Asset Management and PPP Frameworks

The MENA region is witnessing an increase in Public Private Partnerships (PPPs) driven by the need to improve best practice techniques, return on investment, technological advancements, and securing capital and human investment.

“Globally, publicly operated companies are haracteristically known for historically low levels of investment. This is even more evident in the water industry where the majority of assets are below ground and "out of sight" hence often forgotten. Another reason for historic under investment in publicly operated companies is that they are not normally high on political agendas; nor are they considered to be profitable”
-Craig Demanuele, Head of Management Advisory Services, Hyder Consulting Middle East Limited

The Challenges surround 'PPP' Options

PPP is a mechanism involving the private sector to assist with enhancements to public sector service delivery, and business efficiencies by bringing together best practices from around the world. There are many different facets of PPP that range from a simple short term service or management contract through to a 25 year concession, or even public sell-off.

Public asset owners usually consider a PPP engagement to deliver a required vision or to address a more urgent immediate need to improve existing service levels which may have been allowed to decline over a certain period.

There are various aspects to be considered when choosing a PPP model. Hyder Consulting is able to advice on the appropriate model; from service contracts through to concessions and divestitures.

Developing a Strategic Vision

In a region financed by seemingly endless natural energy reserves, it is understandable that some of the visions put forward in the Middle East are extremely ambitious and challenging. On the other hand, the recent global economic downturn has raised many questions over spending and this has resulted in more caution. When considering a particular model, it is recommended that a strategic transformation plan (STP) is developed that:

• Establishes a vision for the organisation over the short, medium and long term
• Determines the status of current assets and identifies the required performance, condition and capacity of assets to meet current and future needs
• Identifies the requirements for the organisation with regards to people, processes, procedures, technology and tools
• Quantifies broadly the level of funding to deliver of the desired vision

The level of effort and consideration required to developing an appropriate strategic vision should not be underestimated. It is, after all, the foundation for the organisation and will set the path for the future. Hyder Consulting recommend that the visioning exercise be a collaborative one that includes presentations and workshops to all levels of the organisation.

Developing an Asset Management Plan to Quantify Levels of Investment

Craig Demanuele, Head of Management Advisory Services, Hyder Consulting Middle East Limited comments: "Globally, publicly operated companies are characteristically known for historically low levels of investment. This is even more evident in the water industry where the majority of assets are below ground and "out of sight" hence often forgotten. Another reason for historic under investment in publicly operated companies is that they are not normally high on political agendas; nor are they considered to be profitable".

Over the last 20 years, water and roads infrastructure organisations have turned to PPP as a way to bridge the gap between the level of investment required to improve asset condition and performance against the level of available funding.

Though the impact of the recent economic downturn is typically more evident in Asia, South America and Eastern Europe, it is also having an impact on project financing in the Middle East region. A lack of available funds has been cited as a major factor for considering PPPs in this region so that private funding can help to overcome a trend of historic underinvestment.

An evaluation of the assets will help to quantify both the volume of work that is required to meet the desired levels of service (LoS) set out in the strategic vision as well as the required expenditure profile for the planning horizon. It is essential that this evaluation is carried out in outline as part of the STP. This is because the level of required funding will become a major consideration for selecting an appropriate PPP model. Hyder recommends an approach that is aimed at answering five basic questions:

1. What is the current state of my assets?
2. What is the required level of service to deliver the strategic vision?
3. Which assets are critical and therefore should be prioritised?
4. What is the required level of operation and maintenance and capital expenditure investment?
5. What is the best funding strategy?

Having completed the asset appraisal, the level of funding required bridging the gap between the present situation and the organisation's vision for the future may be too large. It may be necessary to formulate and agree a more realistic strategic vision.

Conducting an Organisational Capability Assessment and Preparing for Change

When considering enterprise asset management, it is easy to focus on the assets and a vision of pristine, newly constructed and state of the art infrastructure, managed using complex technological equipment. The assets cannot, however, be operated to deliver the required LoS set by the vision unless the organisation is matured to a comparable level of sophistication. People, process and procedures should be considered as part of the STP.

With respect to technology, thought should be given to enhancing systems to meet the requirements of the vision. Within the organisation systems might include coverage of areas from Geographical information system (GIS) to Inventory control; and customer information and support to Metering, billing and revenue collection.

A variety of PPP Models

Having evaluated the assets and the organisation and deciding that PPP is a suitable way forward, the next stage is to evaluate the various PPP models to decide which is appropriate. Each model carries various levels of risk. For example, a concession requires the asset owner to relinquish a significant amount of control in order to benefit from private participation and funding.

Recommendations for Asset Owners

An essential stage to a successful PPP is the early involvement of a highly experienced consultant. Hyder Consulting has the appropriate experience and expertise and many years of lessons learnt to guide asset owners by determining the GAP between where they are to where they want to be by shaping the appropriate direction.

We can also complete a strategic transformation plan of an organisation and its assets before deciding the way forward. And we also select the PPP framework that allows investment to be optimised and shape contracts to drive your business forward, not constrain it.