New Dubai PPP Law

The new Dubai PPP Law was published on 20 September. This briefing discusses what the new law means for the procurement of PPP projects in Dubai and examines some of the key features of the law.

Increased PPP opportunities

On 20 September, Dubai passed a new public-private partnership (PPP) law, Law No. 22 of 2015 (New PPP Law), which will enter into force on 19 November. The New PPP Law is designed to help kick-start PPPs in Dubai, which to date have been limited to Dubai's fledgling independent water and power project (IWPP) programme. The law provides a framework for government agencies to enter into partnership contracts with private sector companies to carry out PPP projects in Dubai. Kuwait's new PPP law, which came into force in March of this year, has successfully rebooted Kuwait's ambitious PPP programme. The hope is that the New PPP Law will have a similar effect in Dubai.

The New PPP Law has numerous stated objectives, the most significant of which include:

• to transfer knowledge and expertise from the private sector to government agencies, to train and develop agency employees on the management and operation of projects and, more generally, to promote Emiratisation;
• to encourage private sector investment in development projects;
• to enable the Government to implement strategic projects more efficiently and effectively; and
• to ease the financial burden on the Government's budget.

Application of the New PPP Law

The New PPP Law applies to all PPP contracts with government agencies (including the Free Zone authorities) except those covered by the Dubai Government Contracts Law and projects that fall within the IWPP law. The IWPP law exception means that the New PPP Law does not apply to public or private bodies conducting activities related to electricity generation or the water sector.

Under the New PPP 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. This can help stimulate private sector innovation and entrepreneurial endeavour. The New PPP Law allows PPP projects to be in the form of a classic build-own-operate-transfer (BOOT) model, whereby the project company receives a concession from the government agency to finance, create and operate the facility for a set period until ownership is transferred back to the government agency on the expiry of the term set out in the partnership contract. Interestingly, however, the New PPP Law also provides for structures other than BOOTs. These include:

• a build-operate-transfer (BOT) model, which is the same as a BOOT except the project company does not own the facility so assigns a usufruct right over the facility to the government agency on expiry of the term;
• a model where the project company builds and commissions the facility; ownership is then transferred to the government agency and the project company continues to operate the project for a set period;
• a model where there is a transfer of the project's benefit from the government agency to the project company to enable the project company to commercially use and operate the facility for an agreed period; and
• any other any method approved by the Supreme Fiscal Committee.

DoF and government agencies

The Department of Finance (DoF) has a significant role to play under the new law. Among a range of responsibilities, it is tasked with setting general policy for the organisation of PPP projects. It is also required to provide assistance to government agencies as they prepare and develop partnership initiatives. Furthermore, DoF has to prepare a general guide setting out rules and procedures to be followed by government agencies entering into partnership contracts. It has the additional responsibility of helping to provide an appropriate environment for investment in PPPs and promoting this inside and outside of Dubai.

For a proposed project, the relevant government agency is required to conduct feasibility studies from an economic, financial, technical and social perspective, and to establish criteria for the selection of a partner for the project. The "relevant agency" under the New PPP Law is responsible for the procurement process, which must include prequalification and proposal phases, and oversees the implementation of the project company's obligations under the partnership contract. Within each government agency, a partnership committee will be set up to carry out the work of the agency in relation to PPP projects.

The New PPP Law sets out various principles of selection to be considered by the government agency when selecting a partner for a PPP project to ensure a decision is made fairly and that the most appropriate partner is selected from the bidders. The focus here is on transparency and ensuring that the selection is in the public interest. PPP projects are to be awarded on the basis of the most feasible technical and financial offer.

The body which has the power to approve partnership projects is determined by the value of the project as set out below:

• if the total cost to be borne by the government agency for the partnership contract does not exceed AED200m, the Director General of the government agency will have the power to approve the project;
• if the total cost to be borne by the government agency for the partnership contract is between AED200m and AED500m, the authority to approve rests with the DoF; and
• if the total cost to be borne by the government agency for the partnership contract exceeds AED500m, the Supreme Fiscal Committee is the competent authority.

The project company

In addition to the successful bidder forming an SPV for the project, the government agency may elect to participate in the project, subject to the project company being established as a limited liability company. Alternatively, if appropriate, the successful bidder may implement the project using an existing company, subject to DoF consent. This latter option may, however, not be practical from a financing perspective, as lenders will expect robust security over the project, including the vehicle being used as the project company.

The project contract

The government agency and the successful bidder must enter into a partnership contract which sets out how the project is to be implemented and the obligations between the parties. The New PPP Law contains a number of standard requirements for these partnership contracts that are largely typical provisions relating to scope of works to be undertaken by the project company, ownership of assets, liability, insurance and division of project risks. However, there are a number of noteworthy requirements:

• The maximum period of partnership contracts is 30 years from the contract signing or the date specified by the partnership committee unless the Supreme Fiscal Committee agrees to a longer period.
• The Partnership Committee has the power to amend partnership contracts in the public interest. This gives the Partnership Committee a broad unilateral right to amend partnership contracts. Appropriate contractual safeguards will need to be considered for the private sector partner and project lenders.
• Partnership contracts can also be amended as a result of emergency circumstances although it is unclear exactly how this provision will work in practice. Whether emergency circumstances exist and the method of amending partnership contracts will need to be clarified.
• The project company is not permitted to enter into subcontracts without the written consent of the government agency. This potentially gives the government agency very broad powers as there is no minimum monetary threshold to be met before consent is required. However, this may be overcome by the government agency effectively pre-agreeing to a level of subcontracting by way of a suitable clause in the partnership contract.
• Partnership contracts may be subject to arbitration (which is helpful) but arbitration outside Dubai is not permitted.
• Moreover, the governing law must not be contrary to the laws and principles applicable in Dubai. While this could in theory mean a governing law other than the laws applicable in Dubai, we would not expect a foreign governing law to be used in practice.
• The government agency can give permission for the project company to enter into bank loans to finance the PPP project. The project company alone must bear all the obligations under these loans.

Overall impact

The New PPP Law is a positive development for Dubai and forms a good basis for PPPs in the Emirate. It demonstrates to the private sector that Dubai is "open for business" in relation to PPPs. Although some of the content requirements of project contracts will need clarification going forward, overall, the New PPP Law is clear and well thought out and a welcome new avenue for the creation of new infrastructure in Dubai.