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Public Private Partnership Law Is Under Fire

By Gamal Essam El-Din


Although approved by the overwhelming majority of deputies of the ruling National Democratic Party (NDP) in parliament Tuesday, a new law aimed at opening the door to private sector partnership in public infrastructure projects faced much criticism. Leftist and Islamist MPs charged that the law is another major step towards privatising the national economy and liberalising prices of vital public services. "Because of this law," lamented Muslim Brotherhood MP Hussein Ibrahim, "the prices of public services will go up too high while private sector and business tycoons will be slated to dominate the national economy."

Mohamed Abdel-Aziz Shaaban, a leftist MP, also cried foul that "the public private partnership [PPP] law is a declaration that the government has gone bankrupt and that it has become no longer able to spend on infrastructure projects." "We know that public debts have gone wild, exceeding 77 per cent of GDP, and that the government has become short of funding to spend on giant water and sanitary drainage projects," said Shaaban. He warned that the private sector foray into giant public service projects will come at the expense of poor citizens who will find it financially difficult to bear the prices of PPP services.

The opposition also complained that the PPP law was rammed through parliament without enough debate among opposition parties and civil society organisations. Rifaat El-Said, chairman of the leftist Tagammu Party and an appointed member of Shura Council, said "the PPP law is a government tool for camouflaging the budget deficit." El-Said accused Minister of Finance Youssef Boutros Ghali of "trying his best to privatise the national economy and relieve the state budget of the burden of spending on public infrastructure projects." "This policy will play havoc on millions of poor Egyptians who depend on subsidised public services."

Ibrahim El-Gaafari, a Brotherhood MP, went so far as to urge MPs "not to approve the law so as not to allow Ghali to use it as a knife for slaughtering poor Egyptians." "It is not only Ghali who will hold this knife but also a handful of NDP-affiliated business tycoons who will greatly profit from this PPP law," decried El-Gaafari.

Responding to opposition MPs, Minister Ghali insisted that most of their criticism was entirely unfounded. Ghali explained that the PPP law "is just a government tool aimed at helping to achieve higher economic growth rates in terms of improving public services and implementing them at the efficiency and speed required." Ghali, however, admitted that the government does not have enough money to spend on necessary giant public infrastructure projects in the coming years.

"We need at least LE120 billion in funding to spend on public infrastructure projects in the next four years, or LE30 billion per year, and this is too much for the government's treasury to afford," Ghali said, wondering, "Why can not the government initiate a partnership with the private sector to cover this funding gap?"

Ghali recalled that since the early 1990s the government's policy has aimed at liberalising public services. "We began with implementing the BOT [build, operate and transfer] projects, then turned to opening the door to private investment in airports and seaports, and at last amended the bidding procedures law to facilitate private investment," said Ghali, adding that the "PPP law is another important step because it aims at phasing out all obstacles standing in the way of private investment in vital sectors such as giant water, sanitary drainage, health and education projects."

Ghali also indicated that the government drew on the experience of different European countries, especially the UK, Australia and France, in designing the PPP law. "This is a law that regulates the performance of joint public and private partnership projects," said Ghali. He added that "a higher PPP committee headed by the prime minister will be created to be in charge of drawing up national PPP projects and regulating their performance."

Ghali also noted that the law includes all the bidding procedures necessary for regulating the selection of private investors qualified to conclude PPP contracts with the government.

Other parts of the 39-article law, said Ghali, deal with "the instruments adopted when modifying PPP contracts, settling disputes and regulating the government's right in disrupting PPP contracts."

Joining forces with Ghali, Ahmed Ezz, chairman of the Budget and Planning Committee, argued that "history will register that thanks to Minister Ghali the financial system of Egypt was highly upgraded, tax revenues were boosted by 400 per cent, and the state budget was rationalised."

Explaining the rationale behind the PPP law, a report prepared by Ezz explained that government investment in public projects has jumped from LE23 billion in 2004/2005 to more than LE43 billion in 2008/2009. "This does not mean that progress in the implementation of this investment was so high," said the report, lamenting that "progress was so low and had not kept pace with society's development needs."

Further, Ezz's report argued that most government investments go to water and sanitary drainage projects the financial value of which increased fivefold in the last five years. "These investments consumed LE40 billion, LE30 billion out of which was spent only between 2007 and 2009," said Ezz, concluding that, "What is more shocking is that water and transport projects still require huge amounts of money to improve the living standard of most Egyptians."

Ezz argued that the PPP law aims at stimulating private investment in the area of vital public infrastructure projects. "This investment will be achieved in partnership with the government and not on the basis of complete private ownership or privatisation as some opposition MPs alleged," said Ezz. "It will not help create business tycoons or fat cats as some alleged, but it will play a significant role in upgrading public services under the supervision of the government and under prices agreed with it," said Ezz.

Ezz's report indicated that PPP projects are slated to cover six vital areas of public infrastructure: water and sanitary drainage, roads and transport, agriculture and irrigation, education, industrial development and internal trade.

Ali Lotfi, former prime minister and an appointed Shura Council member, told Al - Ahram Weekly that the law gives the government a licence to unilaterally change or phase out PPP project contracts. "A central unit affiliated to the Ministry of Finance will be tasked with supervising PPP projects and guaranteeing that private partners abide by the articles of contracts," said Lotfi, adding that "private partners will be equally given the right to file complaints with the unit to keep their rights."

Lotfi indicated that PPP contracts are designed by the law to range from five to 30 years. "They should be valued from at least LE100 million to billions of pounds," Lotfi said, indicating that "Foreign investors will be allowed to tap PPP projects, but under the supervision of the Finance Ministry."


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