Saudi Arabia’s new regime for privatisation

25 July 2021
The kingdom’s new privatisation regulation aims to address barriers to the delivery of private sector participation projects

Saudi Arabia’s National Centre for Privatisation (NCP) recently published a draft of the soon-to-be-issued implementing regulation for the kingdom’s private sector participation (PSP) law. 

The publication was accompanied by a public consultation on the PSP regulation, which closed at the beginning of July. The final form of the PSP regulation is expected to be issued on 24 July, the date that the PSP law enters into force.

The new regulatory regime for privatisations in Saudi Arabia is a welcome step that will enhance the ability of the kingdom to achieve the transformative agenda of Riyadh’s Vision 2030 plan.

The PSP law has introduced a range of reforms aimed at addressing historic barriers to the delivery of PSP projects in the kingdom, and the PSP regulation builds on this foundation.

Key benefits of the PSP regulation that will be welcomed in the market include greater procedural clarity on the tendering of privatisation projects, and increased transparency on government authority and regulatory approvals. 

In practical terms, the immediate benefit of the new regulatory regime will be an enhancement of the kingdom’s ability to simultaneously deliver on multiple privatisation projects in sectors as diverse as schools, ports, hospitals and major transportation infrastructure. This will be achieved through the application of a robust but flexible regulatory approval process. 

Another welcome development will be the improved provisions on the formation of project companies to deliver privatisation projects, in particular the regulatory position where such companies are majority state-owned. 

The disapplication of certain provisions of the companies law – which previously could have resulted in a technical ‘deemed dissolution’ of privatisation project companies that may be loss making for certain periods as part of the planned financial model for large-scale privatisation projects – will also be beneficial.

The introduction of such provisions in the new regulatory regime are a sign that regulators have listened to market concerns and sought to place privatisation projects on a more assured footing.

Saudi Arabia's new private sector participation regulations are a welcome addition to the regulatory landscape
Joss Dare, Ashurst

Supporting foreign investment

The PSP law also addresses concerns of some foreign investors in relation to disputes for privatisation projects in the kingdom. It introduces the possibility of such disputes being subject to arbitration rather than the Saudi courts, although the guidelines that will be applicable to such determinations have yet to be published.

Similarly, the new regulatory regime will depart from the long-standing difficulties posed by the requirement that privatisation project documents must be drafted and interpreted with Arabic as the prevailing language.

It would now be possible – subject to applicable approvals under the PSP law – to utilise a prevailing foreign language. This would be welcomed by international investors and advisers and will lead to enhanced market interest in delivering privatisation projects in the kingdom.

Refined requirements

Prior to the new regulatory regime coming into force, privatisation projects in the kingdom were subject to a range of regulations, including the government tenders and procurement law (GTPL) and the NCP Privatisation Projects manual. While, in broad strokes, the PSP regulation builds on these existing processes and statutory provisions, it contains more refined and procedurally clear requirements.

The PSP regulation contains provisions on the level of detail that must be included in the studies that underpin proposed privatisation projects, their business cases and financial models, and the terms and conditions of privatisation tenders. It also clarifies the procedural aspects for the award of successful tenders. 

The new privatisation regulatory regime sets out clearly both the statutory and procedurally applicable rules for every step of a privatisation project. At the same time, it contains sufficient levels of regulatory flexibility to avoid the pitfalls that can often occur during the transition to a new regulatory regime.

By contrast to other historical reforms, many of the provisions of the PSP regulation set out prescriptive requirements. Simultaneously, however, it grants the designated approving authority the flexibility to make exceptions to certain requirements in situations that will enhance the ability of the kingdom’s privatisation projects to successfully reach the market. 

Local content and land rights

The PSP regulation also underscores its own interaction with other regulatory mandates that are critical to the delivery of successful privatisation projects. 

For example, the PSP regulation contains an appendix setting out the framework for cooperation between the NCP and the Local Content & Government Procurement Authority, emphasising the importance that will be given to local content, while at the same time enabling flexibility that will not hinder the delivery of projects that are central to the kingdom’s Vision 2030 plan.

The new privatisation regulatory regime also anticipates the development of guidelines in consultation between the NCP and the State Properties General Authority that will address the land rights that privatising public bodies can grant to the private sector. These guidelines have yet to be issued, but will add clarity to the land rights that can be given to the private sector to realise the kingdom’s PSP plans under Vision 2030.

Overall, the PSP regulations are a welcome addition to the regulatory landscape that will greatly enhance the kingdom’s drive to filling this aspect of Vision 2030.

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