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Key elements of a sound PPP business/feasibility study typically include:

• Technical feasibility—outlining plans, site preparation, and environmental approvals
• Economic feasibility and cost-benefit analysis
• Risk analysis—allocation of risks between public and private parties
• Financial appraisal—affordability, bankability, taxes, and accounting
• Legal analysis.

In Jordan, for example, preliminary evaluations are conducted to assess project “bankability” or private financing eligibility, as well as:

• Any eventual public sector guarantees
• Description and allocation of risk in the contract
• Estimated cost to the public sector
• Estimated transaction costs
• Financial commitment
• Identification of performance indicators against which payments will be based
• Provisional timetable for operations in the PPP framework.

Going forward, there is a need to build up each country's institutional capacity to effectively prepare projects to attract investors and avoid renegotiating at the operations stage. Currently, a lack of standard practices and documentation is linked with time-consuming project development and weak business cases. To some extent, this can be addressed by institutionalizing and transferring good experience and lessons learned. Algeria's PPPs in water projects are a model for working across line ministries. PPP project scheduling could also be enhanced to build synergies in and between sectors.

The Bidding Process

Arab states generally follow international best practices in terms of openly advertising projectsfor bidding to different degrees, but may benefit from more disclosure of award criteria and more attention to quality criteria (as opposed to price). Jordan, for example, uses a well-structured and transparent PPP process that begins with issuing an invitation for an expression of interest and moves forward in several steps to a two-phase selection process by a Steering Committee. Once a preferred bidder has been identified, bilateral negotiations begin. Once the contract is agreed to, it is approved by the Privatization Council and the Council of Ministers.

When Things Go Wrong—Arbitration and Dispute Resolution

PPP contracts in Arab states are typically governed by the country's law, and investors conduct due diligence regarding the law's suitability. Where international funders are involved, however, contracts are usually governed by the law of countries with an established body of law that is applicable to financing. In Algeria, Egypt, Jordan, and Morocco, for example, international lenders prefer English or French law. In addition, most Arab states recognize the benefits of tiered dispute resolution procedures that offer both formal and informal recourse. In Algeria and Egypt, for instance, mediation is used as an interim measure before moving to more formal dispute resolution procedures.

Further, Arab states are signatories to the New York Convention, which requires recognition and enforcement of arbitral awards made in other signatory states. Algeria, Jordan, Morocco, and Tunisia have adopted arbitration under internationally recognized rules, such as those of the International Chamber of Commerce (ICC), the United Nations Commission on International Trade Law (UNCITRAL), or the London Court of International Arbitration (LCIA), particularly when foreign parties are involved. This process is in line with best practices as it provides efficient and clear dispute resolution procedures for PPP contracts and permits the use of international arbitration as the final forum for dispute resolution instead of court proceedings.

Read Part I, Part II

Julia Devlin is nonresident senior fellow in the Global Economy and Development program at Brookings Institution. She formerly worked as consultant at the World Bank Group and as a lecturer in economics at the University of Virginia. Her focus is economic development, private sector development, energy and trade in the Middle East and North Africa. She holds a Ph.D. in Economics.