Mohammed Khalil Alsayed, CEO, Ithmaar Development Company: Interview

Mohammed Khalil Alsayed, CEO, Ithmaar Development Company

Interview: Mohammed Khalil Alsayed

Having pioneered the first housing public-private partnership (PPP) in the GCC, what improvements would you suggest for the future?

MOHAMMED KHALIL ALSAYED: At the outset, we need to hail the vision and thinking for this breakthrough policy initiative. We have reason to believe that the earlier PPP model drew heavily from the UK’s private finance initiative experience, which while being a reasonable start, could be better customised to suit local conditions. The role of the government at the highest levels in obtaining approvals should speed up decisions within various bodies. This significantly reduces costs as the pace of decisions directly impacts back-to-back arrangements with other suppliers and contractors, and hits the shareholders’ returns. The time element is the single biggest agenda item for anyone looking at improvements in the PPP model.

From my own experience working in the government at a senior level for more than three decades, I can attest to the huge gap between public and private sector cultures. Specifically, the payment mechanism for PPP business models should cater to changes or delays that are not under the control of the concessionaire, especially when the intent is to promote or develop local companies.

How does the New Framework regulation apply to PPPs, where the buyer is the government?

ALSAYED: The off-take of social housing units is guaranteed by the government with a buy-back option for the affordable units not sold in the open market. However, the government has various tools at its disposal, such as routing the sale through Eskan Bank, which can front-end the offloading of affordable units being developed by the private sector in order to overcome the buy-back option, thereby managing government cash outflows. Another way would be for a legal amendment to exempt such PPP models from the specific clauses. Another view is that the developer, who according to the New Framework, is required to have a developer’s licence, can be considered to be the rough equivalent of the concessionaire in the PPP structure. The off-take for the social units is generally guaranteed by the government, so does not carry any market risk per se. Where the PPP model involves not only social housing units but also, for example, commercial spaces, there is an element of market risk involved. However, while we will have to study the specific concession agreement, my understanding is that there will be overlapping covenants excluding the operation of the New Framework on PPPs. Chief among the reasons for this are the fairly restrictive provisions of the PPP agreements and the penal clauses, which would make the operation of the New Framework onerous and therefore, the PPP model less bankable and challenging to attain financial close.

In what ways do you assess opportunities in medical and wellness tourism in Bahrain?

ALSAYED: A tourism sector white paper released by the Bahrain Economic Development Board in June 2016 outlined the contribution of the medical tourism sector to the kingdom’s economy, estimating that BD9m ($23.9m) was the aggregate annual value impact of tourism, with 8% of inbound air travellers citing “medical” as the main reason for their travel.

Naturally, this has a beneficial impact on other sectors of the economy, including real estate, shopping and leisure. A concerted move to develop this sector over the past several years is one of the reasons why a project like Dilmunia was first conceived in 2007. Since then, there has been a steady flow of private investment into the medical sector that has also released some pressure from government-provided services. The institutional framework in Bahrain is investor-friendly, with features like 100% capital and profit repatriation, zero tax rates, and excellent transport and communications infrastructure in place.


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The Report: Bahrain 2017

Construction & Real Estate chapter from The Report: Bahrain 2017

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