Failure to Fly: Challenges and lessons learned from public-private partnerships in Tunisia
Public-Private Partnerships (PPPs) are increasingly being promoted as the solution to the shortfall in financing needed to achieve the Sustainable Development Goals (SDGs). With ever greater frequency, PPPs are being used to deliver economic infrastructure, such as railways, roads, airports and ports, as well as key services such as health, education, water and electricity in both the global north and the global south.
A wide range of institutions, donor governments and corporate bodies have worked to incentivise or actively promote PPPs in developed and developing countries alike, with a concerted effort at global, regional, national and sectoral levels. Many developing countries have enacted PPP laws and set up ‘PPP units’ to scale up their capacity to implement projects. This has been in line with loan conditionalities and policy guidance coming from international financial institutions like the World Bank (WB) and the International Monetary Fund (IMF).
In recent years, countries from the Middle East and North Africa (MENA) region have focused on attracting private investment through PPPs to help fund major infrastructure projects. Tunisia was the first country in the region to implement PPPs through “user pays” concession projects, and now PPPs are high on the national political agenda. The five-year Tunisian development plan, launched in 2016, included energy, water, and waste management and agriculture projects to be financed through PPPs.
This report – carried out by researchers based in Tunisia and Europe - looks at the recent changes in the legal framework for PPPs and zeroes in on the first major infrastructure project – or ‘megaproject’ – carried out in Tunisia – the Enfidha and Monastir airports. It analyses the implications of the recent changes in the national regulatory framework considering: (1) how the different risks associated with PPP projects are allocated; (2) the procedures for awarding PPP contracts, including the provisions for conducting impact assessment studies; and (3) the opportunities for civil society participation.
This report also examines the wider role of the World Bank Group (WBG) – and the influence that they and other IFIs have exerted in the country.
The Enfidha and Monastir Airports
This project was launched in 2003 and began operating in 2009. It entailed building a new airport (Enfidha) and manage the existing airport (Monastir). The World Bank initially promoted this PPP as a flagship project. It carried construction costs of €560 million.
TAV Airports Tunisia was the chosen private sector partner and debt financing came from the International Finance Corporation (IFC) – the WBG’s private sector lending arm - but also from the AfDB; the EIB; French development finance institution, Proparco; and the OPEC Fund for International Development. TAV airports Tunisia also received a subsidy from the Tunisian state.
This report finds that:
• The decision to develop Enfidha Airport as a user-pays PPP was questionable from the beginning. This new airport was not considered profitable by the public authorities in the first place, but it was hoped that the revenue of Monastir Airport would cancel out any losses at Enfidhar.
• The selection of TAV was not transparent and its bid was questionable from the start. The concession fees offered by TAV to the Tunisian state were higher than the other bids, but at the same time the estimation of the traffic that the airport would generate were not realistic or feasible, with or without the crises that subsequently hit the country.
• TAV Tunisia began lengthy and costly renegotiations with the Tunisian government in 2010 to review the concession fee due to be paid by the company. The global economic crisis had hit the world in 2008 and it was followed by the Tunisian revolution in 2010-2011. This impacted tourism in Tunisia. This was exacerbated by the fact that Enfidha airport mainly hosts charter flights for tourists travelling through tour operators. TAV then stopped paying fees. Threatened with costly investor-state dispute settlement (ISDS) procedures, Tunisia is in negotiations with TAV airports to find an agreement. The payment of fees has been suspended since 2010.
Tunisia’s regulatory framework for PPPs
The national government reformed the regulatory framework to encourage PPP projects at around the same time that the airport was being developed. They worked with the WB and other donors, such as the European Investment Bank (EIB), the Organisation for Economic Co-operation and Development (OECD) and the African Development Bank (AfDB). The WB, for instance, provided finance through a loan dedicated to “improv[ing] the business environment”. Our analysis shows that international institutions have exerted undue influence over the domestic regulatory framework in Tunisia. The new PPP law has been introduced against a backdrop of criticism from elected national parliamentarians and civil society organisations and is problematic on several grounds. For instance, the level of transparency and public disclosure has not been satisfactory; community consultation and stakeholder engagement are not properly addressed and the development impact is not assessed throughout the project lifecycle.
Moreover, 2019 amendments paved the way for additional risks, as they weakened administrative control over PPP projects. They did not adequately take into account the fiscal risks of PPPs and major incentives for unsolicited partnerships were promoted, which opened the door for projects that respond to donor country companies’ business strategies. These changes confirmed concerns that the law that donors have promoted does not adequately protect either the public entity or citizens.
The future of PPPs in Tunisia
In order to make sure that the legal framework is fit for purpose in Tunisia, the role of the national parliament and civil society needs to be strengthened, there needs to be greater transparency and oversight of PPP contracts, and strengthened capacities to negotiate and monitor contracts to make sure that projects are operating in the best interests of the people they are supposed to serve.
In conclusion, this research identifies huge risks associated with PPPs, particularly for a country like Tunisia, which needs resources to implement policies that address poverty and inequalities, including gender inequalities. Lessons do not seem to have been learned from the Enfidha Airport case. The shortcomings unveiled have cast doubt over the future of PPPs in Tunisia, and the role of donors like the WB.
This report recommends a set of concrete actions that could have a crucial impact on this debate and prevent future problems.
A) The Tunisian legal framework needs to be fixed as quickly as possible in order to address the following issues:
• Governance of PPPs: Tunisian law should provide for the highest possible standards of transparency and the disclosure of documents and information related to public contracting. To ensure democratic ownership of the PPP projects, they should be part of a national development plan adopted by the Tunisian Assembly of Representatives.The government’s annual report on PPPs to the Tunisian parliament should enclose the yearly development impact assessments. The possibility of unsolicited partnerships should be drastically limited. For any major infrastructure project, the Tunisian government should ensure democratic accountability through informed consultation and broad civil society participation and monitoring. This includes engaging with local communities, trade unions and other stakeholders throughout the life cycle of the PPP. Governments should also ensure the right to redress for any affected communities. Furthermore, the law should ensure government control over PPPs and strengthen its capacity to manage, supervise and control PPP projects, as well as evaluate their environmental, social, human rights impact, including the impact on gender equality.
• Development outcomes: This implies addressing concerns in terms of affordability of the services for the public sector and the infrastructure users, and equitable access to infrastructure services, as well as avoiding negative impacts on the environment or raising inequalities, especially as regards the gender gap.
• Fiscal risks and contingent liabilities of PPPs: PPPs should be registered on-balance sheet and counted as debt.
• Renegotiation and litigation in PPP contracts: the contract should also specify the conditions under which renegotiation should be allowed, especially when it is related to the financial balance of the contract. In addition, the use of international public or private arbitration in the clauses of PPP contracts should be prohibited.
B) Although it is key to close the loopholes of the legal framework, this will not be enough to address all the problems that we have encountered. The utmost caution is needed in the implementation of PPPs, in order to protect the public interest.
• The scope of different types of PPPs should be limited to major projects carried out by the central public authority in the law. Local authorities should only be allowed to implement PPP projects if the Court of Auditors approves it, after auditing their competences and resources to manage this type of complex project.
• National capacity to deal with PPPs has proved problematic in the case of Tunisia. It is key to ensure that project outcomes are designed and assessed through the whole project lifecycle to benefit everyone in society. Governments should develop clear outcome indicators and effective monitoring to measure the impacts of PPPs on the poor, from the project selection phase to the operational phase of the project.
C) We call on the World Bank, the International Monetary Fund and other public development banks and donors to halt the aggressive promotion and incentivising of PPPs for social and economic infrastructure financing in Tunisia and globally. We ask them to publicly recognise the poor track record of PPPs and the financial and other significant risks involved in PPPs. They should ensure that the highest possible transparency standards apply, particularly with regards to accounting of public funds, and disclosure of contracts and performance reports of social and economic infrastructure projects. And they should make sure that PPP projects are delivered in the interest of citizens rather than in the interest of external funders who may have different priorities.