PPP - Simon Monk

Speaker key
AN Anthony
SM Simon Monk

AN Good afternoon, Simon, this is Anthony.

SM How are you?

AN I'm good. How are you doing?

SM I'm fine, thank you.

AN Fantastic. My first question, Simon, is since the May 2010 ratification of the
PPP law in Egypt, it's clearly paved the way for the process to improve and provide
transparency. How has the passing of this law made a difference?

SM Well, I think the move is certainly very, very positive and has confirmed the
commitment of the Egyptian government to the PPP procurement method.
Importantly, it provides greater flexibility for the government and the private sector
during the negotiation process, the PPP negotiation process. The government will be
better able to confirm the commercial basis of the goods that have been submitted and
also the risk allocation that gets agreed between the parties. And in my view, this
represents a major improvement or even better conditions for the Egyptian
government and should now be able to maximise value for money and achieve a
better deal for Egypt.

AN Until now the scenario is quite straightforward. There have been PPP
regulations for specific sectors... for example, the telecom sector or the infrastructure
sector. How do you see a unified law such as this impacting these existing
regulations?

SM Well, the PPP law in my view is intended to clarify how procurement across
various sectors is or can be undertaken. As such, it provides a framework for the
procurement process and also confirms the role of the PPP central unit and the powers
of the Ministry of Finance to act as payment guarantor on behalf of other government
bodies if necessary. In my view, sector laws and regulations will remain as important
as they have been to date, making sure that stakeholders in an industry are aware of
their respective rights and obligations as appropriate.

AN There is a very high-level panel on day one, which includes Macquarie,

Mubadala, the Ministry of Investment in Egypt and Orascom of course. And we've
just confirmed the speaker from the National Bank of Egypt. Quite obviously, it will
be a very interesting debate, but what do you feel is the biggest challenge facing

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investment to equity that you would want this panel to address, for the benefit of the
market and for the people attending.

SM Yes. Egypt has a vibrant and dynamic economy. However, it has a relatively
short history, in my view, of a market economy. And inflation and exchange rate
policy will impact investment returns from projects located in Egypt. From our own
analysis of the investment potential present in Egypt today, we know that different
companies have very different perceptions about the risk of doing business in Egypt.
I think the panel should therefore consider how the government can take actions that
will ensure inflation and exchange rates remain predictable and not subject to
dramatic change or variation in the future, creating an attractive investment
destination.

AN So now, what do you feel needs to change from the private sector for PPPs to
really reap the potential economic benefits, whether it's an Egyptian focus or whether
it's in the greater Middle East region? And while we're on that, could you also
elaborate on this question for a large economy like Saudi Arabia versus another
economy like Lebanon or Jordan?

SM Yes, of course. In my view, the biggest challenge facing the use of the PPP
procurement methodology today is one of education and awareness. The PPP
procurement model is being used increasingly around the world to enable the private
sector to build and manage infrastructure on behalf of governments. However, the
procurement method is much more complex than traditional government
procurements and can therefore be difficult to implement if both public officials and
private sector employees are not aware of the potential complexities. Egypt can
address this challenge by gathering best practice from other markets and adapting that
for the Egyptian situation. For example, they've established a PPP central unit.

Clearly, the challenge is greater for larger economies where the approach of a
dedicated team able to assist in other branches of government becomes quite a
challenge. Saudi Arabia, for example, has quite a number of government departments
that would be very, very interested and could benefit from a similar type of approach.
However, that's not always easy to implement in large economies with different
diverse investments from within different public bodies.

Apart from the awareness and education issue, I think it's also important that the
relevant country has a well-developed financial system. Typically, PPPs have a very
long-term contract and unless the relevant financial system is able to provide
corresponding long-term debt, the full benefits of a PPP can be hard to achieve.

And I think it's easy to see that today when you compare countries like Saudi Arabia,
which does have a framework and a history of providing long-term finance for
infrastructure projects, and compare that to a country like Lebanon or Jordan, which
have differing degree of or have had differing degrees of success. Obviously they're
trying to achieve that, but it can't be done overnight without the support of
government and often multilateral institutions.

AN Of course. On that point, Egypt is one of the strongest economies financially

in the middle region. Obviously, foreign capital plays different roles when looking at

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short term versus long term, long term when you're looking at probably, in some
cases, ten, and in some fewer cases, even 20-year partnerships. Should Egypt look
more at a local exposure first to ensure partnerships benefit the economy locally?

SM Well, I think this question is one of government policy. If the government is

seeking to improve the sector specialisation or perhaps the technical performance it
can of course ask or require the international companies to participate in these
projects. For example, water desalination projects. These can be complicated
processes depending on the quality of the product that's required.

And of course, in some jurisdictions the respective governments specify and enforce
the employment of a minimum percentage of local employees to ensure that
knowledge is transferred. So I think it would be good to see a lot of local Egyptian
participation, but at the end I think it must be recognised that service delivery to
international standards will require some level of international participation.

AN That is true. Now, one of the reasons we organised this event with the
Ministry of Finance is to get together, in one forum, the major decision makers in
Egypt's public and private sectors so that they can put on the table all the changes, the
government can talk about upcoming implementations and to basically give all the
parties involved an overview of the partnerships ongoing. How do you see a forum
such as the PPP Investment Summit in Egypt benefiting the industry? Why is it
important for members of the industry, both on the public and private sector, to be
present at such an event?

SM PPPs represent partnerships. The summit is helping to facilitate this. And in

my view, the opinions of experts, ideas and concerns from both the public and private
sector are relevant during the partnership process. The summit is also going to be an
important tool to make sure that the knowledge of market participants can be
disseminated amongst a wider community who may not already be familiar with the
processes and principles that are adopted in these types of projects.

AN Thank you very much. Could you tell us something more about Instrata
Capital and the work you do with PPPs?

SM Yes. Instrata Capital is based in Bahrain. We are a focused infrastructure

investor and look at opportunities to invest in all sorts of infrastructure, including PPP
infrastructure in the Gulf countries and across North Africa. We've looked at a
number of PPPs, including hospital PPPs in Egypt. We're tracking the airport PPP,
the Madinah Airport PPP at the moment in the Kingdom of Saudi Arabia and are
participating in a number of utility PPPs, whether those are power generation projects
or desalination projects or waster water treatment plants.

So we are very familiar with the market. It's very exciting. I think we've seen a huge
growth in the last four to five years and I expect it will continue to grow quite rapidly.

AN Fantastic. Simon, please tell us something about yourself.

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SM Of course, yes. I lead the investment team here at Instrata Capital and I've
been with the firm now for over three years, enjoying the region and the challenges. I
think it's an exciting market, as I said earlier on.

AN Fantastic. Thank you very much, Simon, for taking time out to take part in
this interview. I hope to see people of your team at the event and hopefully I hope to
even meet you if it's possible. And I wish you a good year ahead.

SM Well, many thanks.

AN Thank you very much. Good bye. This interview was conducted with Simon
Monk from Instrata Capital. The interview was done as part of a series for the PPP
Investment Summit, Egypt. The Investment Summit is being held from 12th to 15th
December in Cairo. For more information, you can visit
www.pppinvestmentsummit.com or you could call on 97143642975.