RIYADH: Government entities are playing a pivotal role in shaping project finance across the Gulf region as countries pursue economic diversification, drawing private investment into sectors like green energy, utilities, and transportation, according to a report by S&P Global Ratings.
The report emphasizes that governments within the Gulf Cooperation Council, particularly Saudi Arabia and the UAE, are central to these initiatives. They often leverage government-related entities to secure funding and ensure the successful implementation of projects.
This approach aligns with broader efforts to reduce dependency on hydrocarbons and foster sustainable economic growth.
In both Saudi Arabia and Abu Dhabi, a common model sees government-affiliated entities, such as the Public Investment Fund and Abu Dhabi Developmental Holding Co., holding a 60 percent stake in power projects—either directly or indirectly. The remaining 40 percent is usually owned by international energy or construction companies, as noted by Fitch Ratings.
Since the mid-2010s, large-scale infrastructure initiatives and energy transition goals have significantly driven project activity across the GCC. “Project finance has become a preferred model because it allows developers to secure long-term funding aligned with project lifecycles, while keeping debt off balance sheet. This financing approach aims to manage risks throughout project phases, from construction to operation,” the S&P report said.
The report also notes that governments are increasingly turning to project finance to fund large-scale infrastructure initiatives, relying on private sector involvement through joint ventures while ensuring fiscal discipline.
These transactions are typically structured as public-private partnerships, allowing for government oversight and long-term sustainability goals, while minimizing the impact on public budgets.
It highlights that solar and wind farms, along with hydrogen production plants, play a crucial role in national strategies such as Saudi Arabia’s Vision 2030 and the UAE’s Net Zero 2050.
Additionally, investments in digital infrastructure, including data centers and AI systems, are growing rapidly. Sovereign wealth funds are channeling capital into these sectors to further support economic diversification.
“We believe the rising demand for project finance is a direct result of global sustainability goals, regional economic diversification strategies, and developers’ preference for financing models that match long-term concessions with long-term debt,” it added.
The S&P data further reveals that the PPP frameworks established by GCC governments have facilitated increased private sector involvement.
These frameworks allow governments to structure deals as joint ventures, where they take on roles such as landowners, off-takers, or co-shareholders.
Moreover, government participation in infrastructure projects continues to be a defining feature of the region’s project finance landscape.
“Governments, primarily through GREs, are deeply integrated into the lifecycle of these projects, from procurement stage to operations. GREs oversee tendering processes, inviting local and international developers to bid for projects structured under PPP frameworks,” the report said.
Entities such as the Emirates Water and Electricity Co. and the Dubai Electricity and Water Authority lead power and water procurement in the UAE, while the Saudi Power Procurement Co. and the Saudi Water Partnership Co. play a similar role in Saudi Arabia. Both countries have strong PPP frameworks, making project finance the preferred method for large-scale development, the report underlined.
“S&P Global Ratings believes the government's commitment to solid concessions and strong risk mitigation mechanisms — including protections against regulatory and political risks — enhances the bankability of GCC projects and makes them more attractive to both regional and international investors,” the report stated.
