In the first week of July, Oman released a long-awaited Public Private Partnerships (PPP) Law (Decree No. 52/2019), following on from a Privatisation Law (Decree No. 51/2019) released earlier that week.
The arrival of the legislation has been much welcomed, given that Oman announced that it would be developing a PPP law some time ago, and will hopefully lead to rapid progress with the raft of PPP projects which the Government has announced are under planning.
At the same time, a complete picture of Oman’s planned PPP structure is not yet available as the associated regulations for both the PPA Law and the Privatisation Law will be released one year from the date of publication. Vital issues such as the availability of a sovereign guarantee are not covered in the PPP Law and the market will be hoping that these regulations are issued as soon as possible to allow investors to fully evaluate the attractiveness of PPP projects in Oman.
Nevertheless, on the basis of the decrees, it is possible to begin to delineate the broad framework under which PPP and privatisation opportunities will be offered to the market.
First and foremost, the PPP Law empower the recently created Public Authority for Privatisation and Partnership (PAPP) to oversee PPP projects in Oman. While the Ministries will retain the responsibility for managing PPP projects, the PAPP is obliged to take the lead in preparing, evaluating, negotiating and awarding tenders for PPP projects; in consultation with the relevant Ministry.
Crucially, the PAPP will have to seek Ministry of Finance approval before launching any project. To qualify for this approval, the PPP projects must offer “economic or social” return and conform to Oman’s “strategy and development plan”. These requirements are not clearly defined; however they would seem to offer a very wide discretion over the areas in which PPP projects can be offered.
How Ministries deal with running what can be complex contractual arrangements remains to be seen, but there will certainly need to be an extensive programme of training to ensure that Ministries who are not used to dealing with the private sector can properly manage these contracts.
Tenders and bidding
Interestingly, the Tender Law (Decree No. 38/2008) does not apply to projects under the PPA Law or the Privatisation Law, or consultancy contracts associated with either law.
Additionally, under the PPP Law, direct approaches by developers in are permitted and direct awards without a tender can be made, subject to the approval of the Council of Ministers.
In the bidding process outlined in the PPP Law, an interesting point is that competitive dialogue is specifically mentioned as an acceptable way to reach an award for projects of a special nature. This may offer developers some hope that PPP projects will not just be awarded on a lowest cost basis.
There is also a specific provision allowing the PAPP to reject bids for a PPP project if prices “unjustifiably exceed” the compared cost. It is not clear what the compared cost is, but this provision does indicate that concerns raised in mature PPP markets over value for money have been taken note of.
In relation to the Privatisation Law, there is an obligation to use independent consultants to assess which projects are suitable for privatisation.
One very important and welcome position is that both the PPP Law and the Privatisation Law explicitly state that 100% foreign ownership will be permitted. However the required capital and other details of the project company will follow in the regulations. Government participation is also anticipated in the law, but would seem be limited to a maximum of 40%.
The PPP Law also imposes fairly strict controls on the project company, sale of shares, the creation of security and assignment all will require the approval of the PAPP. It does not have any impact on public utilities, which suggests that Oman Power and Water Procurement Company (OPWP) and the Sector Law will remain untouched by it.
One provision of particular note in the Privatisation Law is that Omani employees are to be transferred over on the same terms and conditions as they were on previously, and that these terms and conditions are to remain the same for 5 years.
Contracts and disputes
The PPP Law describes at a high level what a PPP contract will look like. There appears to be nothing overly concerning here though the provisions are not detailed and there is no indication how important issues like change in law, compensation and termination are actually going dealt with. One interesting provision is that the duration of the PPP contract cannot be more than 50 years. This seems very generous, particularly when compared to the 15-year term of OPWP’s current purchase agreements.
Under the PPP Law, on termination or expiry project assets revert to the Government, after, it appears taking account of any agreed compensation. This would suggest that the law requires BOT or BOOT type structures to be used in Oman. This is interesting as around the region the transfer element of PPP structures seems to be falling out of favour as governments seek to divest themselves of assets.
In case of disputes, the law calls for the creation of a specific appeals process for disputes relating to the tender process, project award or implementation. This appeal provision appears in both the PPP Law and the Privatisation Law. How this will interact with the court system (and arbitration mechanisms) will be a key issue, but developers will be pleased with the provision of means to challenge what they perceive as unfair decisions.
About the author
This legal insight was provided by Thomas Wigley, an Oman-based partner at Trowers & Hamlins