Kuwait’s new privatisation law is unlikely to make investment in state firms attractive to international companies according to bankers, economists and lawyers based in the country.

The Kuwaiti National Assembly, or parliament, passed a first draft the bill on 13 May although the country’s emir, Sheikh Sabah al-Ahmed al-Jaber al-Sabah, is yet to sign it in to law. This is likely to happen before the end of the second week of June, say sources close to the emir.

The law would allow the government to sell state-owned companies and assets to international investors.

The privatisation of state firms and the outsourcing of services is a major part of Kuwait’s plans for economic development. It is key to the government’s current five-year plan, which runs to 2014, and the wider Kuwait Vision 2030 outlined by the UK’s Tony Blair Associates in 2009.

Senior executives, however, at a variety of banks, businesses and law firms remain sceptical over the level of interest the privatisation programme will generate because of a series of clauses in the bill, which would leave any serious investor “hamstrung” says one banker.

Concerns about the law centre on four key points: government retention of a majority ‘golden share’ in each company; the requirement for each company to comply to Sharia law; a lack of regulatory framework for the newly privatised industries; and the need to retain existing Kuwaiti employees for up to five years on their current salaries and benefit packages.

The ‘golden share’ means that private companies can buy large stakes in each company, but the government’s share gives them a majority in any voting situation, says one banker.

Given the government’s record of backing down under pressure from parliament in the past, this would leave private companies at the mercy of often fractious political sentiment in the country.

Further, the companies will  be obliged to maintain the existing workforce on the generous government packages they currently enjoy for a minimum of two to three years, making it impossible to restructure unwieldy management structures and remove ineffective employees.

“The golden share rule is a troubling, with the government effectively having a veto in any supermajority voting situation,” says David Pfeiffer, managing partner at US law firm Denton Wilde Sapte’s Kuwait office.

“Because of a number of legal, political and cultural issues, the buyer is going to be required to run the company like a government organisation for two-to-three years before they can start making material changes. They will have all these restrictions in place but no real government support.”

In the case of regulation, the issue is a lack of transparency, the banker says. Kuwait does not have formal regulatory bodies for many industries, and companies entering the country to take over businesses like airlines or utilities would not know what the laws around them were.

A similar issue is seen with the implementation of Sharia law, with the added concern of raising financing.

“Because you have to do things using Sharia law, you can only raise money through sukuks [Islamic bonds]; you can’t tap the banking sector for credit,” says Randa Azar-Khoury, chief economist at the National Bank of Kuwait.

All of the executives, however, approached by MEED agree that the bill is a “step in the right direction” for the country, which needs to create more jobs and attract international firms with significant expertise and technologies.

“This should not be about selling off the assets but but rather should be about selling them to bring in new technology , knowledge and experience. ” says Pfeiffer.