Draft Saudi PPP law prods government to offer guarantees

11 July 2018
Care must be taken to ensure final law does not conflict with other investment regulations in the kingdom

On 8 July, Saudi Arabia’s National Centre for Privatisation published a draft of its private sector participation (PSP) law and gave the public until 29 July to comment on the document before it is finalised and subsequently implemented.

Once finalised, the law could potentially speed up the implementation of multibillion-dollars’ worth of projects across the kingdom, especially for those outside the power and water sector.

The key factor that could allow this to happen is the provision within the proposed law for the government to support planned public-private partnership (PPP) projects by providing: loans; bank guarantees; guarantees on revenues; contributing to the share of the PPP project; tariff subsidies; foreign exchange and interest rate fluctuation guarantees; tax benefits; and guarantees on the quality of performance related to the obligations of the governmental entity, among many others.

More importantly, a new law governing transactions between the government and the private sector is necessary, given that the existing Government Procurement and Tenders Law is known to offer little room for procuring public projects through the private sector.

As Mhamed Biygautane, research fellow at Australia-based Monash University’s Faculty of Law, points out, the legal clauses in the existing law are written in such a way that they are only applicable to publicly funded projects.

It is understood the existing law has a lot of restrictions regarding the duration of contracts, which, for example, cannot exceed five years or exceed SR5m ($1.3m) without the approval of the Finance Ministry. In addition to these constraints, the current law also does not have a provision for international arbitration, which would have made attracting private sector participation in projects difficult.

Nevertheless, an important caveat remains, even when the draft law is finalised and implemented. It is understood that PPPs have performed best in countries without a PPP unit or PPP legislation, but which have effective policies that enable these programmes to work. Kuwait, for instance, has both a PPP law and unit, but most planned PPP projects in the country have not been successfully procured.

This implies that the promulgation of a draft PPP law in Saudi Arabia is just the starting point of a long process that requires it to review and, where necessary, update other existing investment-related regulations to attract foreign businesses.

READ MORE: Saudi Arabia issues draft PPP law

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