MP logo Meyer-Reumann & Partners
German Legal Expertise in the Middle East since 1981

Public Private Partnership in the UAE

Sara Corradi

Author: Sara Corradi
Senior Lawyer.

New Procedure and Brief Reflections Concerning the Applicable Law

Guiding Principle
The demand for Public Private Partnerships (PPPs) has seen a recent increase in the Gulf Region. Several GCC Countries have reacted to this by elaborating their PPP regulations. This article intends to present a short overview over these developments. It focuses further on the particular legal situation of the UAE.

A. Introduction
The UAE have taken an impressive and speedy development throughout its whole history. They have become the home of many landmark projects and set new standards in the entire region. Different from other parts of the world, the state has been a driving force behind this steady process. Over time, a dynamic private sector in the UAE was created. It seems only consequent, that Governments on Federal and Emirates’ level in the UAE would like to incorporate features of this dynamic into the future development of their projects.

Therefore, the instruments of Public Private Partnerships (PPPs) have been subject to regulation and standardization in different forms and approaches throughout the country.

B. General Overview of Public Partnership Agreements
When looking at PPPs, we are not talking about a single kind of contract or entity (such as a specific type of company). The term rather describes a whole bundle of cooperative partnership models between the public and the private sector. Usually subject to a specific agreement or agreements, the legal means to undertake such a cooperation can be as differentiated as the underlying project itself.

Heinrich Köllisch

Author: Heinrich Köllisch
Lawyer.

The common denominator overall is to  create a win-win situation for private and public partners in a PPP constellation. Private investors can profit from values embodied by a public institution such as continuous solvency, liquidity, reliability and stability for their envisaged profits, vis a vis public institutions exploiting the dynamic flexibility, creativity and cost effectiveness of private enterprises for their pursuit of common interest. In turn, PPPs take their shapes in accordance with the parties, their capabilities and the project and its perspectives.

Amongst the most common structures are agreements where the public and the private sectors collaborate to deliver public infrastructure projects and operate them (i.e. roads, railways, hospitals). These typically have a number of common features such as

  • a long-term contract structure between a public procuring authority;
  • a private sector company based on the procurement of services;
  • the transfer of certain project risks to the private sector, notably with regard to designing, building, operating and/or financing the project;
  • a focus on the specification of project outputs rather than project input,
  • taking account of the whole life cycle implications for the project;
  • the application of private financing to underpin the risks transferred to the private sector and payment to the private sector which reflects the services delivered.

The PPP’s private party may be paid either by users through user charges (e.g. motorways toll), by the Authority (e.g. availability payments, shadow tolls) or by a combination of both (e.g. low user charges together with public operating subsidies).

In comparison to traditional procurement structures, PPPs integrate the private part not only in providing the objects of a project but moreover running the project itself on a partnership base operationally and financially.

The rationale behind using PPPs is frequently optimal risk sharing with the private partner and to deliver higher “value for money” to the public sector and ultimately the end user.

C. Overview over PPPs in the Region
In the GCC region Kuwait has historically pioneered PPPs. The country has developed a far ranging legislation in this field. The country drafted several new legislations on this topic over time. It also established an intuitional framework for PPPs in order to coordinate between the concerned Ministries. The Kuwait Authority for Partnership Projects announced to launch three PPP projects this year: the Labour City, Kabd Municipal Solid Waste, and Umm Al-Hayman Wastewater projects.[1]  Kuwait’s entire history of PPPs covers well over two dozen projects in all different stages of completion.

In Saudi-Arabia PPPs seem to be a very recent development as they have only been prominently reflected in the recent Vision 2030, the ambitious reform and development plan, the Kingdom has given itself as an agenda for the coming years. In the framework of this plan, the Kingdom has set up the National Center For Privatization & PPP (NCP) through the Council of Ministers Resolution 355 on 6/7/1438H corresponding to 3/4/2017 under the Council for Economic and Developmental Affairs (CEDA). However, in recent years Saudi-Arabia has followed the way of traditional government procurement as opposed to PPP. A number of PPP projects in Saudi-Arabia are planned, in tender or, as Prince Mohammad Bin Adbulaziz International Airport in Medina in a Build-Operate-Transfer structure in operation. [2]

As well, Oman has 11 PPP projects in planning or execution in different stages. [3] A PPP Law has been announces in April; [4] however it does not seem apparent that the announced law has been enacted up today.

Finally, a number of PPPs in Bahrain are reported to have been enacted.

D. Public Private Patnership Law in the UAE
Since PPPs not only offer a number of advantages for the involved parties including the public sector, it also might conflict with certain principles; particularly the latter one is bound to. The most obvious of these issues is the interference of the public sector in fair competition between private enterprises by awarding a PPP to one of them.

No surprise that UAE legislators have made recent attempts to regulate this matter at a more in-depth level.

A very special situation in the UAE in comparison to all other GCC countries is its Federal structure. As PPPs as such are enacted in different areas and fields, they might be subject to federal as well as to Emirates legislation and executing institutions. No less surprising is that different concerned entities have taken different approaches of tackling PPP as a matter of legislation.

On the Federal level, the core piece of legislation is the recently enacted Cabinet Resolution (1/1) of 2017, which in turn is legally based on another Cabinet Resolution No. (32) of 2014 on Procurement Regulation and Storehouse Management in Federal Government (CR-32/2014). In general, this regulation sets out the overall rules for procurement procedures, supply contracts, service provisions and undertaking work for government entities. It sets the powers of the Minister, Under Secretary and CEO in regard with the procedures for approving purchase orders, assignments, supply contracts, services and undertaking work in tenders and auctions.[5]

Art. 48 of CR-32/2014 is specially dedicated to PPPs. Letter A [أ] of Art. 48 of CR-32/2014 provides for PPPs to provide for government services by way of formation of an alliance [i’tilāf] that is being financed and operated through a partnership [sharāka] between a Federal Government Entity and one or more enterprises from the private sector.

Letter B [ب]provides for the Ministry of Finance to be generally in charge of PPPs and their enactment from the side of the Federal Government and to set the general rules. These however, Cabinet has to endorse. This part of CR-32/2014 provides the legal bases for empowering Cabinet to issue the recent Cabinet Resolution (1/1) of 2017 on PPP.

As per letter C[ج]  of Art. 48 CR-32/2014 a Federal Government entity is entitled to resort to PPP under the following circumstances:

  • Insufficient financial resources from the concerned Government side,
  • The private partner can provide a better service quality than a Government entity,
  • The private sector can provide a faster implementation of the service or project then a Government entity,
  • Receivers of the service demand for an integration of the private sector,
  • Stimulation of competition for lower prices to save Government budget,
  • No legal objection for an integration of the private sector in providing the service or project,
  • Possibility to compare [qīyas] and price [tasʿīr ] the service easily,
  • Possibility to retrieve the costs from the users of the service in a relatively short period of time
  • Satisfying experience of the Government entity in long term partnerships with a partner of the private sector,
  • A chance of stimulating economic growth.

What in fact encourages for further regulation is the formulation of this provision in the CR-32/2014 itself. As per the exact wording of it “in any of the above mentioned circumstances [fī ayī min al-aḥwāl]” indicates that it might simply be sufficient, that there is some kind of not further defined demand or no legal objections for establishing a PPP. This in fact demands further regulation as has happened by virtue of Cabinet Resolution (1/1) of 2017 on PPP.

Finally, Letter D[د]  of Art. 48 CR-32/2014 outlines the forms of contracts a PPP on Federal Emirates Level is supposed to take:

  • Operation and maintenance;
  • Design, construction, finance and operation;
  • Construction, holding/ownership [tamalluk] and operation;
  • Construction, holding/ownership, operation and transfer of ownership;
  • Purchase, construction and operation;
  • Administrative licensing and operation;
  • Financing.

In general, CR-32/2014 per understanding of the Ministry of Finance aims to prohibit piecemeal purchases that aim to override powers and binds Federal entities to the following principles:

  • ​Maintain professional integrity, follow open competitiveness procedures, and treat competitors fairly and equally.
  • Take into account the ongoing development and changing needs, and attract the best-qualified suppliers.
  • Preserve impartiality and autonomy.
  • Announce purchases and tenders.
  • Avoid conflict of interest and acceptance of gifts or monetary and in-kind donations.[6]

The system aims to achieve the best value for money. It also requires not relying only on the price factor when evaluating tenders and awarding contracts to bidders who offer the lowest price. Thus encouraging the best economic potentials based on the actual needs for supplies, work and services required, as well as the availability of necessary appropriations.[7]

  • To satisfy all the outlined issues further the Cabinet has issued Resolution (1/1) of 2017 on PPP. This Resolution takes the shape of a procedure manual for PPPs between federal entities and the private sectors.
  • The commitment of the Ministry of Finance was to develop policies and procedures system dedicated to federal entities operations and activities, and managing it according to the best international practices. The manual was prepared for the purpose to enhance investment opportunities and raise the efficiency and effectiveness of governance and risk management. This in turn contributes to diversifying the mechanisms for developing the strategic infrastructure projects, and improve quality of services; by concluding partnership contracts with private sector. The manual provides a general framework for project lifecycle of partnerships with private sectors.

On Emirates’ Level Dubai has pioneered in issuing a PPP Law as Dubai Law No. 22 of 2015.

The PPP law applies to all PPP contracts with government agencies – including the Free Zone Authorities – but expressly excludes from its scope projects related to the production and supply of water and electricity. PPP law does not apply the Procurement Law (no. 6 of 1997) which contains a number of requirements concerning tender conditions, timescales and contract terms not easily satisfied by a PPP Law deals or contract. Under such law private sector companies can make PPP proposals to the relevant government agency, so the process does not have to be initiated by the public sector.

The process of selecting a project partner will be subject to the principles of openness, transparency, fair competition, equal opportunity, equality, announcement of competition, and achieving the public interest.

The private sector partner must establish a project company to execute the project unless the government entity is satisfied with the financial and technical characteristics of the bidder. The project company must be a sole proprietorship or foreign company licensed to operate in the Emirate.

The government agency and the successful bidder must enter into a partnership contract; the partnership contract must contain the fundamental provisions governing the partnership and the mutual obligations between the parties.

The Government entity will agree upon the term of a partnership contract and the project company and it cannot exceed thirty years commencing on the date on which the contract is executed or any other date determined by the Partnership Committee.

E. UAE Projects Realized Under PPP Agreements
PPPs require detailed project preparation and planning, proper management of the procurement phase to incentivize competition among bidders. They also required careful contract design to set service standards, allocate risks and reach an acceptable balance between commercial risk and returns.

From a data analysis point of view is very interesting having a look at the current UAE projects realized under PPP agreements.

There are many current ongoing projects and it could be useful to divide them in projects in planning where the tender is closed, projects where the tender is still open and projects with the tender assigned.

In the first group, one should mention Mohammed bin Rashid Stadium Project, Dubai Mega Waste-to-Energy Plant, Dubai’s Route 2020 Metro Project, Sharjah International Airport Expansion Project.

Amongst the projects with open tenders, there are Abu Dhabi Street Lightning Project, Ras Al Khaimah International Airport Project, University of Birmingham’s Dubai Campus, Desalination Water and Power Project in the Emirate of Umm Al Quwain, Umm Al Quwain Waste Management Facility, Union Oasis Mixed-Use Project, Ghantoot Highway Rest Area BOT Project, Abu Dhabi BOT Community Centres.

Regarding the projects with tender assigned worth mentioning are Mirfa Independent Water and Power Project, Expansion of Fujairah Destination Plant, Abu Dhabi Airport Midfiled Terminal and Dubai Supreme Court Car Park.

F. Conclusion
PPPs are a relatively new appearance in the Gulf area. However, they seem to be a perspective for future Government projects. They can be very different in shape size and complex in nature. As most of them are as individual in their legal nature as they are in their economic and practical aspects. No one size fits all approach should be pursued. Meyer-Reumann & Partners would be very happy to assist you with your queries regarding PPPs.


[1] http://www.constructionweekonline.com/article-46505-kuwait-to-launch-three-ppp-projects-in-2018/

[2] http://www.tavhavalimanlari.com.tr/en-EN/Documents/MED-Airport-Profile.pdf

[3] https://businessgateways.com/news/2017/10/12/Oman-plans-projects-in-public-private-partnership

[4] http://www.muscatdaily.com/Archive/Oman/New-law-to-open-doors-for-PPP-projects-in-many-sectors-4zwz

[5] https://www.mof.gov.ae/en/lawsandpolitics/cabinetresolutions/pages/pocurementregulationstorehouses.aspx

[6] Cf. https://www.mof.gov.ae/en/lawsandpolitics/cabinetresolutions/pages/pocurementregulationstorehouses.aspx

[7] https://www.mof.gov.ae/en/lawsandpolitics/cabinetresolutions/pages/pocurementregulationstorehouses.aspx

Share:
For free subscription send us your contact details to Lexarabiae@meyer-reumann.com