On December 1, 2023, in the UAE, Federal Law No. 12/2023 – On the Regulation of the Partnership Between the Public and Private Sectors – came into force. This contains a federal-level focus on the administration of public-private partnerships (PPPs), differing from the predominantly emirate-level regulation seen to this point.
Promotion of PPP projects
The UAE has been home to a growing portfolio of PPP projects in recent years. The UAE government continues to show commitment to PPPs as a model of delivery to meet ambitious growth strategies, as illustrated by the recent approval of a portfolio of projects valued at AED 40 billion. The new PPP law underpins this commitment.
The law highlights that one of its objectives is to encourage private sector investment and participation in strategic projects. The implementation of PPP projects has, to date, demonstrated the ability to leverage the expertise, technology, and finances of the private sector in the delivery of publicly beneficial projects, and assist with risk management and budget allocation for the public sector.
Guidebook
The law makes a number of references to details to be set out in the Partnerships Projects Guidebook. Whilst the timescale for the publication of this Guidebook is currently unclear, it is clear that this will add more substance to the law. Despite this unknown, it would be surprising if this departed significantly from the contents of the guidebooks and guidelines already in place at an emirate-level.
Until the Guidebook is published, the law provides for (i) Cabinet Decision No. 1/1/2017 On the Procedures Manual for Partnership Between Federal Entities and the Private sector and (ii) Cabinet Decision No. 4/8/2019 On the Procedures Manual for Partnership Between the Public and Private Sectors in the UAE, to remain in force (to the extent that each do not conflict with the new PPP law).
The Guidebook will clarify key exemptions to the scope of the new law, such as the outsourcing of certain services and the financial threshold to be caught by its provisions. Further, it will contain information on processes for tendering Partnership Projects, the content of tender documents and the Project Agreement (including termination and compensation provisions), requirements for selecting private sector participants, and evaluation criteria.
Key provisions
The new PPP law reinforces processes, such as the two-stage method for tendering, and specific provisions in respect of tender documentation and the Project Agreement which are already commonplace in the region. In addition, the law crystallises the ability of the private sector to make project proposals. This may further encourage the use of PPPs as a method of delivering projects and could encourage project structure innovation by the private sector.
Regarding payments made to the private sector under a PPP project, in addition to availability payments, revenue risk transfer and a combination of the two which are already commonplace, there is reference in the new law to “any other method agreed upon”, which gives a degree of flexibility to other approaches. However, this will need to be exercised carefully bearing in mind some caution on the part of investors and the need to drive competition.
Additionally, by confirming that the federal entity in charge of tendering the project may propose that the Ministry of Finance issues a government guarantee to cover the procurer’s financial obligations under the project documents, the new law also looks to address the key topics of certainty of payment and recovery in the event of termination. The Guidebook will set out the conditions, procedures, and mechanism for requesting such a guarantee, and it will be interesting to see how this develops.
Through setting out the right to grant incentives to private sector partners, the new law further looks to increase the appeal of PPP projects. With these incentives to be determined by Cabinet decision, it remains to be seen whether this this will go beyond current emirate-level incentives for origination by the private sector (such as reimbursement of bid costs and IP licensing costs).
Comment
The new law codifies a number of key principles and provisions that are already becoming precedent in the UAE, and subsequently is not to be considered an ‘overhaul’ in terms of approaches to PPP projects. However, it will hopefully continue to bolster private sector confidence (and as a result, investment) in the region, in addition to permitting innovation in the approaches to such PPP projects. The accompanying Guidebook will be critical in providing clarity on a number of provisions of the new law and will be awaited with anticipation.
By David Moore, managing partner of CMS‘ offices in the UAE, Iona Hunter, senior associate, and Sam Ridge, associate, in the energy & infrastructure team at CMS, Dubai.
