project in which the private sector contributes financing and management and at least one of the following activities: design, installation, construction, development, restoration, equipment, maintenance, rehabilitation and operation.

The law guarantees transparency by involving all stakeholders in the tendering process. The law calls for a three level decision making process:

– the Council of Ministers,

– the HCP whose inter-ministerial structure also ensures the involvement of all relevant ministers,

– the project committee, chaired by the the HCP general secretary and where the relevant ministry and the ministry of finance and the sector regulatory authority are represented. The project committee is assisted by a working team which includes the retained consulting team as well as representatives of all relevant stakeholders and any experts of specific competence.

The role of each entity in the tendering process is represented below

One of the law’s main features is that it outlines the key provisions of the Partnership agreement, which constitutes an integral part of the tender document and which ensures that the rights of the private partner and the government are safeguarded.

The PPP law also establishes the HCP as the PPP Unit and tasks its operational work to the HCP Secretariat General (hyperlink to our team), which is headed by the Secretary General, and which would grow to become a melting pot for the accumulation of expertise to cooperate with the public sector on future PPP projects. The size and complications of PPP transactions and their difference from traditional procurement deals require the existence of skills which are of a financial, technical, legal and regulatory nature, and allow risk management, contract management, and tender execution. The PPP unit will be composed of experts who are specialized in partnerships with the private sector, speak the banks’ and private companies’ language and acquire possess the necessary expertise in the fields of financing, negotiation and contracting. This would ensure the design of PPP agreements that guarantee the public interest and respect the investors’ rights.

The PPP Unit is also responsible for formulating the PPP Program, which would establish credibility and commitment to a PPP pipeline and provide as such comfort to investors.

ROLE OF PPPs IN LEBANON

PPPs are crucial for Lebanon to:

– build and develop much needed infrastructure, where electricity, education, health, transportation, telecommunications and other infrastructure consistently deteriorating. The chronic budget deficit has prevented governments from making non-immediate investments, with only 4% of the Government budget being invested in it over the past two decades. The culture of upkeep and maintenance of Government assets is absent.

-deliver projects on time – on budget given that these risks are transferred to the pivate sector, where it is estimated that in Lebanon traditionally procured projects exceed costs by an average of 20% and are delayed by an average of 35% beyond agreed timetable.

– enhance economic growth which stood at a mere 1.76% in 2016 according to worldbank data. Studies have shown that a 1% percent increase in PPP investment increases GDP per capita by 0.3%. (Booz & co., Public Private Partnerships, A New Catalyst for Economic Growth (2008)).

– create 215,000 jobs, among which skilled labor 89,000 jobs for university graduates (assuming $6.22 billion worth of PPP projects and applying the World Bank’s findings to the Lebanese case)

– revive and deepen capital markets through the securitization of project assets and listing of SPV shares

– avoid waiting for availability of financing as PPP allows launching numerous projects simultaneously even in the absence of funding for capital expenditures, and therefore, urgent projects are not delayed.

– enhance decentralization as local authorities can resort to the PPP tendering method stated in the law to execute projects for which they lack the skills and the experience to develop on their own.

PPP LAW

The PPP Law defines the PPP project as any public benefit project in which the private sector contributes financing and management and at least one of the following activities: design, installation, construction, development, restoration, equipment, maintenance, rehabilitation and operation.

The law governs all PPP projects including power and telecommunication PPP projects, and makes it optional for municipalities to subject their projects to the provisions of this law.

The decision making process is based on a three levels, the Council of Ministers, the HCP which is a ministerial committee and the project committee, chaired by the the HCP general secretary and where the relevant ministry and the ministry of finance and the sector regulatory authority are represented. Such structure ensures transparency of the tendering process.

Transparency is further enhanced by making the tender document, which includes the Partnership agreement, public. One of the law’s main features is that it outlines the key provisions of the Partnership agreement, which ensures that the rights of the private partner and the government are safeguarded.

COOPERATION WITH UNECE

PPPs are at the heart of UNECE’s work through its committee on Innovation, Competitiveness and Public-Private Partnerships (CICPPP) which aims at enhancing governments’ expertise to identify, negotiate, manage and implement successful PPP Projects. To this end, the UNECE has established the International PPP Centre of Excellence (ICoE) to raise PPP awareness and develop guides on best practice and to address the capacity gap within governments.

One main component of ICoE’s work consists of the formation of international project teams to develop international standards for people-first PPPs, to identify international best practices in PPP programmes with the objective of creating a policy document to guide governments in the transparent selection process of a model in different sectors. The HCP was appointed by the Ministry of Foreign Affairs and Immigrants as the representative of the Government of Lebanon for the purpose of UNECE’s work on PPPs. In this capacity, the HCP team has been, since 2014, actively participating in drafting the standards for the sector of Water & Sanitation, Zero Tolerance to Corruption and Women Empowerment.

Another main component of ICoE’s work is the establishment of sector-specific international PPP Specialist Centres which would supplement the work of the project teams. These Centres would provide country-specific experiences to empirically support the standards and would also play an integral role in the implementation of future standards provide information.
In this respect, the HCP and the UNECE Secretariat have reach an agreement that the HCP hosts International Specialist Centre of Excellence in PPP for Ports (ICE4P) in Beirut, Lebanon. ICE4P aims to
become a depository of information and best practice models that can be useful to PPP practitioners in the Ports sector worldwide.

PAST PROJECTS

Deir Ammar Power Plant II

ONGOING PROJECTS

On February 18, 2018, the HCP board resolved to proceed with the following three proposed PPP projects and undertake all necessary due diligence studies:

The HCP board also resolved to undertake a pre-feasiblity study for the Olympic Swimming Centre and a master plan for Lebanon’s sports facilities.

POTENTIAL PROJECTS

In light of the recent enactment of the PPP Law in September 2017, we are presenting below certain potential PPP projects with the aim of:

1) Giving local and international companies a preview on some of what the various Government entities are working on; and

2) Soliciting feedback and interest.

This is not an exhaustive list of potential PPP projects. Indeed, many of the projects currently under examination are not listed here, for particular reasons in each case. It should also be noted that the projects presented below are not all at the same level of development. Some are more advanced, others are still in very early development. What they have in common is their importance to the economy of the country and the wellbeing of its citizens.

Working with the various ministries over the course of the next several months, the High Council for Privatization and PPP will endeavor to solidify a formal PPP Program that includes project priorities.

Transport Water Wastewater Energy Telecoms Waste Zone Development

EXPANSION OF BEIRUT RAFIK HARIRI INTERNATIONAL AIRPORT

Government of Lebanon (GoL) intends to expand its sole operational commercial airport in Lebanon, the Beirut Rafic Hariri International Airport (BRHIA) on a PPP basis.

The key project components are as follows:

The development of a new terminal for 6,000,000 passengers and its concourse.
Some improvements to existing airport infrastructure (the aprons, taxiways etc.)
Some improvements to the access roads.
Develop non-aeronautical revenues for the financial sustainability of the project.

Dar Al Handasah Consultants (Shair & Partners) completed the Airport Master plan and are currently working on the traffic impact study expected to be completed by end of March 2018.

KLEIAAT RENE MOUAWAD AIRPORT

Government of Lebanon (GoL) intends to rehabilitate and expand Rene Mouawad Airport on a PPP basis. Project highlights:

An airport that will operate charter, cargo and internal flights as well as hosts an aviation training centre.
Benefits from an area of 6MM m², out of which 2.75MM m² is the investment area.
Currently comprises one runway of 3000m length (expandable by 250m) and 45m width, a 3000m taxiway, a 100-car parking lot, and a control tower.

Linked to an international coastal and internal road network.

KHALDEH – NAHR IBRAHIM EXPRESSWAY

The Government of Lebanon (GoL) intends to build an Expressway from Khaldeh to Nahr Ibrahim on a PPP basis. The key project components are as follows:

Total length of the expressway is 38 km divided into a tunnel section of 12 km and a dual 3-4 lane expressway of total length approximately 20 km, Interchanges, service roads and bridges
GoL might consider splitting the execution of this expressway into different standalone sections for ease of implementation and for securing the funds for the expropriation
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JOUNIEH TOURISTIC PORT

Government of Lebanon (GoL) intends to develop a new Touristic Port in Jounieh on a PPP basis. The project entails the development of a port for cruise ships that has a total area of 920,000m² and can accommodate ships of 360m in length. It comprises the construction of:

2130m main breakwater, two quays of 1000m total length and 12m depth.
Two marinas for a total of 400 marina berths.
One passenger terminal.

All facilities required for the provision of high quality service to the users.

SAIDA NEW PORT

Government of Lebanon (GoL) intends to develop a New Port in Saida on a PPP basis. The project entails the development of a commercial and touristic port that can accommodate commercial and cruise ships up to 275 m by comprising:

Three commercial quays of a 590m total length with a draft of 10 meters.
Around 300 marina berths for touristic boats of 5m draft.

GoL completed part of the infrastructure work for a total of USD 19MM in Dec 2016, including a main breakwater of 1000m length with a reinforced concrete superstructure of 630m length, a secondary breakwater of 230m length, and a 150m commercial quay adjacent to the main breakwater.

EL BARED DAM

The project comprises two components:

A central core rock fill dam for water supply of 37 MCM (static) / 90 MCM (dynamic) annual storage capacity, of a height of 88m, length of 635m, and crest level of 180m and a fill volume of 4.80 MCM. Submerging an area of 113 Ha, it has very low leakage risk with no housing, archeological or infrastructure impact. The supply from the dam would rely on both pumping and gravity; and
The associated water treatment plant, transmission lines and reservoirs.

AIN DARA – AZOUNIEH DAM

The project comprises two components:

A central core rock fill dam for water supply of 4.1 MCM (static) / 5 MCM (dynamic) annual storage capacity, of a height of 53m, length of 300m, and crest level of 1106m and a fill volume of 0.74 MCM. Submerging an area of 28 Ha, it has low leakage risk with no housing or archeological issues but a moderate infrastructure impact. The supply from the dam would rely on gravity; and
The associated water treatment plant, transmission lines and reservoirs.

MAASER EL CHOUF DAM AND LAKE

The project comprises two components:

An asphalt concrete face rock fill dam for water supply of 2.2 MCM (static) / 2.2 MCM (dynamic) annual storage capacity, of a height of 51.5m, length of 253m, and crest level of 1131.5m and a fill volume of 0.5 MCM. Submerging an area of 13.5 Ha, it has high leakage risk with no housing, archeological or infrastructure impact, and no agricultural land loss. The supply from the dam would rely on gravity; and
The associated water treatment plant, transmission lines and reservoirs.
Read More

QORTADA-SFAILEH-DEIR KHOUNA-HLALIYEH WASTEWATER SYSTEM

The project comprises two main components:

Four wastewater treatment plants: Qortada (34,330 PE), Sfaileh (108,800 PE), Deir Khouna (79,478 PE) and Hlaliyeh (51,144 PE) in horizon year 2050; and
Their relative collection and conveyance systems, connecting 14,500 homes and all totaling 400km of lines and 284km of over-asphalting.

ALEY (MOEW MASTER PLAN ZONE 8) WASTEWATER SYSTEM

The project comprises two components:

Two activated sludge technology wastewater treatment plants: Maasriti/Chourit, serving Region A (65,000 PE year 2035 and 97,000 PE year 2050) and Charoun, serving Region B (15,000 PE year 2044 and 22,500 year 2050); and
Their relative collection and conveyance systems, totalling 266km of lines.

ALEY (MOEW MASTER PLAN ZONE 7) WASTEWATER SYSTEM

The project comprises two components:

Two wastewater treatment plants: Mejdlaya activated sludge technology plant, serving Region A (45,000 PE year 2025 and 66,000 PE year 2050), and Bchetfine upflow bioreactor technology, serving Region B (20,000 PE year 2025 and 30,000 PE year 2050); and
Their relative collection and conveyance systems, totalling 250km of lines.

Read Me

KFARHAI WASTEWATER SYSTEM

The project comprises two components:

A wastewater treatment plant in Kfarhai (13,980 PE year 2040); and
Its collection and conveyance system, totalling 103km of lines.

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SHABTINE WASTEWATER SYSTEM

The project comprises two components:

A wastewater treatment plant in Shabtine (6,524 PE year 2040); and
Its collection and conveyance system, totalling 62km of lines.

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ZAHRANI AND SELAATA IPP PROJECTS

Implementation of two Independent Power Producer (“IPP”) projects involving two Combined Cycle Gas Turbine (CCGT) power plants located in Zahrani and Salaata areas, each with a capacity ranging between 500 MW and 600 MW.

In terms of fuel supply, GoL is planning to develop Floating Storage Regasification Units (FSRUs) for Liquefied Natural Gas (LNG) for each Project. The deployment of the FSRUs is expected to be finalized by GoL ahead of the Projects’ completion. Both Projects are planned to have dual fuel capabilities using natural gas as a primary fuel and Heavy Fuel Oil (HFO) as a secondary duel with diesel oil being a start-up fuel and a back-up fuel.

NATIONAL DATA CENTER

One or more scalable data center facilities and infrastructure based on Tier 3 standard, offering cloud infrastructure, platform and software services (IaaS, PaaS and SaaS) to both the public and private sectors, with the potential of expanding services in the region.

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MUNICIPAL SOLID WASTE TO ENERGY SYSTEM

The project comprises two components:

An incineration plant of 2,000 tons/day capacity based on “Waste to Energy” technology for municipalities that are willing to participate in the project; and
Six associated sorting plants.

HAZARDOUS WASTE INTERIM STORAGE

A minimum of three interim storage facilities for Hazardous Waste generated in Lebanon (estimated at 50,000 tons/year).

TRIPOLI SPECIAL ECONOMIC ZONE

The Tripoli Special Economic Zone (TSEZ) is the first project of its kind in Lebanon to develop a multi-use economic zone complete with all required infrastructure and utilities. The 55-hectare site is adjacent to the Port of Tripoli and offers many logistical advantages. The TSEZ is expected to be a catalyst for the sustainable economic growth of Tripoli and the north of Lebanon. The TSEZ will provide a streamlined and transparent business environment, develop state-of-the-art infrastructure services, and bolster SME capabilities in order to attract local and foreign investors and expand Lebanon’s export potential.