Amman, the Jordanian capital, and Zarqa


Conceived during the mid to late 1990s, the Amman – Zarqa Light Rail System (LRS) proposed to present a solution to address the increasing traffic congestion between Amman, the Jordanian capital, and Zarqa, a neighboring industrial city. More than a decade after the birth of the Amman – Zarqa LRS concept, albeit, “intended to be the first link in a more extensive regional urban rail network,” according to Marc-Andre Roy (2009, p. 34) in the report, “Amman – Zarqa Light Rail project derailed, the uncompleted project remains stuck – a failure. During the case study, the writer examines a number of concerns relating to the proposed Amman-Zarqa Light Rail System Project as well as information on Public-Private Partnership. The writer also discusses PPP and investigates whether it will prove suitable for the Amman-Zarqa Light Rail System (LRS) Project. Ultimately, the writer presents a conclusion regarding current concerns relating to the failed project.

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Proponents for Jordan’s proposed Amman — Zarqa Light Rail System publicized the project as the first urban rail public-private partnership in the Middle East. Financial constraints and challenges, however, have reportedly indefinitely “derailed” the project in its current form; causing it to be labeled as one of the latest casualties of the global financial crisis. The deadline for the Kuwaiti-led consortium Jordanian Kuwaiti Company, the selected developer for the Amman-Zarqa LRS, to obtain financing for the project had expired by March 31, 2009. As the Jordan government had granted two extensions for securing financial closure, no further extensions were anticipated. Roy (2009) explains:

The passing of this deadline effectively renders null and void the 30-year Construction & Operating Agreement signed a year earlier by the government of Jordan, the Jordanian Public Transport Regulatory Commission, and JKC.

It was envisaged that the LRS would operate using electric light rail vehicles on a standard gauge double-track line. The 26 km route was to be largely constructed within the existing Hedjaz Railway right-of-way, which would cease operations in this corridor. Early ridership studies forecast close to 100-000 passengers per day (both directions) initially, with weekday peak ridership of between 4 000 and 6 000 passengers per hour per direction during the first few years. Roy (2009, p. 34)

Area of Study

The fate of the stalled LRS, projected to counter the continually worsening traffic congestion between Amman to Zarqa, remains unclear. Figure 1 portrays a segment of the existing Hedjaz Railway alignment which the Amman-Zarqa LRS expected to utilze.

Figure 1: Segment of Existing Hedjaz Railway (Roy, 2009, p. 34).

Figure 2 represents a perception of the proposed Amman-Zarqa Rail System.

Figure 2: Proposed Amman-Zarqa Rail System (Roy, 2009, p. 35).

Significance of the Study

The newspaper article, “Public-private partnerships,” (2009), explains that the fundamental premise behind public-private partnerships reflects a division of expertise and resources. When one single sector cannot or chooses not to handle a particular project on its own, the ensuing effort calls for “a combination of financial and other resources to implement it The process minimizes delays, cuts costs and offers both sectors to share their knowledge and experience for the country’s benefit (Public-private…, 2009, ¶ 7-8). As the contemporary world economic crisis presents an array of challenges for the public and private sectors, partnerships between the two sectors can either prove invaluable or comprise a collage of challenges. Examining whether PPP could prove suitable for the Amman-Zarqa LRS Project, the writer asserts, will enhance the reader’s understanding of PPP not only in this particular scenario but also in general. Applications from this knowledge may also benefit the reader in other areas.

Organization of the Study

After the first section, the Introduction, the case study includes the following sub-sections.

Review of Relevant Related Literature

Private and Public Ownership

PPP Components

Concerns Challenging the LRS Project


Research Question/s

The primary research question for the case study queries: Will Public-Private Partnership (PPP) prove suitable for the Amman-Zarqa Light Rail System (LRS) Project? To support the principal research question, the researcher examines literature leading to answering the following three sub-questions

1. How do private and public ownership differ?

2. What components constitute criteria of PPP?

3. What current concerns challenge the Amman-Zarqa Light Rail System (LRS) Project?

During the next section of the paper, the review of literature will relate more specifics regarding public-private partnership and whether PPP will be suitable for the Amman-Zarqa LRS project. The writer proffers the reader literal and figurative insight regarding failure factors as well as components contributing to a project’s success, no matter if the project relates to LRS, personal projects, or studies like the current one.

Review of Relevant Related Literature

A “partnership between the public and private sector is the way forward”

(Public-private partnerships, 2009, ¶ 6).

Moving Forward

The way forward for paper, the review of relevant related literature, includes the use of secondary data. During the review of literature, a formal survey of professional literature relevant to the study’s research questions, the writer relates information others have discovered that relate to his study’s focus. This information helps frame and focus the researcher’s research questions and moves the researcher toward addressing the research questions he presents during the paper’s introduction.

The literature review provides the necessary background the reader needs to understand the study. After the researcher selects a topic to investigate, Lawrence A. Machi and Brenda T. McEvoy (2008) explain in the book, The Literature Review: Six Steps to Success, the researcher then searches the literature and develops the argument/premise for the study. As the writer surveys the literature; he simultaneously critiques and chooses pertinent information to include in the paper. The article, Literature Review (N.d.) asserts that the researcher does not include every published study in the area of the study’s focus but carefully chooses the most relevant and most significant sources; also including those which may prove to be contrary to the researcher’s intent. Options for effectively organizing the literature review include the following methods:

1. By topic/theme

4. By argument and counter argument

5. By age level of subjects

6. By chronological order (Literature Review, N.d.).

For the case study focusing on PPP and whether it will be suitable for the Amman-Zarqa Light Rail System (LRS) Project, the researcher utilizes the thematic method. The following three themes serve as the foundation for exploring and understanding the study’s phenomena and also depict the literature review’s subsections which evolved from the paper’s research questions.

Private and Public Ownership

PPP Components

Concerns Challenging the LRS Project

Public/Private Ownership

The contemporary debate over state vs. private ownership, Nhut H. Nguyen (2009), a research officer at Massey University, New Zealand, has engendered a massive volume of literature. In the journal article, “State vs. private ownership: A shareholder’s wealth perspective,” Nguyen purports that “researchers have provided abundant empirical evidence to indicate that private ownership leads to higher profitability, improved operating efficiency, increased capital investment spending, lower leverage, and better corporate governance” (¶ 2). Even though, in some instances, State intervention may appear theoretically justified to resolve some type of market failure or prove beneficial in markets for social goods, public ownership generally proves inferior to private ownership.

The state-owned enterprise’s (SOE’s) objective function may dramatically differ from that of a privately-owned firm. “Rational governments have incentives to maximize social welfare whereas private owners’ motivation is to maximize shareholders’ wealth. Moreover, politicians often align their policies with the interests of voters rather than shareholders” (Nguyen, 2009, Literature review… Section, ¶ 1). At times, indistinct alliances by government entities lead to over-employment; potentially negatively impacting the firm’s efficiency. Amidst soft budget constraints, government-owned enterprise managers do not possess the incentives to improve quality and performance or reduce costs. Public managers realize politician owners routinely rescue the firm from major financial problems as bankruptcy would entail high political costs.

In light of the government’s regulatory power, Nguyen (2009) asserts, the case for government ownership appears diametrically opposite efficiently justifiable rationale. Arguments against government ownership; for private ownership include, but are not limited to the following:

Insufficient profit maximization, political interference, and lack of market-driven monitoring and governance over state-owned firms (Nguyen, 2009, ¶ 1).

In countries with stronger financial systems, shareholders benefit more from less government intervention in business operation, developed capital markets and investor rights being better protected. Reports from privatized firms indicate they experience positive improvement in countries with better corporate governance and higher level of capital market development. As the degree of competitiveness differs across industries, albeit, this also comprises a factor that affects the privatized firm’s performance. In a highly regulated industry like the utilities industry, firms less likely benefit from privatization. In addition, a significant difference exists in the post-privatization performance of firms in regulated industries compared to those operating in competitive industries (Nguyen, 2009).

Private companies, typically recognized as the engine that stimulates an economy’s growth; fuel the economy, provide employment for a great number of people, invest funds in vital sectors and ensure that many of the service industries keep operating. At times, albeit, placing unequivocal trust in the private sector to solely drive the economy proves fatal as some banks and other financial institutions have repeatedly collapsed. Some type Government involvement and regulation, Nguyen (2009) asserts, proves critical to helping ensure the private sector r thrives. Many of world’s leading economies concur that Governments must be involved to best manage their country’s economy.

Control, however, needs to extend beyond the control and regulation of the private sector per se. For the country’s overall development, the better process includes the synergies of both private and public sectors being harnessed. The private sector, for example trials the government in wind power and solar power projects. Government authorities, albeit, cannot finance these efforts on their own. As the quote introducing the review of literature asserts, when the public and private sector partner, this proves to be the way forward.

The basic premise behind public-private partnerships is a division of resources and expertise. One sector alone might not be able to handle a particular project on its own, which calls for a combination of financial and other resources to implement it.

The process minimizes delays, cuts costs and offers both sectors to share their knowledge and experience for the country’s benefit.

Public-private partnerships are also evident in telecom, health, education and infrastructure development. Many private sector companies are also engaged in corporate social responsibility programs through the Government (Public-private…, 2009, ¶ 7-8; ¶ 10).

A number of risks link to public-private highway partnership agreements. In the journal article, “GAO Report Warns of Risks in Public-Private Partnerships,” Eric Miller (2008), Staff Reporter, explains that a February 8, 2008 Government Accountability Office (GAO) study finds that risks range from the implementation of higher tolls, to traffic diversion to inflexible political opposition to potential tax losses. “Highway public-private partnership agreements are not ‘risk free,’ and concerns have been raised about how well the public interest has been evaluated and protected” (Public-private…, 2009, ¶ 2). The GAO office contends that although highway public-private partnerships prove positive for state and local governments, with benefits like acquiring new facilities and value from existing facilities without having to utilize public funding – no “free” money exists in public-private partnerships. PPPs involve a number of potential costs and trade-offs.

Components of Public-Private Partnership (PPP)

Jeffrey N. Buxbaum and Iris N. Ortiz (2009), both with the National Research Council (U.S.). Transportation, define PPP in the publication, National Cooperative Highway Research Program, American Association of State Highway and Transportation Officials, United States. Federal Highway Administration. The U.S. DOT’s report to Congress states: A PPP comprises “a contractual agreement formed between public and private sector partners, & #8230;[allows] more private sector participation than… traditional. The agreements usually involve a government agency contracting with a private company to renovate, construct, operate, maintain, and/or manage a facility or system” (Buxbaum & Ortiz, p. 7). The public sector generally retains ownership in the facility or system. The private party receives supplementary decision rights to determine how managers will complete the project or task. Table 1 shows a number of definitions relating to a number of various approaches to infrastructure development when operating a facility or system.

Table 1: Alternative Approaches to Infrastructure Development (Buxbaum & Ortiz, p. 8).

Traditional Approach (non-PPP)


Design-Bid-Build (DBB)

The traditional method of project delivery in which the design and construction are awarded separately and sequentially to private firms..

PPP Approaches

Design-Build (DB)

Combines the design and construction phases into a single-fixed fee contact, thus potentially saving time and cost, improving quality, and sharing risk more equitably than the DBB method.

Private Contract Fee Services/Maintenance Contract

Contracts to private companies for services typically performed in-house (planning and environmental studies program and financial management, operations and a maintenance, etc.)

Construction Manager @ Risk (CM @ R)

A contracted construction manager (CM) provides constructability, and pricing, and sequencing analysis during the design phase. The design teammate is contracted separately. The CM stays on through the build the base and can negotiate with construction firms to implement the design.

Design-Build with a Warranty

A DB and project for which the design builder guarantees to meet material workmanship and/or performance measures for a specified period after the project has been delivered.

Design-Build- Operate-Maintain (DBOM), Build- Operate-Transfer (DOT), or Build- Transfer-Operate (BTO)

The selected contractor designs, constructs, operates, and maintains this facility for a specified period of time meeting specified performance requirements. These delivery approaches increase incentives for high quality projects because the contractor is responsible for operation of the facility after construction. In the public sector retains financial risk, and compensation to the private partner can be in the form of availability payments.

Design-Build- Finance (DBF), Design- Build- Finance-Operate (DBFO) or Design-Build-Finance- Operate-Maintain (DBOFM)

DBF, DBFO, and DBFOM are variations of the DB or DBOM methods for which the private partner provides some are all of the project financing. The project sponsor retains ownership of the facility. Private sector compensation can be in the form of tolls (both traffic and revenue risk transfer) or through shadow tolls (traffic risk transfer only).

Long-Term Lease Agreement/Concessions (brownfield)

Publicly financed existing facilities are leased to private sector concessionaires for specific time periods. The concessionaire may pay eat an upfront fee to the public agency in return for revenue generated by the facility. The concessionaire must operate and maintain the facility and may be required to make capital improvements

Full Privatization

Build-Own-Operate (BOO)

Design construction, operation, and maintenance of the facility are the responsibility of the contractor. The contractor owns the end facility and retains all operating and revenue risk in surplus revenues for the life of the facility. The Build-Own-Operate-Transfer (BOOT) method is similar, but the infrastructure is transferred to the public agency after a specified time.

Asset Sale

Public entity fully transfers ownership of publicly financed facilities to the private sector indefinitely.

Expressions such as BOT, BTO, DBFO as well as variations of these acronyms, primarily reflecting the point when legal ownership of the Facility transfers from the Project Company to the Public Authority, or, if the Project Company never legally owns the Facility, the nature of its legal interest, like a property lease or simply a right to operate E.R. Yescombe (2007) asserts in the book, Public-private partnerships: principles of policy and finance, that one may classify PPPs “by the legal nature of private-sector involvement in the Facility, using such distinctions are legal technicalities and do not affect the commercial and financial reality that PPP facilities are public-sector assets with cannot normally sold off to the private sector (p. 13). It proves more beneficial to classify PPPs, albeit, on the service and risk transfer nature inherent in the PPP contract. Based on this criteria, one can split PPPs into the following two primary categories:

1. Usage-and

2. availability-based. (Yescombe, 2007, p. 13)

The availability-based PPPs may be further divided into the following three major sub-categories:

1. Accommodation,

2. equipment, systems or networks, and

3. process plant. (Yescombe, 2007, p. 13)

Table 2 depicts a number of diverse types of PPPs Yescombe (2007) describes.

Table 2: Various Types of PPPs (Yescombe, 2007, p. 12).

Public Project

Private Project

Public-Private Partnership

Contract Type

Public-Sector Procurement


Design-Build Finance-Operate (DBFO)

Build-Transfer-Operate (BTO)

Build-Operate Transfer (BOT)

Build-Own-Operate (BOO)


Public Sector

Public Sector

Private Sector

Private Sector

Private Sector

Private Sector


Public Sector

Private Sector

Private Sector

Private Sector

Private Sector

Private Sector


Public Sector

Public Sector

Public Sector

Private Sector during construction, then Public Sector

Private Sector during Contract, then Public Sector

Private Sector

Who Pays?

Public Sector


Public Sector or Users

Public Sector or Users

Public Sector or Users

Private-Sector offtaker Public Sector or users

Who is paid?


Private Sector

Private Sector

Private Sector

Private Sector

Private Sector

Risk comprises a reality, whether in PPPs, or private or public projects. Garry Downs and Hugh Kettle (2008), partners with Bell Gully, purport in the journal article, “Effective risk allocation in infrastructure projects,” that “proactive risk identification and allocation is an essential planning tool in the successful delivery of major infrastructure project” (p. 1). Downs and Kettle stress that in PPPs, one needs to “manage the risks and the money will look after itself.” (p. 1). This simplification asserts that the quality execution of an infrastructure project, which includes the successful management of risks, embraces one critical key to unlocking the project’s success or failure.

Downs and Kettle (2008) explain that when risk materialize, stakeholders must either invest time, cost and resources to restore the project back to previous anticipated outcomes or face having to accept a reduced rate of return of the service delivery level. Risk, according to Downs and Kettle constitutes: The “chance of the event occurring which means actual project outcomes differ from those assumed.” Basically optimal risk allocation involves extending confidence to stakeholders regarding the following two considerations.

1. From the sponsor or owner’s perspective, that the desired outcomes of the project will be delivered. In a road… PPP this might be commuters having a viable alternative road to travel on which reduces congestion — in a transmission power project this might be that the transmission upgrade is delivered on time to allow new generation to come on stream and that electricity is capable of being conveyed without constraint or downtime.

2. For the owner and equipment/debt providers perspective, that the money — being the cash flows of the project — will be protected. (Downs & Kettle, 2008, p. 1)

To some extent in a PPP, as tension typically exists between the above two aims, a balance must be obtained between making a project profitable and delivery of value for money. Risk allocation must basically be perceived as a component of the overall business plan. Sponsors contend that to allow assessment of those risks, this needs to begin with a clear identification of required outcomes (Downs & Kettle, 2008).

The initial phase of an effective risk framework consists of the following two steps.

1. Identifying all the material risks involved in completing the project, defining those specific risks in wide terms against risks:

The owner or sponsor will retain those risks to be transferred to another party, and risks, which as determined by their inherent nature must be shared (Downs & Kettle, 2008).

2. To establish a particular value for the material risks and quantify the risk outcomes -, assess them. The risks then need to be allocated to the party managing the risk during the life of the project (Downs & Kettle, 2008).

During the project formation, project participants typically undertake these first two components. At due diligence stages, risk allocation comprises the most critical process which occurs as components of contract formation and negotiation. “The second phase of the risk allocation framework applies after the contracts are signed” (Downs & Kettle, 2008, p. 2). To best monitor the identified risks and effectively respond if/when they occur, participating parties need to follow up the mitigation of known risks by creating/adopting a vigorous management plan. As risks are obviously not compartmentalized or always so readily developed, albeit, countering risks requires a dynamic, proactive process. During the life of a project, each risk element needs to be continuously reviewed, particularly as unforeseen circumstances regularly materialize.

PPP in the Highway Sector

In the article, “Introduction of public and private partnerships in the highways sector,” Peter Snelson (2002), Business Manager (Networks & Traffic), ATKINS Transport Planning a highlights a number of primary issues encompassing the introduction of PPP in the highway sector. Snelson asserts that “These issues can apply equally whether the highway improvement is…[a completely] new construction, rehabilitation and ongoing maintenance or any combination of investment processes and levels” (p. 1).

Public Procurement, Snelson (2002) recounts, depicts the typical, established method for completing a project. Its basic, simple involves the state providing all funding either by allocating for the project within the national budget, or utilizing more direct allocation through some form of road funding. In this instance, the state would design, build and maintain the road and ultimately provide the use of the road as a free service to/for the end user. A second type of Public Procurement “requires all funding being provided by the same means as above however the road would then be designed, built, operated and maintained by a government agency, possibly set up as a wholly state owned private company” (Snelson, p. 1). This system typically collects required revenue via tolls, either directly or by a vignette system. Tolls collected on the motorway are fed directly back into the motorway agency that utilizes this method to both design and construct new motorways as well as maintain the previously constructed roads.

One more way construct and maintain a motorway, Snelson (2002) explains is for the government agency to secure finances through Sovereign Loans from a major International Financing Institutions (IFI’s). The designated government agency, as previously indicted, then designs, constructs, and operates the roadway. Various levels of private and public monies may also fund other methods, based on the development of concession programs for the design, construction, operation and maintenance of the roads. In Central Europe, the most tried and tested process, the Build-Operate-Transfer (BOT) process, allocates all financial aspects for development and revenue income to the private sector.

PPP Potential Perks

PPP constitutes a comparatively new concept in the Roads industry. Snelson (2002) presents a number of reasons for supporting the potential to introduce PPP into its National Road Procurement and Management System. Introducing any form of PPP involves the following four primary objectives which reflect the driving force behind the introduction of PPP:

1. Maximize Value for Money (Vfm) of providing a service over a long timescale;

2. Maximize efficiency and innovation to achieve Vfm;

3. Enable the Public Sector to procure services consistent with economic policy;

4. Pay for services which achieve the required quality. (Snelson, 2002, p. 1)

National Governments’ Considerations

According to Snelson (2002), many national governments establish PPP in their systems for the following three basic reasons the Figure 3 presents.

Figure 3: Reasons National Governments Establish PPP (adapted from Snelson, 2002, p. 2)

Figure 4 depicts eight of the confirmed benefits evolving from introducing PPP in a number of governmental areas as well as in an absolute cross section of world economies included the following significant benefits:

Figure 4: Confirmed Benefits from Implementing PPP (adapted from Snelson, 2002, p. 2)

Countries throughout the world routinely report that through innovation and best practices, where PPP has been implemented, the ability of the private sector proffers value for money. This primary benefit relating to the introduction of PPP, albeit, at times contends with the argument that the private sector must pay more interest on borrowed money than the public sector. Even though this typically proves true, the private sector’s cost of capital comprises a component of its price for taking risk. International precedent reveals that, even allocating for the elevated capital cost, “the private sector introduces efficiencies and manages and mitigates risk in such a way that the whole life cost of a concession, with all financing costs is still cheaper, by on average 15%-20% than the Public Sector” (Snelson, 2002, p. 2). The public sector can borrow money at lower interest rates because it retains risk that conveyed under a PPP procurement route.

The private sector as well as the investment market is willing to invest in major infrastructure projects shown as viable, consequently, the PPP can provide services otherwise not available due to the amount of capital the state can or willing provides. As the private sector possesses the resources to deliver key infrastructure projects in a manner superior to the public sector’s capabilities, the public sector has repeatedly relied on the private sector to supply the necessary expertise (Snelson, 2002).

Forms of a PPP

Any PPP form, Snelson (2002) stresses must include a partnership arrangement between the state (the Public Sector) and the provider (the Private Sector from the conception of the consideration. The partnership form can be secured and implemented in a variety of ways, however, the PPP overture basically “consists of private concessionaires being contracted to undertake a series of activities typically the design, construction, operation and maintenance of the highway [or other project] but with varying levels of public sector involvement and support” (Snelson, p. 2). The form would naturally include specific critical conditions and criteria that the end “product” must adhere to. Designated conditions could also include stipulated service level and particular performance specifications coupled with exact payment mechanisms.

Moreover, the public sector could afford support through a variety of initiatives characterized under the following three basic headings:

Providing a Revenue Payment “subsidy” to the concession company;

Provision/Use of an existing Asset; and Project Finance Guarantees. (Snelson, 2002, p. 2)

The public sector could provide a “subsidy” payment to the concession company via a number of forms. Snelson (2002) explains that in the roadway scenario:

At one end of the spectrum, the revenue to the concession company could consist entirely of payments from the public sector which would enable it to repay its capital investment, financial charges and to pay for all ongoing maintenance and operational costs throughout the life of the concession. This would be done by way of some form of ‘level of service’ payment

Where the state cannot afford to provide enough funds to cover the total revenue required it can still provide a ‘subsidy’ payment to the concession company. To implement this it will be necessary to introduce some form of specific charging to the user of the road. This can be in the form of direct tolls, collected on the route itself, or in the form of a vignette where users of the road pay for a permit to travel along the route. (Snelson, 2002, p. 2).

Neither of these forms of charging, albeit, will likely fulfill the project’s total revenue requirements. In turn, the state will need to pay supplementary payments. The state may also need to directly pay the concession company to cover any revenue deficient due to direct tolling.

The state could also provide some other form of “subordinated debt” to compensate for any revenue shortfall; freed and paid to the concession company.

Where the state commitment can be controlled, the concessionaire can utilize or provide an existing asset, such as land, to serve as a form of Public Sector support; reflecting a source of revenue and/or a saving in capital requirement. Land necessary for completing the project constitutes the most basic form of the provision. Yet another provisional form the state could allocate to the concession company would be “an existing section of road, or major river bridge/estuarial crossing, where the concession company could collect direct tolls from the outset, thus giving it a guaranteed revenue stream which it could use to partly fund its borrowing requirement” (Snelson, 2002, p. 3). This type support could simultaneously shrink the concession company’s borrowing requirement; in turn dropping its long-term revenue obligation.

Another possibility would be for the state to re-finance the existing road, railroad, or other considered “property” proposed for modification and divert a portion or the total monies to the concession company.

Project Finance Guarantees comprise the final subsidy form of subsidy Snelson (2002) relates. A number of detailed forms of this type subsidy exist, albeit, each one involves the state supplying some sort of assistance to the concession company during the process of securing the necessary financing for the PPP. The state, for instance, could provide a guarantee for a portion of the debt as well as provide minimum revenue guarantees and grant guarantees concerning foreign exchange monies.

Private Sector Loan Pay Backs

Outside the basic PPP structure, several “pay-back” initiatives are currently being investigated to introduce to the private sector. These potential venues could proffer revenue for the concession company as well as provide another potential income stream for the PPP. This revenue the transport user solely provides could help reduce either direct tolls, state contributions or a vignette. The concession company, for example, in some scenarios can lease “the land for fuel stations and rest areas to other private operators, allowing the concession company to levy a charge system to the statutory undertakers such as water, power and telecoms to run their services under or alongside the road” (Snelson, 2002, p. 4). These could pay-back plans could potentially provide additional revenue as well as decrease the state’s required contribution. The state, nevertheless, could possible secure a more favorable deal for itself if it determine to directly lease land for fuel stations. This would position the state to secure the benefits proferred for the private sector.

Challenges in PPP Development

When defining concessions, in addition to considering the previously discussed issues, a considerable number of further issues must be addressed. Risk transfer between the state and the concessionaire continue to constitute a critical issue in developing concessions. The risk transfer could involve traffic risk; particularly traffic future growth if/when any the PPP employs any form of traffic flow related revenue. “Other areas of risk include; planning and implementation, management, operational, environmental, taxation and inflation, and market demand” (Snelson, 2002, p. 4). Table 2 portrays a typical allocation of the key risks noted in a roads PPP project:

Table 3: Primary Risks in a Roads PPP Project (Snelson, 2002, p. 4).





Land acquisition

Archaeological finds

Maintenance costs

Latent defects

Force majeure

Inflation rates

Other issues that also need to be addressed within the definition of concessions include the scope of the project. In terms of a large scale motorway project this basically relates to large scale questions such as what elements should the concession include? Design, build, finance, operate and maintain. However there are also smaller scale issues that can influence the financial viability of concessions such as the inclusion of various assets into the concession.

The scale of the concessions is also an issue. The construction of a motorway from one city to another may be developed by more than one concession. It is also possible that each concession would not only have responsibility for the motorway but also a certain extent of state road providing access to that motorway. It is therefore important to have a rationale behind defining the number of concessions and their scale.

A final example of the issues that need to be taken into account covers the hand back arrangements within the concession. Following completion of the concession period the condition of the motorway and its residual life must be acceptable to the state.

The potential legislative issues to be addressed can also be significant. Experience has shown that it is vital to establish the legal position in a number of areas. For example what is the current position in relation to contract law for highway maintenance. Is there any legislation in place that restricts all routine maintenance contracts to be undertaken by the certain operators.

The maximum term of a concession contract could be introduced is also a concern as is the ability of government to enter into a contract with a concessionaire where the concessionaire invests a significant amount of private investment and it is paid for by government over say a 20-year period. p. 4

Concerns Relating to the Amman-Zarqa Light Rail System (LRS) Project

During the early stage of the Amman-Zarqa LRS project, the Jordanian government determined that the private sector should utilize a PPP model to develop the venture. At that time, using a PPP model a novel approach for the region proved contrary to the current preferred project structure. The typical preferred process included “choosing a private sector consortium to design, build, partly finance, operate and maintain the LRS for a period of 30 years. During the 30-year contract, the private consortium would collect the operating revenues as well as the revenue risk. When the designated 30-year tenure ended, the private consortium would transfer project assets and operations back to the government (Roy, 2009).

The Amman-Zarqa LRS project experienced several counterfeit starts. During the late 1990s, because the proposal placed extreme risk on the private sector, it did not draw qualified bidders. In 2005, supporters of the project retendered plans; however, even though the international community expressed substantial initial interest in the project, it ultimately only secured one bid. This negated the projects potential government acceptance. The principal reasons the project failed to attract initial tenders included the following:

1. The project did not appear attractive;

2. anticipated returns appeared too low, and

3. The projected risks seemed much too high (Roy, 2009).

Even though similar to the PPP model as well as the DBFOM structure urban transit projects in other areas utilized, the PPP terms for Amman-Zarqa proved to be defunct. During 2006, management consultants CPCS encouraged the government to re-assess and redesign the project’s terms to enhance its attractiveness. The revision of the structure for the Amman-Zarqa LRS project incorporated “a capital infrastructure grant equivalent to U.S.$85m, a minimum revenue guarantee equivalent to U.S.$11m per year (to be adjusted with inflation), a significant allocation of land for commercial development, and freedom to set fares, subject to a pre-set fare ceiling” (Roy, 2009, p. 34). With these revised terms, the government again tendered the project in 2006.

In response to the revised Amman-Zarqa LRS project, three consortia submitted bids. The government deemed two of the bids to qualify. The government initially selected a Pakistani-led consortium Infrastructure Development Company as the favored bidder. After the negotiations between the Jordanian government and IDC failed, however, a Kuwaiti-led consortium, the second bidder, later incorporated as Jordanian Kuwaiti Company, and consequently entered into a Construction & Operating Agreement with the Jordanian government. Standard conditions precedent guided the agreement and included the capability to secure finance within a specified time limit (Roy, 2009).

The time for the chosen consortium to secure financial closure ultimately coincided with the international financial markets collapse as well as the implicit freeze in commercial credit availability. In the Amman-Zarqa LRS PPP project, like in the majority of urban rail PPP deals, debt formed the principal part of the private financing. “Without debt or alternative sources of financing, there is no PPP project” (Roy, 2009, p. 35). Due the ensuring halt in the PPP project, traffic congestion on the Amman to Zarqa passage continues to exacerbate.

The question arises as to whether more effort could have been invested to help ensure the project’s success as a PPP. Perhaps a better allocation of risks, some contend, could have helped the project succeed; particularly “revenue risk which was largely transferred to the private sector, is one factor that could probably have been better addressed. A greater level of public funding for capital provision and the division of responsibilities between infrastructure and operations are others” (Roy, 2009, p. 36). Perhaps, the Amman-Zarqa light rail project would not have fallen off the rails if the Jordanian government had required that bidders submit full committed financing when they presented their bids. Although few, albeit, if any, financial institutions prove open to committing financing more than a few days in the contemporary market, perhaps some would have…if only

Perhaps, in time, after financial markets stabilize, the Amman-Zarqa LRS PPP project will be resurrected. Maybe, the project will move forward full steam ahead and utilize a traditional procurement method or some other form to procure funding as “other PPP structures are possible, including government construction of infrastructure, with private involvement in systems and operations only” (Roy, 2009, p. 36).

Urban rail financing Also questionable is the universal applicability of the PPP model for urban rail projects. The reality is that PPPs are highly complex and much more difficult to implement than traditional procurement methods. PPP models cannot simply be copied from one jurisdiction to another. They have to be modified to meet the features of the transport system, the needs of the passengers, the financial and technical resources of the government, and the abilities of the private sector to meet their assigned roles (and to meet their corporate objectives).

Whether the value of the PPP model outweighs the challenges that arise from its complexity is likely to be the subject of much future debate. In the meantime, it is important to draw the lessons from past and ongoing PPP transactions.

the light rail project is again stalled, with its fate unclear.

Global Financial Crisis Failed project reveals challenges of public-private partnerships for urban rail development Amman-Zarqa light rail project derailed” (Roy, 2009, p. 34).

Light rail operations are expected to make use of the existing Hedjaz Railway alignment.

(Roy, 2009).p. 34

At its present stance, the Amman-Zarqa LRS project sits stalled on the rails. Whether the project will secure financial stabilization via a traditional procurement or another yet undetermined method and in turn, move forward with the hope regain momentum remains unclear. Other PPP structures “like government construction of infrastructure, with private involvement in systems and operations only” remains an option at this time. The government reportedly continues to contemplate ways to move ahead with the Amman-Zarqa LRS project on its own. The government, however, has not yet confirmed particular plans regarding to best proceed.

For any project to ensure the recommendations for the introduction of a system to complete a road or a project like Amman-Zarqa Light Rail System through a PPP, components of the project must be specifically tailored to match the country’s needs regarding its financial, technical and legal requirements. In addition, the recommended PPP model recommended must specially not only be practical, but also workable in construction and financial considerations.

Urban rail financing

Does on particular plan perfectly

the universal applicability of the PPP model for urban rail projects Also questionable is. The reality is that PPPs are highly complex and much more difficult to implement than traditional procurement methods. PPP models cannot simply be copied from one jurisdiction to another. They have to be modified to meet the features of the transport system, the needs of the passengers, the financial and technical resources of the government, and the abilities of the private sector to meet their assigned roles (and to meet their corporate objectives)

Whether the value of the PPP model outweighs the challenges that arise from its complexity is likely to be the subject of much future debate. In the meantime, it is important to draw the lessons from past and ongoing PPP transactions.


Buxbaum, Jeffrey N., Ortiz, Iris N., National Research Council (U.S.), National Cooperative

Highway Research Program, American Association of State Highway and Transportation

Officials, United States, & Federal Highway Administration. (2009). Public sector decision making for public-private partnerships. Transportation Research Board.

Washington D.C.: Transportation Research Board

Davies, J. (2006 February). Risk transfer in private finance initiatives (PFIs): An economic analysis. Retrieved August 04, 2010 from

Downs, G. & Kettle, H. (2008). Effective risk allocation in infrastructure projects. Bell Gully

Partners. Retrieved August 04, 2010 from


Government of the Hashemite Kingdom of Jordan. (12 July 2010). Draft strategic options report public-private partnership development of the Amman-Zarqa Light Rail.

International Finance Corporation

Government of the Hashemite Kingdom of Jordan. (20 July 2009). Draft strategic options report public-private partnership development of the Amman-Zarqa Light Rail.

International Finance Corporation

Kendrick, T. (2009), Identifying and Managing Project Risk: Essential Tools for Failure

Proofing Your Project. New York NY: AMACOM Div American Mgmt Assn.

Light railway developer invites bids. (2009). Transport: Jordan. (Jordanian Kuwaiti


Development Company). MEED Middle East Economic Digest. EMAP

Business Information Ltd. Retrieved August 04, 2010 from HighBeam Research:

Literature Review. (N.d.). Sections of the research report. Brigham Young University. Retrieved August 5, 20101 from

Machi, L.A. & McEvoy, B.T.. (2008). The Literature Review: Six Steps to Success. Thousand Oaks, CA: Corwin Press.

Marc-Andre Roy. Amman – Zarqa Light Rail project derailed. (2009 June). Metro Report


Miller, E. (2008). GAO Report Warns of Risks In Public-Private Partnerships. Transport Topics.

Transport Topics Publishing Group (TTPG). 2008. Retrieved August 03, 2010 from HighBeam Research:

Nguyen, Nhut H.. (2009). State vs. private ownership: a shareholder’s wealth perspective.

Journal of Academy of Business and Economics. International Academy of Business and Economics. Retrieved August 05, 2010 from HighBeam Research:

Public-private partnerships. (2009). Daily News (Colombo, Sri Lanka). Al Bawaba (Middle

East) Ltd. Retrieved August 03, 2010 from HighBeam Research:

Public Private Partnership A Guide for Local Government. (1999, May). British Columbia:

Minister of Municipal Affairs

Snelson, P. (2002). Introduction of Public Private Partnerships in the Highway Sector.

Association for European Transport. Retrieved August 03, 2010 from

Tate, P. (2006). Gov’t to float tender for Amman-Zarqa rail link. Jordan Times (Amman,

Jordan). McClatchy-Tribune Information Services. Retrieved August 04, 2010 from HighBeam Research:

Technical assistance to support the ministry of transport in up-grading the three-year national transport strategy (2009-2011) and capacity building of MOT (2009 January). Hydroplan


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