Jordan has released the Executive Programme for Economic Modernisation (2023-2025), which details hundreds of interventions and projects that will be carried out over the next three years. The target is to raise annual per capita income by 3 per cent while also creating new jobs. The Economic Vision is based on attracting private investment and funding infrastructure through Public-Private Partnerships (PPPs) across a wide range of sectors. As a result, several PPPs worth JD10 billion will be implemented, including water desalination, school construction, clean energy, green hydrogen, transportation improvement and highway road construction.
Jordan has traditionally acquired infrastructure assets through traditional public investment methods, first building the assets and then operating them. While this strategy worked, governments were required to make the entire capital cost of these projects available during construction. Furthermore, the government was required to provide funds to cover recurring operations and maintenance costs, as well as costs for periodic asset refurbishment and replacement through operational investments, putting a strain on the budget and fiscal space since the real cost of public service provision was not paid directly by users. Budget provisions for operations and maintenance costs, as well as periodic operational investments, have historically been limited, resulting in asset mining and service deterioration. Jordanians have had high rates of infrastructure access, but the perceived quality of services has declined over the last ten years.
PPPs have grown in popularity in recent years as an alternative method of delivering infrastructure and public services that relieve the government of the burden of providing capital. Another benefit is the incorporation of private-sector technical and managerial innovation into facility operation and maintenance, which improved quality, efficiency, and effectiveness while lowering long-term costs. However, the majority of PPPs in Jordan use an availability payment fee structure, in which revenue risk is transferred to the government, which makes pre-determined payments to the private consortium over the life of the PPP without charging users for these payments (to ensure budget neutrality impact). In addition, PPPs have complex development processes with long lead times and long preparation and tendering periods (on average three years) between project initiation and financial close, which could delay the delivery of the PPP pipeline in the Executive Programme.
As a result, implementing an innovative PPP model based on private operation, maintenance, and financing of operational improvements to existing public assets is critical. In the short term, this would guide Jordan's economic recovery by improving service quality, realising efficiency gains, sharing revenue based on improved performance, quick mobilisation of private capital and implementing a user-pay revenue regime and payment mechanism. The new model would prioritise preserving and sustaining existing assets over building new ones over the next three years, resulting in an improvement in the quality of the country's public capital stock (public assets), which currently stands at 77 per cent of GDP (approximately US$30 billion).
This PPP model could be applied to Non-Revenue-Water (NRW) reduction, a long-standing challenge in the water sector. The Ministry of Water and Irrigation has identified the need for more than US$ 1 billion in funding to reduce the NRW percentage (50 per cent of water supplied) to acceptable levels in its strategy. Under a PPP model that focuses on private financing and management innovation, a performance-based contract will be the most efficient way to successfully reduce NRW, and it could be implemented more quickly than traditional projects, resulting in greater water savings sooner. This will also help to ensure that the water available from the National Water Desalination Project (which will cost between 2-3 US$/ per m3) is used as efficiently as possible with significant loss reduction before delivery and improving services. Users would be willing to pay more for water if service reliability and continuity were improved.
Jordan's 1,400 km of major highways must also be subjected to the concept of Road Asset Management (RAM). RAM is a systematic and ongoing process that aims to reduce the cost of maintaining, upgrading and operating physical assets such as primary roads, bridges, and other road structures. The goal is to put in place a strategic management plan to reduce the life cycle cost of road assets by properly assessing the current situation, anticipating degradation, and repairing or reinforcing them at the right time. It combines engineering disciplines with sound business practices, financial theories, and economic analysis. The national transportation system must allow for safe, dependable and timely journeys for road transport to underpin Jordan's spatial, economic, and social development. This enhancement would justify charging users directly for road maintenance and improvements.
In parallel, contracts for energy efficiency savings have the potential to reduce electricity bills in public buildings, schools and hospitals and water pumping facilities. A shared saving model can provide financing as well as project development and implementation costs, with energy savings shared between the private and public sectors over the contract period. The private sector would guarantee energy savings and/or the same level of energy service at a lower cost. Its pay is proportional to the amount of energy saved and the value of operational investments made.
Another example would be school maintenance agreements, making the private sector responsible for infrastructure maintenance and facility management of school clusters under school maintenance agreement frameworks, which would be much more economic since it will reduce rehabilitation and refurbishment costs that would need to be implemented if the school is not properly maintained.
To achieve the intended income growth and job creation targets in its vision, Jordan will need to identify areas of intervention for improving public service delivery and asset management under a new PPP model. This could help small and medium-sized businesses build local supply and value-addition capacity, as well as create more opportunities for economic development and ensure the participation of local banks and financial institutions. It would also contribute to budget relief by levying user fees on higher levels of service, reducing inefficiencies and budget pressure.
Iyad Dahiyat is the former secretary general of the Water Authority of Jordan and the Ministry of Water and Irrigation in Jordan from 2016 to 2019.
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