International Lessons on Industrial Zone Development: p

Public Private Partnerships

PPP Workshop Ain Sokhna, Egypt

Private Sector Participation on Industrial

Sub-Component E.6: Facilitating Services to the Private Sector

Parks and Special Economic Zones

May 26-27, 2008

1a

Services to the Private Sector

Jose M. Ceron

Overview

Genesis of Industrial Zone (IZ) Development

Menu of private participation in IZ developmentMenu of private participation in IZ development

IZ PPPs stages, project preparation and roles

Lessons learnedLessons learned

2

Genesis of Industrial Zone (IZ) DevelopmentGenesis of Industrial Zone (IZ) Development

Menu of private participation in IZ development

IZ PPPs stages project preparation and rolesIZ PPPs stages, project preparation and roles

Lessons learned

3a

Types of Zones

All ZonesAll Zones

Industrial Parks Free Zones Special EconomicIndustrial Parks Free Zones Special Economic Zones (SEZ)

Export Processing Zones (EPZ)

Free Trade Zones (FTZ)

Service Free Zones (SFZ)

Specialized Free Zones

Other Free ZonesZones (EPZ) ( ) ( )

Common DenominatorsCommon Denominators Geographically delineated areas Common infrastructure Single administration

4

Single administration Pre-built, built-to-suit or build-your-own facilities Value added services

Many Government-run IZs failed or under-performed

Weak t

Too many approvals No single authority

Bureaucraticd &

management Physical

development not phased

Tax holidays

Poor operating& mgmt

Uncompetitivepolicies &

procedures & controls

not phased Subsidized

land and facilities

Rigid eligibility requirements

Poor labor policiesgframework

pinstitutions

Lack of anintegrated approach

Poor locations, bad design

Lack of funding

policies Too many

bodies involvedapproach(maintenance,

services, promotion, crowded

involved Weak

regulatory authorities

Poor offsite infrastructure

5

crowded facilities)

Poor offsite infrastructure planning

Lack of partnership approaches

New Framework for Zone Development

Current international experience shows that the new worldwide framework for zone management tends to rely more heavily on the private sector

Old FrameworkZone Authority would develop, own,

d l h

Old FrameworkZone Authority would develop, own,

d l h

New Framework Zone Authority only regulates

New Framework Zone Authority only regulates

sector

operate and regulate the zoneZone Authority has little power over other government bodiesZone funded by government;

operate and regulate the zoneZone Authority has little power over other government bodiesZone funded by government;

Zone Authority only regulates activities within the zone

Private developer develops, owns and operates the zone on a cost-

Zone Authority only regulates activities within the zone

Private developer develops, owns and operates the zone on a cost-y g

typically subsidized services & facilitiesPublic sector development and operation of zones

y gtypically subsidized services & facilitiesPublic sector development and operation of zones

recovery basis Outsourcing of core functions to

private sectorZ t i d i ti

recovery basis Outsourcing of core functions to

private sectorZ t i d i ti Zone enterprise designation extended to developers and service intermediaries

Zone enterprise designation extended to developers and service intermediaries

6The primary leading practice trends in the World are to utilize the private sector to create additional value and speed up growth

Growth of Modern Zones

1970s30 countries

1970s30 countries

Today 100+ countries

Today 100+ countries30 countries

80 free zone projectsNo private zonesT t l t d $10 billi

30 countries80 free zone projectsNo private zonesT t l t d $10 billi

100+ countries 1000+ free zone projects 80% private zones

$

100+ countries 1000+ free zone projects 80% private zones

$Total trade: $10 billionTotal jobs: 1 millionTotal trade: $10 billionTotal jobs: 1 million

Total trade: $400 billion Total jobs: 50 million Total trade: $400 billion Total jobs: 50 million

C titi S i B di Fl ibilit7

Competition: Service, Branding, Flexibility

Traditional Zones Organization Structures

Many Zones were developed, operated and regulated by the same y p , p g ybody. Examples include:

UAE: Jebel Ali Free Zone and other zones China: provincial governments

Sri Lanka: Board of Investments Sri Lanka: Board of Investments Jordan: Industrial Estates Authority

Other countries separated the development and operation of zones p p pfrom regulation, putting these in separate government bodies. Examples include:

Taiwan: operation by EPZA, regulation through the Industrial Development Bureau

Korea: operation by KEPZA, regulation through an inter-ministerial committee

Central America/Caribbean: Autonomous entities regulate & assign regime to private entities

8

p

Traditional Organization Structures are Changing

Traditional approaches to zone development/management and regulation are changing because:

Drawbacks of government management and regulation of zones Rise in local and multinational private companies for development and/or management of zonesp p p g Increasingly sophisticated demands from users and tenants

Drawbacks of government management and regulation of zones includeLarge government expenditures on infrastructure development and operation (especially if these Large government expenditures on infrastructure development and operation (especially if these are subsidized)

Difficulty in recruiting staff with required skills and experience Lack of autonomy and too much red tape (due to civil service regulations on salaries, staffing

structures, procurement, budget approvals, etc) Conflicts of interests: ownership vs. regulation

9

New IZ players accelerating changes

Changes are also driven by the emergence of private developers and operators. These are typically:

Construction companies- Kajima, Balfour, Turner, Hyundai

Construction companies- Kajima, Balfour, Turner, Hyundai

Engineering, Construction and , Project Management Companies (EMCs)

- Bechtel, Dragados, Fluor Daniel,

Engineering, Construction and , Project Management Companies (EMCs)

- Bechtel, Dragados, Fluor Daniel,

p yp y

Property developers- SembCorp, Trammel Crow,

Portman Amata Lippo

Property developers- SembCorp, Trammel Crow,

Portman Amata Lippo

Bechtel, Dragados, Fluor Daniel, Bouygues, Groupe Vinci

Government-linked companies

Bechtel, Dragados, Fluor Daniel, Bouygues, Groupe Vinci

Government-linked companies Portman, Amata, Lippo, Hillwood, National Real Estate Company (Kuwait)

Portman, Amata, Lippo, Hillwood, National Real Estate Company (Kuwait)

- JTC-Ascendas, Singapore- Central Trading, Taiwan- Jebel Ali, UAE

- JTC-Ascendas, Singapore- Central Trading, Taiwan- Jebel Ali, UAE

Management consultants- BearingPoint, Chemonics, IDI

Management consultants- BearingPoint, Chemonics, IDI

- Qatari Diar. Qatar

Trading & financial groups

- Qatari Diar. Qatar

Trading & financial groups

10

g g p- Marubeni, Sumitomo, Mitsubishi,

Itochu, Nomura Securities, AIG

g g p- Marubeni, Sumitomo, Mitsubishi,

Itochu, Nomura Securities, AIG

Genesis of Industrial Zone (IZ) DevelopmentGenesis of Industrial Zone (IZ) Development

Menu of private participation in IZ development

IZ PPPs stages project preparation and rolesIZ PPPs stages, project preparation and roles

Lessons learned

11a

From old to New: IZ Models for Development and

Service Provision

Government configures the roles of developer and service provider in a variety of ways based on a variety of public and private

Egypts New Generation IZ Program: Quick positioning within best

Private SectorPublic Sector

ways, based on a variety of public and private sector-driven models.

p gpractices

Design-Build

Design-Bid-Build

Traditional Public Sector

Design-Build-Operate-Xfer

Build-Operate-Xfer

Operating Contract

Concession

Lease-Develop-Operate

Concession Framework

Joint Venture

Asset Capitalization

Partial Divestiture

Partial Public Sector Procurement

Contract FrameworkPrivatization

Public Owned, Public-Private

Developed ,Operated, Financed

Operator

Developer/ Financier

Developed, Financed

Toward Best Practice

12Contractor Engineer Contractor Operator

Engineer

Options for Greater Private Sector Involvement

Outsourcing of other functions

Private zone development and

Joint infrastructure Management other functions

and services: Inventory control for Customs purposes

I t t ti

development and operation

Most common approach worldwide, especially in East Asia

infrastructure development

Typically onsite (private) and offsite (government)

Support Programs

Assist management to achieve vision and objectives using a l & l Investment promotion

an