Written by lawyer Bashar Mohammad Batah
Investment in partnerships between the public and private sectors varies. It is not limited to major projects but also includes smaller-scale projects, considering their nature and the amount of capital expenditure involved.
Although government focus usually lies on investment projects at the national level in conventional economic sectors such as transport, water, and energy, the need for small-scale partnership projects in emerging and relatively new sectors has become imperative, considering the financial and technical challenges faced by agencies responsible for the establishment and management of public facilities, and the need to benefit from the private sector’s capabilities in providing financing and necessary technical expertise for these projects.
Given the size of our national partnership projects; while they are not large in terms of capital compared to those in the Gulf countries and Western countries, it is due to the geographical area of the Kingdom, the limited current investment opportunities therein, and the economic conditions.
Partnership Projects Law No. 19 of 2023 defined a partnership project as: an activity aimed at providing a public service, or improving it, through a long-term contractual relationship between the government entity and the private sector, based on risk sharing, under the supervision and responsibility of the contracting authority and listed in the national register of government’s investment projects at the Ministry of Planning and International Cooperation. Introducing the concept of long-term contracting to the partnership project, which involves multiple contracts, does not prevent the existence of small-scale projects with shorter contracts, which we will explain through the following topics:
The scale of capital expenditure on small-scale partnership projects
The scale of capital in such projects varies from country to country, according to economic indicators, population density, geographic area, etc., and even within the same country; it is subject to change from time to time; depending on changing circumstances and policies, and economic programs.
So what about Jordan? In the country's first partnership law between the public and private sectors, No. 31 for the year 2014, the Cabinet decided that a small-scale partnership project is one where the capital expenditure does not exceed 15 million dinars, without specifying a minimum limit. Then, this law was repealed by the Partnership Law between the Public and Private Sectors No. 17 for the year 2020, and the previous decision ceased to be effective accordingly, since the subsequent law did not include considering the decisions issued under the repealed law as valid until they are amended or repealed by a new decision. However, a similar decision was not issued by the Cabinet under the Partnership Projects Law between the public and private sectors No. 17 for 2020, without knowing the reason at that time.
Partnership Projects Law No. 19 for the year 2023 came; Article 23/j of it required the issuance of a regulation by the Cabinet to implement its provisions, which includes procedures for partnership projects costing less than the amount determined by the Cabinet; Article 2 of the Small-Scale Partnership Projects Regulation No. 9 of 2024 defined a small-scale partnership project as one where the capital cost is less than 10 million dinars, or the amount determined by the Cabinet according to the provisions of the law, enabling the government to revise the amount of project capital, whether increasing it or decreasing it, depending on changing circumstances.
Financing for small-scale partnership projects
These projects are characterized by lower costs compared to major projects, making the financing market for them attractive to local lenders, considering their level of risks and the low guarantees required for repayment. Also, borrowing in the national currency reduces the risks of exchange rate fluctuations and interest in the event of external borrowing in foreign currencies, which necessitates the private sector to offer feasibility studies that are attractive to financiers to provide support and employ financial surpluses in developmental projects and green projects with added value.
The role of local banks in supporting these projects is extremely important, as they have a huge capacity to finance them through the use of their assets, amounting to about 70 billion dinars according to the president of the Banks Association before the Financial Committee in Parliament in 2024, making them a national partner in developmental and economic projects that contribute to raising growth rates and enhancing domestic investment, and providing the treasury with profitable returns.
Since the private sector assumes the financier's role, it relieves the public sector of the burden of self-financing or borrowing, thus reducing public debt. The definition of a partnership project reflects the essence of the relationship between the parties of the partnership contract based on risk sharing, including financing, changing currency rates and interest, and guaranteeing a minimum revenue, thus transferring certain risks to the private sector that is better equipped for them through the contract, rather than the public sector bearing them.
Now, Islamic financing windows for partnership projects have become available, such as the Islamic Finance Sukuk Law No. 30 for the year 2012, which provides an additional incentive to introduce this finance model based on the existence of real projects and genuine profit and loss sharing, in addition to getting rid of the burdens of traditional financing based on fixed interest that is prohibited religiously.
It should be noted that the partial financial contribution of the public sector does not negate the project’s nature as a partnership with the private sector, as the latter bears the total financing burden of the project, so such contribution falls under supporting the project and reducing the cost to the final consumer, exemplified by the government's participation with 300 million dollars in the Disi Water Conveyance Project in exchange for reducing the cost per cubic meter of water to the user.
The public sector
Building the capacities of employees in public entities involved in small-scale partnership projects contributes to their success, especially regarding legal issues, evaluation of studies, management of contracts and projects, roles of the parties, partnership models, media communication, etc.
It is essential that public sector institutions support these projects and grant investment incentives given their value for money and the added value they bring to the economy and society, thereby providing job opportunities, promoting economic growth, and expediting development. On the other hand, the public sector's participation in the returns of the project achieves additional revenue for it, with the project ultimately transitioning to it without bearing the construction costs.
It is also crucial to continuously review the legislative aspect to facilitate the execution of small-scale projects and eliminate the challenges facing them, without affecting investors' rights. The successive unstructured amendments discourage investment and alienate investors. Conversely, when the public sector initiates partnership, it may be criticized — by some — for seeking to sell national assets or subjecting them to unsafe investments. Additionally, it should be noted that there is a misunderstanding of the partnership between the public and private sectors, with the intervention of the private sector leading to higher prices and monopolistic practices against citizens amidst the absence of state oversight of such practices.
As the partnership with the private sector is a method of purchasing services, it is more complex than traditional methods used by the public sector because it requires the private partner to bear a larger share of the project’s risks and understand those risks with the lenders. Therefore, it requires significant effort in preparing and analyzing the proposed project, issuing the tender to select the best contractor, and because the projects extend beyond completion of construction and implementation to include service provision by the private partner, they necessitate contract management and oversight systems, which are costs that are largely independent of the project size.
The private sector
Small-scale partnership projects particularly stimulate the national private sector, given their requirements available to the majority of local investors. The financial cost can be available either through self-financing or by obtaining facilitated credit at low costs, along with the availability of national technical expertise, which eliminates the need for foreign expertise, thereby creating added value by generating employment opportunities and reducing unemployment rates. Indeed, national expertise — part of the final users — supports the design of national projects that better meet the needs of the citizens.
Still, such projects remain limited in scope and are surrounded by numerous fears, some related to the private sector, such as bureaucracy in some public sector institutions, lack of diversifying investment tools, traditional thinking about the necessity of the public sector's presence in all services provided to the citizen, and reluctance to accept the idea of paying additional amounts to the private sector for enhanced service quality, under the obligation to provide it for free to the citizen in exchange for taxes paid to improve state facilities. Furthermore, investors are wary of engaging in investments with public institutions due to lack of financial feasibility and heightened risks. There is a stereotypical image of the public sector as a service sector inappropriate to be a genuine investment partner.
Forms of partnership in small-scale partnership projects
No specific form exists for small-scale projects, as space is available for all forms depending on the nature of the project and the amount of capital. The simplest forms include management contracts, exemplified by the management contract of Amman and Zarqa city waters in the nineties by the French company Lima for a sum of 40 million dollars, which included water distribution in these two provinces and providing sewage services, followed by Jordan Water Company (Miyahuna) entirely owned by the government represented by the Water Authority taking over, and it eventually expanded its scope to include Madaba and Balqa provinces.
The aforementioned management contract tells the French experience, where private companies managed Paris city water and sewage for over 25 years before the sector reverted back to state management.
The main constraints determining the appropriate form of partnership between the sectors are the required role of the private sector in the project and the risks intended to be transferred to it, along with other requirements through which the public sector facilitates partnership with its private counterpart, which led to the entrance of other models of these projects including: BOT, BOO, DBOT, among others, and policies of states in dealing with small-scale partnership projects vary in their evaluation and implementation, as well as the special requirements and benefits granted to them.
Small partnership projects can make a significant difference in the lives of citizens, as they carry talent, will, and creative thinking in their structuring, financing, and implementation, achieving public satisfaction and urban development.
However, this does not mean that this type of projects takes one form only, as a project may be small in size, but due to its importance, subject, and location, it may involve contractual forms of design, financing, and execution, and transfer of ownership (DBOT), and may be accompanied by management and operation, as sometimes a project may be small in size but has multiple benefits across different locations within the same country region.
In addition to the previous models, there are other models for partnership project contracts; available for small-scale projects, as follows:
1. Develop - Build - Finance – Operate – DBFO - Develop, Build, Finance, Operate
2. Manage - Operate – Maintain – OMM - Management, Operate, Maintenance
3. Rehabilitate - Operate – Transfer – ROT - Rehabilitate, Operate, Transfer
4. Build - Lease – Transfer – BLT - Build, Lease, Transfer
5. Develop - Operate – Transfer – DOT - Develop, Operate, Transfer
6. Build - Transfer – Operate – BTO - Build, Transfer, Operate
7. Rehabilitate - Lease Financing – Transfer – RLT - Rehabilitation, lease, Transfer
8. Build - Rehabilitate - Operate- Transfer – BROT - Build, Rehabilitation, Operate, Transfer
9. Build - Lease Financing – Ownership – BLO - Build Leasing and Own
10. Build - Interim Ownership - Lease Financing- Transfer – BOLT - Build, Interim Ownership, Lease, Transfer.
11. Rehabilitate - Own – Operate – ROO - Rehabilitation, Own, Operate
12. Purchase - Build – Operate – PBO - Purchase, Build, and Operate.
Grouping small-scale partnerships
There may be a need for a certain project within the state, and it may be requested in more than one area at the same time. Thus, we face similar projects in terms of nature and capital amount. Here, it is possible to merge them into a single project to facilitate the phases and guarantee their joint execution. This allows bidders to apply for tenders for multiple partnership projects at once, which reduces costs for the public sector due to following the same procedures and using the same tender documents for all projects instead of repeating the process for each project individually, thus reducing the time for studying and completing their implementation.
This was permitted by Article 44 of the Partnership Projects Regulation between the Public and Private Sectors No. 9 of 2024, which states that the Ministry of Investment or the Governmental Investments Management Unit at the Ministry of Planning may merge small-scale partnership projects of similar nature as one project. A feasibility report is prepared, and the tender is issued for the group of small-scale projects of similar nature as one partnership project according to the provisions of this regulation, with the project being registered in the national register of governmental investment projects at the Ministry of Planning and International Cooperation.
As a general rule, what distinguishes small-scale partnerships is the simplicity of contracting, the reduction of legal requirements due to the lower capital expenditure involved, and their focus on important projects that serve marginalized areas or those with low or medium living standards or emerging regions, among others, contributing to their development and quickly improving their condition, accelerating their effectiveness on the ground, thus enabling their expansion to include similar communities, enhancing their added value at the regional level.
Examples that fall under this context include projects for recycling various wastes, building schools, diverse parking lots, bridges and roads within provinces, hospitals, grain storage, installing street lighting to reduce crime, increasing solar-powered lit areas, developing and maintaining parks, urban roads, slaughterhouses, etc.
The benefits granted to small-scale partnerships
The Partnership Projects Regulation between the Public
