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DE RUEHAM #3812/01 2561441
ZNR UUUUU ZZH
R 131441Z SEP 07
FM AMEMBASSY AMMAN
TO RUEHC/SECSTATE WASHDC 0307
INFO RUEHEE/ARAB LEAGUE COLLECTIVE
RUEHBJ/AMEMBASSY BEIJING 0135
RUEHIL/AMEMBASSY ISLAMABAD 0252
RUCPDOC/DEPT OF COMMERCE WASHDC
RHEBAAA/DEPT OF ENERGY WASHDC
RUEHRC/USDA WASHDC

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