Jordan sits in a neighbourhood frequently rocked by geopolitical turmoil and is often associated with perceptions of escalating risk. Indeed, it hosts some 2.5 million refugees, most from the West Bank and Gaza, Egypt and Iraq, but, more recently, some 600,000 from Syria.
With a GDP of $38 billion and a population of 6.5 million, Jordan is also a small country, depending on imports to meet 97% of its energy needs. For decades, it received subsidized energy from its neighbours, including Egypt, which supplied fuel on concessional terms and accounted for 80% of Jordan’s power generation.
Yet the country has tremendous development aspirations: it aims to source 10% of its energy from renewable sources by 2020 and envisages GDP growth of 7.5% by 2025, while reducing national debt to 47.4% of GDP by 2025.
Infrastructure is a key building block towards realizing these ambitions and the country has done much in the past two decades to prove just how achievable these goals are.
Jordan has increasingly used Public-Private Partnerships (PPPs) to transform the country and deliver infrastructure. These include construction of the Queen Alia International Airport and work on wastewater treatment and power.
While commissioning projects, Jordan has undertaken many of the upstream reforms necessary to execute PPPs successfully, including establishing a regulatory framework and starting a PPP Unit in 2013 within its Ministry of Finance.
As a result, in the past decade, Jordan has packaged $10 billion in PPP projects. Impressively, Jordan continued to issue international tenders amid the Arab Spring and in the past three years – which have been particularly difficult – has managed to attract more than $3 billion for PPP projects in renewable energy.
MIGA’s backing for four solar projects in the first round of a national renewable energy programme has helped wean Jordan off public sector financing and gain the trust of private investors.
All four projects entailed construction and operation by international sponsors of 10MW to 20MW solar plants that will sell electricity for 20 years to the national utility. The Ministry of Finance has made guarantees to each of the project companies to ensure the utility’s obligations are upheld under the arrangement.
The key private investor in the projects requested additional coverage from us against restrictions imposed by the government on transferring foreign exchange earnings out of the country, expropriation, war and civil disturbance, and breach of contract on the Finance Ministry’s guarantee agreements with the project companies.
While our support was to foreign investors, most project bids in the first round were submitted by local firms. However, the success of that first round gave rise to a second round with significantly higher interest from international developers convinced of opportunities that couldn’t be met by local firms alone.
Remarkably, while the national utility agreed to pay $0.169 per kWh of power in the first round, it was able to drive down prices to a staggering $0.067 per kWh by the second round – a reduction of more than 2.5 times.
A third round was announced towards the end of last year and is currently in the offing.
Technological advances aside, this radical transformation took place because of the aggressive stance Jordan took in attracting private investors. The upstream reforms, backing from the Ministry of Finance and support from international institutions such as ours has helped bring in international investors, drive down costs and diversify Jordan’s energy base. There’s much from this example that can be applied to the Middle East and North Africa region at large.
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For the World Bank Group’s part, the approach taken to power generation in Jordan is indicative of the kind of sequential thinking that development finance institutions and governments need to practise when it comes to financing development projects.
Firstly, we need to ask the plain and simple question of whether private sector finance can support a project on commercial terms, without support from government or development finance institutions. Next, we need to support upstream reforms that lead to the creation of markets and, finally, we need to use public or concessional funds judiciously to reduce risk for private investors.
Only after these avenues have been exhausted should we consider using public funds for direct investment in projects. In doing this, we will deliver services in a cost-effective and efficient manner and recognize the true cost of using public sector financing for development projects.
Looking ahead, as the region stabilizes from a kind of devastation unseen since the World Wars, there will be a need for significant reconstruction. The private sector has a big role to play and we need to be ready as its supporting cast.