Public-private partnerships (PPPs) are gaining popularity in the Middle East as a way of procuring projects and raising finance from the private sector, in particular given the low oil prices constraining government spending.

One of the key factors for the success of PPPs is to ensure there is a robust legal framework supporting them. Dubai’s new PPP Law came into force on 19 November 2015 and is expected to boost the procurement of PPP schemes in the emirate. The Dubai law follows in the footsteps of similar PPP laws in Kuwait, Jordan and Egypt. Qatar and Oman have also announced plans to implement such laws.

While several countries in the region have enacted PPP laws, not all have, and there is ongoing debate on whether a PPP law is necessary and what the alternatives are.

Reasons for PPP

The legal tradition of a country has an impact on the approach taken. Civil-law countries typically rely on written laws, whereas common-law countries are less prescriptive.

The main advantage of having a PPP law is to establish a robust and clear regulatory framework, which is necessary to instil confidence in investors. For example, most PPP laws provide clarity on the public sector’s ability to procure through long-term PPP contracts and give various powers (such as the ability to provide a government guarantee and enter into direct agreement with lenders) that may be necessary to enable schemes to secure funding.

A PPP law will usually specify the parameters between which bid documents and deals must be developed, which can be helpful in achieving a degree of uniformity across the country. In addition it promotes a fair and transparent bidding process.

A key advantage of a PPP law is that it can clarify and overcome any conflicting laws, for example a traditional procurement law, which is more suited for the procurement of goods and services rather than PPPs. A PPP law will also provide for an effective dispute resolution mechanism. Dubai’s PPP Law, for example, provides for arbitration as a means of dispute resolution. However, the place of arbitration must be Dubai and the governing law must be UAE law.

PPP laws will also set the institutional structure, for example creating a dedicated PPP unit with clear autonomy, such as Egypt’s PPP Central Unit and Kuwait Authority for Partnership Projects (KAPP). While these provide efficient governance, they also send a powerful message of a government’s commitment to the success of its PPP framework.

The alternatives

While enacting a PPP law provides legal certainty, it should not over-legislate by specifying in detail matters that are typically set out in PPP contracts, where they can be more finely tuned on a project-by-project basis. Therefore a balance needs to be struck. This sometimes leads to scepticism, with critics arguing PPP laws either go too far or not far enough.

Several countries such as the UK and Australia do not have a specific PPP law and rely on policy guidelines in relation to the tendering rules and terms of the deal. PPP policies describe the reasons and goals for adopting the model and provide general guidance on how schemes should be implemented by national and local governments.

The absence of a specific law does not mean an absence of a structured framework for PPPs. By regulating projects on a contractual basis, there is scope and flexibility to foster contractual and financial innovation. This approach also enables the development and dissemination of good practice by developing standard contractual clauses common for similar schemes.

PPP laws can also take a long time to develop and implement as they will need go through the various stages of the legislative process, which can vary in length depending on the country in question. There is also no one-size-fits-all and the legislation will need to be developed depending on the objectives that are sought to be achieved by the country in question.

Key to success

Ultimately, whether a PPP law is required or not will depend on the overall objectives of the PPP programme and the legislative landscape in question.

The enactment of Dubai’s PPP Law is a key step forward for promoting the use of the model in the emirate. In other civil-law countries such as Egypt and Kuwait, it has also been necessary and beneficial to have a PPP law.

Its ultimate success will depend on having a strong pipeline of PPP projects, the proper implementation of early schemes, and efficient and sufficient governance structures that can attract private sector interest and investment, and effectively manage the schemes.