Saudi’s Vision 2030 – Why Government Capacity Building Is So Important

by King & Spalding
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Introduction

Considering the complexity involved in developing a national public-private partnership (PPP) program, it is generally accepted that governments do not typically have the internal skill sets required to plan, implement and regulate such  programs. The required skills include developing public policy, identifying  appropriate projects, commercial and financial structuring, running the procurement process, negotiating contracts and overseeing the private sector’s implementation of each PPP project. Saudi Arabia’s Vision 2030 has been received with much praise from the international commercial community. However, without a strong capacity building program involving the establishment of strong PPP institutions, a robust regulatory regime, clear PPP procurement procedures and well trained government personnel, implementation will be challenging.

Policy Objectives

The starting point of a capacity building discussion is policy.  Capacity is required to ensure that the PPP policy is properly implemented.  The economic and social policies of the government should be at the heart of policy development.  In some jurisdictions, the focus has been narrow with the objective of simply removing the public expenditure burden from the balance sheet of the government.  This has often created a windfall for the private sector at the expense of the credibility of the government.  

Value for money has been the key driver in many jurisdictions.  This is important as PPP projects are for the public good.  The services provided under a PPP project would typically be provided by the government. A service should only ever be provided on a PPP basis if the public good can continue to be served and the private sector is incentivized to provide that service at a level materially higher than that of the government.  Left to itself, the private sector is not incentivized to achieve these policy objectives.  It is governments’ responsibility to ensure that policy objectives are achieved and this requires highly developed capacity.  

How to Build Capacity

Establishment of a PPP Unit

A PPP Unit can be an effective way of pooling government resources into a centralized body around a group of civil servants and government officials with the principal objective of ensuring that PPP policy is developed, implemented and, over time, reformed and improved.  

Where the government is at the beginning of its PPP journey, a PPP Unit can play a key role in developing the market.  This will normally involve working closely with other government institutions and raising both national and international awareness of the up and coming PPP program.  Although Saudi Arabia does not have a formal PPP Unit, the teams dedicated towards the development of PPP policy within the Ministry of Economy and Planning have begun this process through the announcement of Vision 2030.

Project delivery is also important.  A university hospital PPP project, for example, would typically involve liaison with multiple government institutions.   This might include the Ministry of Education, Ministry of Health, Ministry of Commerce and Ministry of Finance.  A PPP Unit can play an important coordinating role to ensure that each project is properly conceived and has the full support of all arms of government.

PPP Units often perform a monitoring role.  This is principally to ensure that value for money is achieved on an ongoing basis.  To the extent that value for money is not reflected in the implementation of PPP projects, the PPP Unit can initiate the process of reforming policy and ensuring that value for money is indeed obtained.  This could be achieved through the amendment of the relevant regulatory regime or changes to the procurement process.

PPP Units do not have to be limited to a centralized function.  Individual ministries or government owned procuring entities can develop their own units.  These units would principally be involved in the procurement of individual projects and subsequently reviewing implementation.  The centralized unit would not have to manage the procurement process, but it could nonetheless provide a support role, working closely with the local units procuring the individual projects.  

National Training Program

National PPP training programs are intended to build the expertise of government officials.  The emphasis would be on a combination of learning about PPP theory and developing practical transaction based experience.  This could involve:

  • providing policy training at the ministerial and senior decision making levels;
  • seconding PPP professionals from other jurisdictions into the PPP Unit of the host country;
  • seconding government officials from the host country into PPP Units from other jurisdictions;
  • providing long term foundation courses for government officials working within the PPP unit; and
  • in the medium and long term, providing an MBA program focusing on PPP projects.

The above could be carried out for both centralised and local PPP Units and involve the training of hundreds of Saudis within the Kingdom.

 There would still be a need for external consultants, but with time, the reliance would reduce.

Regulation

Well constructed regulations create consistency and certainty.  It is also one of the most powerful tools to ensure that government PPP policy is effectively and efficiently implemented so that its economic and social objectives are achieved.   The key to regulation is flexibility.  Rather than taking a detailed prescriptive or even prohibitive approach, regulation should focus on achieving outcomes, whilst preserving the ability of the private sector to be innovative.

A typical PPP process can be complex and time consuming.  This can be exacerbated where regulations are inadequate.  In this situation, the private sector will often seek to mitigate the uncertainty through the negotiation of complicated contractual provisions resulting in delay and additional costs.  

Gaps in the regulatory regime can prove to be particularly costly for the government.  If the government decides to amend a regulation in order to address an area that was originally missed, the private sector is typically able to obtain compensation under the PPP agreement on the basis that the law has changed.  If the oversight is substantial, the objective of achieving value for money can be seriously eroded.  Regulation should therefore not just be a tool to attract private sector direct investment, but a means to facilitate the achievement of government policy and the building of government capacity.

Procurement

Adopting an appropriate PPP procurement regime is important as part of the capacity building process.  At the heart of the issue is the use of standardized PPP agreements.  Such standardization fosters familiarity and accelerates the contractual learning process of government officials.   Expertize within government can be created much faster.  This quickly leads to a greater degree of confidence, resulting in a greater likelihood of achieving government policy, including value for money.

Given the various types of commercial structures that are often found in PPP projects, it is unlikely that a single standardized contract would be sufficient and there may be a need to have more than one. However, the aim should be to restrict the number to the absolute minimum.

Conclusion

Implementing a PPP program and executing individual PPP projects can be notoriously complex.  This has been the experience of many governments around the world and in some cases there have been basic flaws in the establishment of the PPP program.  These cases work to the advantage of Saudi Arabia as there are ample examples of what not to do.  However, an appreciation of this and the successful development and implementation of a program in the Kingdom requires placing capacity building at the very top of the government’s PPP list of priorities.  PPP projects are not merely about moving assets off the balance sheet of a government.  This is too simplistic.  Nor should it be an opportunity for the private sector to make windfall profits.  PPP projects are about delivering public services and at the heart of the delivery of such services is the public interest and the national good.

 
 
 

Leroy Levy
Dubai
+971 4 377 9910
llevy@kslaw.com
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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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