PRIVATIZATION IN JORDAN: MOVING TO PUBLIC-PRIVATE

UNCLAS AMMAN 003812

SIPDIS

SIPDIS
SENSITIVE

STATE FOR NEA/ELA

E.O. 12958: N/A
TAGS: EAID ECON EINV KPRV JO
SUBJECT: PRIVATIZATION IN JORDAN: MOVING TO PUBLIC-PRIVATE
PARTNERSHIPS

REF: A) AMMAN 3770
B) AMMAN 3286
C) AMMAN 2562
D) AMMAN 483


1. (U) Summary: Having begun privatization of its significant assets
in 1999, the Government of Jordan (GOJ) currently has projects
underway in energy, grain storage, and water. The nature of these
efforts has begun changing from privatization to "public-private
partnerships (PPP)" due to a declining number of assets available
for sale, a change in policy to favor financial rather than
strategic industry investors, and a desire to mitigate criticism
from parliament. Two PPPs are underway -- airport expansion and a
light rail system -- and the Executive Privatization Commission
plans to develop more opportunities as Gulf money continues to flow
into Jordan. In addition, Jordan has embraced the language of PPP,
and has applied the name to a wide range of commercial and foreign
assistance projects. End Summary.

PRIVATIZATION HISTORY
--------------


2. (U) During a recent meeting with Econoff, Salem Ghawi of the
Executive Privatization Commission (EPC) reviewed the range of
privatization efforts that have occurred in Jordan in
telecommunications, aviation, and potash among others (refs A and
D). He said that projects have varied in structure with some as
stock sales and others as build-operate-transfer (BOT) and
build-operate-own deals. Ghawi commented that while the primary
goal in these deals was to get a fair price, Jordan has also
benefited from better services and job creation. For example, the
privatization of the telecommunications sector has resulted in the
creation of 12,000 new jobs and a reduction in the wait time for the
installation of a land line from 1-2 years to 24 hours. The GOJ's
privatization program has been supported since its 1999 inception by
a $25 million grant from USAID which is administered by the World
Bank. USAID is currently in discussions with the World Bank and EPC
about continuing to support the EPC's conversion into a
PPP-promoting entity.


TRANSITION TO PUBLIC-PRIVATE PARTNERSHIPS
--------------


3. (SBU) Ghawi said that the nature of his organization is changing
as the number of "privatization" projects dwindles and EPC focuses
on public-private partnerships (PPP). He differentiated between the
two by saying "privatization is a divorce and PPPs are a marriage."
There are three primary reasons for this transition: limited
remaining state assets to sell; a change in policy to prefer
financial investors; and a desire for less controversial
deal-making. Elaborating on the first reason, Ghawi said that
number of state-owned assets in Jordan is limited and the majority
of them are already in the process of being privatized.


4. (U) In 2006, the GOJ changed its privatization policy to allow
"financial" rather than "strategic" investors. Previously, sales
had been restricted to companies within the sector that would bring
industry expertise, i.e., only telecommunications companies could
invest in Jordan Telecom. The new policy allows for private equity
financial investment outside of the sector. As reported in the
Oxford Business Group's August 2007 "Emerging Jordan 2007" report,
the EPC said this policy has increased the number of bidders on
projects and led to better prices.


5. (U) This changed policy allowed for the May 2007 negotiated sale
of a controlling interest in Central Electricity Generating Company
(CEGCO) to Enara Energy Investments, which had previously been held
up for the lack of a strategic investor. Enara is registered in
Jordan and is 65 percent owned by Jordan Dubai Capital, 25 percent
by Malakoff Berhad of Malaysia and 10 percent by the Athens-based
Consolidated Contractors Group. Enara bought a 51 percent stake in
the company for $320 million which included a cash payment of $120
million and the taking-over of $200 million in company debt. Ghawi
said the electrical power sector is one sector where Jordan does not
need external expertise, but did need the financial investment.


6. (SBU) Several of the previous privatization efforts and business
deals have resulted in questions from parliament about the sale of
Jordanian assets with (allegedly) little in return, including the
sale of a cellular license for USD 5.7 million (Ref A). According
to Ghawi, private public partnerships are seen as less controversial
because they may not be a complete sale of the asset, and many

represent new projects with new external investors. Christine
Fisher, the Director of In-Flight Services at national airline Royal
Jordanian, said that Jordan had learned not to sell 100 percent of
assets after it sold 100 percent of the airline catering business,
now part of Alpha Flight Services. Fisher said the GOJ is now
interested in maintaining some financial interest in assets it once
held.

ONGOING PRIVATIZATION PROJECTS
--------------


7. (U) The GOJ has several ongoing privatization projects in energy,
grain storage, aviation, and water. The partial sale of CEGCO frees
the way for the divestment of the government's 55.4 percent stake in
the Irbid District Electricity Company and its 100 percent stake in
the Electricity Distribution Company. Yet the privatization of
energy companies has faced criticism from members of parliament
concerned about job loss and the risk of increased tariffs. A
recent Economist Intelligence Unit report projected that energy will
continue to be a prominent topic in the lead-up to November 20
parliamentary elections.


8. (U) The EPC is also preparing for the sale of the Jordan Silos
and Supply General Company (JSSGC),the lone bulk grain silo
provider in Jordan. The GOJ also continues to work on a 2007
initial public offering of Royal Jordanian, with the government
retaining 26 percent.


9. (SBU) Perhaps most controversial has been the government's effort
to recruit private investors in a project to transport fresh water
from the Disi aquifer in southern Jordan to Amman via a 200-mile
pipeline. On August 9, the Ministry of Water and Irrigation
announced that it had reviewed three applications and was awaiting
the Prime Minister's selection. The winning consortium will run the
Disi project for a period of 40 years after which the government,
which will invest USD200 million, will regain ownership. Nashat
Masri, the founder of a private equity investment firm in Jordan,
told EconOff that the Disi water project had been up for bid several
times with each round of bidding costing potential investors a
million dollars in preparation costs. Reem Badran, CEO of Kuwait
Jordanian Holding Company, one of the three bidders, agreed that the
project had been slow and frustrating, hampered by the frequent
changes in ministers and their varying decision-making abilities.
COMMENT: The Disi project is further complicated by parallel plans
to build a desalination plant and develop prime real estate in Aqaba
(ref C). In addition to the bids received, the GOJ has entered into
discussion with several Arab states on ways to exploit Disi's water
resources. END COMMENT.

CURRENT PUBLIC PRIVATE PARTNERSHIP PROJECTS
--------------


10. (U) Two public private partnerships are already underway: the
expansion of Queen Alia International Airport and a light rail
system. The airport project involves a 25-year concession for the
airport operations and the construction of a new terminal with a
capacity to handle 9 million passengers annually (Ref B). In May
2007, a deal was signed for the construction and operation of a
17-mile light railway between Amman and Zarqa involving a consortium
of Pakistani, Chinese, Kuwaiti, and local partners. Ghawi was
enthusiastic about these two efforts because he saw them as new
projects, with new external investors. Ghawi said that EPC will be
spending the next year looking at similar PPP projects from a legal
and financial perspective. He said they would primarily be
targeting projects between USD5-50 million.

INVESTMENTS FROM GULF COMPANIES BUT NOT AMERICAN
-------------- ---


11. (SBU) Masri also told EconOff that Jordan was benefiting from
the liquidity in the Gulf generated by high oil prices. He said
that investors from the Gulf states were coming to Jordan with new
ideas and projects. Rather than investing in Jordan by buying
publicly-traded shares of Jordanian companies, Masri reported that
Gulf investors were developing new entities, particularly
private-public partnerships. Abdelmajeed Shamlawi, director of the
Jordanian consulting firm Y Consult, agreed that excess liquidity in
the Gulf was changing the economy of Jordan. Indeed, Badran said
that the fundraising was the least difficult part of the Disi water
project thus far.


12. (SBU) Issa Gammoh, assistant CEO of the Jordan Investment Board,
characterized Jordan as a "natural" place for Arab investments

because of its relative safety. He said 75 percent of foreign
investment was from the Gulf States - Kuwait, UAE, and Saudi Arabia.
Gammoh commented on the comparatively low amount of American
investment, representing only 2 percent of foreign investment in

2006. Gammoh said in the last 10 years, Americans have invested in
industry and Qls and to a lesser amount in agriculture, hospitals
and leisure. He said ideally America's economic relationship with
Jordan would reflect the strength of the political relationship.

COMMENT
--------------


13. (SBU) "Public-private partnership" has become a buzz word in
Amman, particularly among government officials whose ministries
benefit from foreign aid. In addition to the efforts spearheaded by
EPC, many other projects recently described to EconOff as PPPs
include a film school in Aqaba being created in partnership with
University of Southern California; Arabic-language science and math
software created for grade schools; a plan for fiber-to-the-home in
Amman; and the elimination of sales tax on Jordan Telecom's
Orange-branded internet service. In a country that has
traditionaQhad a large, strong government and a small private
sector, nearly every private sector project can be considered a PPP
because the government is the country's biggest customer. While the
moniker "PPP" has been applied to projects that truly represent a
partnership -- one with real financial benefits for the company and
true service benefits for citizens and government -- it has also
been applied to projects that, a few years ago, would simply have
been described as foreign aid or a government sale. In addition,
PPPs are also being used as a euphemism for smaller government
achieved not by lay-offs but by moving an increasing number of
services to the private sector.

Visit Amman's Classified Website at
http://www.state.sgov.gov/p/nea/amman

HALE