Comment: How Jordan’s decentralised structure offers potential for municipal infrastructure PPPs

PPPs offer an important tool for municipal authorities in Jordan, and could drive the nation’s infrastructure development

In Jordan, there are 102 municipalities and a Greater Amman Municipality (GAM). Municipalities are in effect revenue-generating authorities through municipal taxes, licensing, and user fees for municipal services. In addition, they are responsible for a range of local infrastructure and services, including urban planning, environment, roads, culture, public safety, and waste management.

Given the burden that municipalities bear on local communities and the scarcity of financial resources (municipal debt stood at about $500m in 2022), most cities in Jordan have suffered from indebtedness since the implementation of decentralisation in 2015. All municipalities depend on government aid via a mathematical formula, which considers socio-economic factors, including population and facilities.

Improving Jordanian revenues by updating property valuations and improving compliance could strengthen broader public sector finances and attract city investments to facilitate infrastructure and property developments by leveraging PPPs. While the tax rate is nationally determined (at 15%), mayors, executive directors, and members must explore innovative investment opportunities.

PPPs are part of a fundamental, global shift in the role of the municipality from being the direct provider of public services to becoming the planner, facilitator, contract manager, and regulator who ensures that local services are available, reliable, meet essential quality standards, and are affordable for users and the local economy.

In recent decades, Jordan has seen rapid population growth from regional conflict and millions of refugees. At the same time, the government has faced fiscal constraints that have hampered efforts to maintain or expand existing infrastructure. Therefore, the government has enacted the PPP law, established a PPP unit, and incorporated infrastructure development (including PPPs) into its Economic Modernization Vision 2033.

Both Jordan and GAM have developed the PPP model and raised about $10bn in private capital through PPPs in the electricity, transport, and water sectors since the 1990s. By 2015, 30% of the public sector's investment portfolio was procured through PPP, compared to 6% in emerging economies. However, challenges were witnessed in screening projects and preparing feasibility studies to expand the PPP models.

Well-designed and well-managed PPPs can deliver high-quality and cost-efficient infrastructure, helping municipalities address critical infrastructure needs in rapid urbanisation, limiting public funds, and deciding what sectors will prioritise PPP and which types of PPP agreements. Given other fiscal priorities, the municipality has sufficient funds or can mobilise adequate financing, to uphold its obligations under the project.

For example, GAM and municipalities can prioritise the regeneration of derelict land and other big empty plots. Subsequently, they can invite private sector proposals to develop these spaces and pursue PPPs or land value capture mechanisms that align with clear social and environmental benefits.

This PPP mechanism can mobilise additional finance towards sustainable development through blended public and private finance for projects that contribute to low carbon, climate resilient interventions and achieving sustainable development outcomes.

By mobilising private expertise, and human and financial resources, PPPs can accelerate the construction of infrastructure, improve the efficiency of public services, and foster innovative solutions that offer a better response to user needs than would often poorly functioning public service provision.

Within this broad paradigm, from the municipality's perspective, transferring risk to the private partner is a significant benefit of a PPP. At the same time, the private partner will need to be compensated for the risk. Thus, the more risk transferred to the private partner, the higher the cost of capital.

Therefore, the PPP model needs advisers to assist with project preparatory work, including the municipality's creditworthiness, financial capacity, and overall credibility as a contractual partner, as well as the applicable legal and regulatory framework.

The better and more complete the feasibility study, the more sustainable the project will be. Any temptation to cut corners to save money or time on this analysis must be avoided. Therefore, advisors should prepare feasibility studies with the cooperation of the government's PPP unit.

The best approach is to identify pilot municipalities with a view to climate neutrality, acting with bespoke solutions in seven areas covering energy, waste management, land use, electricity for buildings, industrial processes, mobility, and transport. This pathway will meet quality-of-life goals, diverse and improved public spaces, more reliable public transportation, and increased stakeholder participation, including women and youth.