August 24, 2014

Working paper by Shihab Hanayneh

1

How Jordan can benefit from the public, private partnership law
and how it can be implemented.

Abstract
This paper makes the case for the proposed public private partnership (PPP) law that is
currently debated in the Parliament. Four key drivers were identified to ensure future
success of the unit. A rational as to why the unit has to be within the Ministry of
Finance is provided. Furthermore, this paper suggests six key recommendations as
minimum responsibilities for the new (to be) established PPP unit.

Prepared by Shihab Hanayneh
1

Jordan faces an interconnected challenge that ranges from the so called demographic window
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to interrelated economic vulnerabilities in the areas of monetary policy, fiscal policy and
budgetary constraints. The countrys open economy and high degree of integration with other
economies, especially the regional ones, has created an urgent need to link a strategy of
accelerated economic growth to high value added job creation.

The purpose of this paper is to make the case, for the need, to further leverage private sector
resources combined with international expertise to advance economic development. The
objective is to invigorate and rejuvenate Jordans move towards a Public-Private Partnership
(PPP) strategy which will take the country to the next economic level.

Conceptually, PPP is a facilitating process that allows the government to initiate a project that
has public sector defined goals and well-stated performance indicators to be monitored
accordingly; whereas, the private sector funds and operates the project based on a set of
contractual agreements. The key here is that the private sector assumes financial, technical and
operational risk of the project; while, the public sector ensures fair competition, transparency
and in some cases guaranteed rate of return. Furthermore, in some types of projects like
infrastructure, additional costs of using the service are usually endured exclusively by the users
and not through government subsidies.

Jordan continues to have success with several PPP projects including electrical generation,
clean water distribution and transportation related projects, specifically the new QAIA
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facility
and Aqaba containers terminal. It is reasonably stated that such relative success resulted from
the combined commitment of the government at the highest levels, and the support that the
government held from the international community.

1
Shihab can be reached at hanayneh1@gmail.com. The objective of this paper is to discuss expected responsibilities of the
Central Public Private Partnership Unit. This contribution is intended to further enrich the local discussion prior to passing the
PPP law.
2
Demographic window is defined to be the period of time in a nation's demographic evolution when the proportion of
population of working age group is dominating. This occurs when the demographic structure of a population becomes younger
and the percentage of people able to work reaches its height. Experts tend to believe that demographic window of opportunity
lasts from 30 to 40 years depending on each country circumstances. http://www.mongolianviews.com
3
QAIA is Queen Alia International Airport located at about 40km to the south east of Amman.
August 24, 2014
Working paper by Shihab Hanayneh
2

Since the PPP framework has helped Jordans economy, the then question becomes can we
expand on this experience. In principle, the answer is yes Jordan can benefit from implementing
a nationwide PPP strategy; however, several issues need to be taken in consideration to ensure
that Jordans economic objectives are achieved.

Research
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has shown that there are four key fundamental drivers to enhance Jordans PPP
experience and to increase its effectiveness in implementing more projects. The first driver is
recognizing that the private sector
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is better able to finance, build and manage infrastructure
projects; whereas, the government is better able to regulate service delivery.

In the past, Jordan used the privatization law framework to tender for PPP projects; however,
this created several unsuccessful PPP attempts. Consequently, efforts were made to structure a
new dedicated PPP law. The conceived law is expected to provide legal and political backing at
the appropriate levels to the overall process. The law has clear definition of what constituted a
PPP project, provides standardized and streamlined processes, advocates for a central PPP unit
working within the Ministry of Finance, develops simplified procedures for PPP projects, gives a
mechanism to manage all fiscal commitments by the government and stipulates arrangements
for post-award monitoring of PPP contracts.

I will attempt to address all the above six objectives of the law within this paper indirectly. It is
evident that the proposed framework is expected to minimize the stop and go that Jordan
experienced with several PPP projects by reducing the number of unknowns within the process.
Going forward, the proposed legal framework is expected to enhance the speed of getting
projects implemented and it will empower the government to regulate service delivery. The
PPP unit is deemed to act as the institutional reference point for all PPP projects regardless of
the project ownership within the public sector.

The second fundamental key driver is to improve the public investment planning process. This is
usually done by having all public investment procurement go through a systematic and
comprehensive funding plan to ensure success of PPP implementation. International best
practice recommends that a consolidated approach to coordinate the management of all
capital investment projects is necessary to ensure that capital budget is prepared, reviewed and
funded in a consistent manner and according to well defined criteria. The PPP unit has to play a
significant role in assisting the government in developing a standardized upstream process of
identifying, appraising and selecting the right PPP project.


4
This is based on the writers personal efforts to educate himself on the subject by gathering information on international best
practices; in addition, to reading material that were available during his engagement with the Privatization Evaluation
Committee in 2013.
5
For the purpose of this paper the term private sector does not limit itself to the traditional understanding of Jordanian private
sector only. The term is used in this paper to include cross border ownerships and partnerships that can be formed within the
region or internationally. Such cross border ownership structure will be able to finance projects through listing at the stock
exchange or by issuing bonds or Sukuk to finance projects.
August 24, 2014
Working paper by Shihab Hanayneh
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The third fundamental key driver for the overall success of the PPP program is to create a
system within the PPP unit to manage all fiscal commitments generated from PPP projects. The
thought process here is to advocate for a system that actively protects against any risk of
financial shortfall since PPP projects do operate outside the government budget horizon or in
other words off balance sheet. This is a highly recommended procedure to help mitigate for
potential obligations the government might be exposed and to reduce uncertainty among
stakeholders. Furthermore, this recommended mechanism provides the government with a
technique to assess additional hidden costs, if any, in an institutionalized and consistent
manner. The objective is to provide the decision makers with good estimates of all costs and
commitments. Such a process helps the government better assess the overall value of the
proposed PPP project.

The fourth driver is ensuring that the institutional and procedural framework for the PPP unit
operates as an institutional connecting point for activities related to the implementation of all
Jordans PPP program.

International experience has shown that each country has its own intra-synchronicities at play
when operating PPP unit. The risks of having a shell with no substance can be harming to the
countrys economy in ways far more reaching than expected. Based on other international
experiences combined with objectives stated in the proposed law; it is deemed important that
the mandate of the unit has to include at least the following minimum six responsibilities
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these
responsibilities correspond to the six objectives of the proposed law:

1. Recommending to the government on all legal, regulatory and institutional issues
related to undertaking PPP projects in Jordan,
2. Making certain that all projects are incompliance with the third fundamental key driver
i.e., affordability and provide value for money to the contracting authorities as
owners of the project,
3. Establishing the fact that all projects meet local and environmental, heritage and social
responsibility standards. This is essential to ensure a sustainable economic growth,
4. Determining that all projects are procured in a transparent, fair and competitive
manner,
5. Following up on the contracting authorities to manage and monitor agreements
effectively during the development and operational phases of each project post contract
award. Additional work is needed to conclude if there is any discrepancy or conflict may
result from this recommendation; most specifically the Jordan Audit Bureau role,
6. Facilitating a strong public relations program to highlight and communicate the PPP
progress, vision and success. It is essential to note that the public relations component
can be outsourced.


6
The six responsibilities were based on reviewing recommendations stated on the World Bank Website, and from reviewing
Egypts Central Public Private Unit website.
August 24, 2014
Working paper by Shihab Hanayneh
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In summary,
The PPP unit has the duality of acting as the investment banker on behalf of the government
and as the investment custodian on behalf of all Jordanians on all awarded PPP projects. The
unit complements the contracting authority work by securing the fair and transparent process
in recommending the most eligible business partner. Furthermore, the unit has to work jointly
with stakeholders to ensure that the contracting authority has fairly transferred financial,
technical and operational risk to the private partners once the project is awarded.

Having such a multilayered roll requires the unit to stay administratively lean. Therefore, it is
recommended that several tasks are better off outsourced, more specifically technical expertise
for certain projects. The concept of outsourcing expertise becomes essential component as it
might be challenging to either acquire or internally develop needed talent. Such a
recommendation is made by having the opportunity to follow up on the Egyptian experience,
which started in 2006.

International experiences tend to trust the PPP unit with the responsibility to be the quality
control auditor of all PPP projects. In addition, in some countries the unit provides contracting
authorities with technical assistance in project implementation either with in-house expertise
of through contractual agreements with external expertise. Furthermore, the fundamental
stand is that the unit is expected to act as the secretariat, and provide technical support, to the
final approval authority for any of the PPP projects.

Finally, it is imperative to state that all PPP projects are owned by each of the contracting
authorities. Each ultimately has the responsibly to identify, evaluate, procure, negotiated and
monitor effectively and efficiently, and comply with the requirements that are put down in the
framework and by working in collaboration with the PPP unit.


Thank you
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The author intended to prepare this write up in the English language to widen the readership of the content. The author is the
sole responsible for the content of this paper. The ideas and concepts communicated in this paper were based on research
done form Word Bank working papers, discussions with colleagues and based on information available on the web. The
content of this paper can be used without the written consent of the author provided a citation is noted. This paper will be
distributed to selected readers and each is free to redistribute as he / she deems it beneficiary.