Harmonising privatisation in Saudi Arabia

25 February 2018
Riyadh is taking a holistic approach to creating an environment in which public-private partnership projects can thrive, say AS&H and Clifford Chance

Saudi Arabia’s programme for public-private partnerships (PPPs) and private sector participation (PSP) is the cornerstone of the kingdom’s Vision 2030 and national transformation programme, and is expected to privatise assets worth nearly $200bn.

The recently established National Centre for Privatisation & PPP (NCP) and the sector-specific supervisory committees are hailed as being central to the success of the programme.

The NCP is tasked with, among other things, harmonising the PPP/PSP framework in the kingdom. To that end, the NCP can recommend changes to laws and policies, and standardise the frameworks and principles along best practices.

The NCP does not have legislative powers and is not authorised to take executive decisions. Instead, it makes recommendations for decisions to be taken by Saudi Arabia’s Council of Economic & Development Affairs (Ceda) or the Council of Ministers, and is accordingly well-positioned to play an important part in implementing the kingdom’s privatisation plans.

Nerve centre

Having the NCP as the ‘nerve centre’ of Riyadh’s PPP/PSP programme is expected to help rationalise and standardise the government’s approach to important issues such as bidding processes, risk allocation and credit support.

The Council of Ministers has identified 10 priority sectors for privatisation. For each sector, it has established a supervisory committee. Transport, energy, education and healthcare are among the priority sectors; upon NCP’s recommendation, Ceda may add further sectors to this list. The committees report directly to Ceda.

The role of each committee includes identifying the services or assets to be privatised; proposing (in consultation with the NCP) the optimal privatisation structure, and appointing consultants for specific PPP/PSP projects in its sector. A committee may also approve a specific project for privatisation, negotiate with the private investors and execute concession or lease contracts. However, it may only exercise these powers with prior approval of Ceda.


Harmonising privatisation in Saudi Arabia

Reducing delays

Working with the NCP, the committees are expected to address a significant challenge that some PPP investors have faced in the past. Once a project has been awarded, its implementation requires the support of other ministries and agencies (such as the Ministry of Labour for issuing work visas, the Saudi Arabian General Investment Authority for issuing foreign investment licences, and the Ministry of Transportation for developing surrounding roads). In the experience of some investors, not all the relevant ministries and agencies were always on the same page when it came to implementing the project.

The committees will provide a useful forum to bring together the relevant stakeholders early on. This will enable the project to be thoroughly examined, and the necessary ‘buy-ins’ and commitments obtained at the outset, reducing the chances of delays or debates later on.

With regards to the PPP/PSP projects that are already in the pipeline, or for which a request for proposal has already been issued, the NCP and committees are expected to get involved in a flexible manner, on a case-by-case basis, to build on existing processes and make any adjustments.

Key developments

The NCP has been directed to prepare a draft of what will be the kingdom’s first PPP/PSP law. The law will incorporate international best practice and contain exemptions from certain existing laws. While this will be a significant step towards achieving a standardised regulatory framework for the PPP/PSP process, there are also other key developments and trends that will serve as enabling mechanisms to the programme.

One such trend is the corporatisation of assets that may be privatised in the future – for example in the airport, education and sports sectors. Introducing structures more familiar to international investors is expected to make the privatisation process more expedient and easier to execute.

In addition, a new insolvency law has been published and a new commercial pledge law is in the process of being finalised. Both of these are likely to provide greater certainty to financial institutions looking to finance PPP/PSP projects, thereby bolstering their bankability.

The government has also recently taken steps to provide targeted subsidies where they are needed most. It has established the Saudi Citizens Account programme, whereby it will place deposits directly into the bank accounts of low and middle-income families. This will enable the government to phase out universal subsidies, affording PPP/PSP investors greater freedom in price selection. It is hoped this will pave the way for these projects to be self-sustaining and durable, without the need for credit support from the government, which in our view is likely to be reserved for very select cases.

Overall, while the NCP and committees will play a positive role in introducing greater consistency, certainty and predictability in the PPP/PSP programme, the government is also taking a holistic approach to creating an environment in which these projects can thrive.

About the authors

  • Fahad Abuhimed is the managing partner of Abuhimed Alsheikh Alhagbani Law Firm (AS&H) in cooperation with Clifford Chance
  • Mohamed Hamra-Krouha is a partner in the project finance team at Clifford Chance and is currently seconded to AS&H
  • Bilal Rana is a senior associate in the project finance team at Clifford Chance and is also seconded to AS&H

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