Introduction of New Federal Law on Regulation of PPPs

Introduction 

On 1^st December 2023 in the United Arab Emirates (“UAE”) Federal Law No.12/2023 – On the Regulation of the Partnership Between the Public and Private Sectors (the “New PPP Law”) – came into force. Until this point, public-private partnerships (“PPPs”) have been administered predominantly at an Emirate level.

While Emirates such as Abu Dhabi and Dubai have their own frameworks for PPPs, the New PPP Law seeks to regulate and boost collaboration between federal entities and the private sector in the UAE, as well as encourage private sector investment and participation in the development and implementation of strategic projects.

 The New PPP Law makes several references to the Partnership Projects Guidebook (the “Guidebook”) and permits this to be proposed by the Ministry of Finance (the “Ministry”) and submitted to the Council of Ministers for approval.  The timescale for publishing the Guidebook is currently unclear. However, it will undoubtedly add more substance to the New PPP Law and we assume it will follow the structure of similar guidebooks and guidelines prepared in Abu Dhabi and Dubai.

Scope of the law and exclusions

The New PPP Law applies to any Partnership Project that is entirely or partly funded by the private sector and tendered by a federal entity.

There are, however, some key exclusions. The New PPP Law does not apply to:

1. Partnership contracts there were concluded before 1 December 2023 (i.e., before the New PPP Law came into force);
2. The outsourcing of services specified in the Guidebook;
3. Projects with a value less than the financial threshold provided in the Guidebook;
4. Projects for the privatisation of public assets and services;
5. Supply and procurement contracts related to national security (as provided for in the Guidebook); and
6. Federal entities, sectors and projects that are exempted by a decision from the Cabinet.

The Partnership Projects Guidebook

The New PPP Law provides that (i) Cabinet Decision No.1/2017 – On the Procedures Manual for Partnership Between Federal Entities and (ii) Private Sector and Cabinet Decision No.4/2019 – On the Procedures Manual for Partnership Between the Public and Private Sectors will remain in force until the Guidebook has been issued to the extent that there is no conflict with the provisions of the New PPP Law.

The Guidebook is heavily cross-referenced in key areas across the New PPP Law. The New PPP Law does provide information as to what the Guidebook will contain, such as:

• the procedure for tendering Partnership Projects;
• the content of tender documents and the Project Agreement;
• requirements for selecting private sector participants and criteria for evaluating offers; and
• rules relating to the termination of the Project Agreement and mechanisms for compensation upon termination.

Tender Process

The New PPP Law is particularly focused on procedure, setting out a high-level process from project inception and approval to tender procedure and evaluation through to implementation of the project.

Once again, there are several references to the Guidebook. It is expected to substantiate the details and requirements at each of the above stages throughout the project process.

The New PPP Law stipulates the types of Partnership Projects which may be chosen:

• Build-Operate-Transfer;
• Build-Own-Operate-Transfer;
• Build-Own-Operate;
• Financial benefit from assets;
• Build-Own-Lease-Transfer;
• Management Contracts; and
• Any other types specified in the Guidebook.

In addition, the New PPP Law sets out three methods for tendering:

1. Two-stage method (as is already commonly seen in the region);
2. Emergency procedure method; and
3. Direct appointment method.

The latter two of these methods are subject to strict criteria, including an urgent requirement and a lack of potential Project Partners.

As seen currently in existing PPP law at Emirate level, the New PPP Law permits project proposals by the Private Sector and it is anticipated that the procedure and evaluation for these will be set out in the Guidebook.  This further boosts the use of PPPs as a method of delivery and may encourage innovation in terms of project structure by the Private Sector.

There are a number of provisions in the New PPP Law which are already commonplace in tender documentation, such as the right to submit offers as an individual or a consortium, evaluation requirements (technical, financial and legal) and the right to appoint the reserve bidder in the event that the terms of the project cannot be agreed with the preferred bidder.  It will be important to ensure that the content of any Request for Qualification or Request for Proposal documentation is reflective of the requirements of the New PPP Law and, once published, the Guidebook.

The New PPP Law does establish a grievance procedure for aggrieved bidders but it is relatively limited.   Any grievance must be raised within 10 days from the tender award and only in the event that there has been a contravention of the law or the Guidebook (either in respect of the offer documents or procedures or the selection procedures) or there has been bribery, illegal commissions, bid rigging, fraud or abuse of power.  Further details of the grievance mechanism and duration will be established by the Guidebook.

Another notable provision specifies that the Relevant Federal Entity, may, based on project needs, propose to the Ministry to issue a government guarantee to cover financial obligations of the Relevant Federal Entity under the project documents. Certainty of payment, and also recovery, in the event of termination are always hot topics. Notwithstanding that the number of PPPs in the UAE continues to grow, this could still be of assistance in growing investor confidence in the region.

The New PPP Law also refers to the right to grant incentives to Private Sector Partners in order to increase the appeal of Partnership Projects.  Such incentives are to be determined by a Cabinet decision based upon the Minister’s recommendation, so it will be interesting to see whether this goes beyond current incentives seen at Emirate level for origination by the Private Sector, such as reimbursement of bid costs and IP licensing costs.

Project Documentation

The New PPP Law stipulates that the Guidebook will set out provisions to be included in the Project Agreement, including change of law, change in economic conditions for unforeseen circumstances at the time of contracting and the amendment of the Project Agreement and provisions on termination and subsequent compensation.  Again, these provisions are already commonplace in regional precedents. However, this shows a clear intention to continue standardisation which should assist in the delivery of such projects. The Project Agreement should also specify how payments will be made to the Private Sector. Whilst, as expected, there is reference to availability payments, revenue risk transfer and a combination of the two, there is also reference to “any other method agreed upon” which could again assist in allowing innovation, whilst still adhering to key principles.  In addition, it is provided that the Project Agreement may include localisation provisions.

Comment

The New PPP Law crystalises several key principles and provisions which are already becoming precedent concepts in the UAE.  Whilst a lot of the substance of the principles remain to be set out in the Guidebook, it would be surprising if this departed significantly from what is already seen in the guidebooks and guidelines already prepared at an Emirate level. The New PPP Law does, however, continue to demonstrate the UAE’s commitment to PPP projects and hopefully will assist in continuing to grow investor confidence in the region and set the UAE up as a PPP centre of excellence.

Article prepared with the assistance of Abbas Yusuf, Trainee Solicitor at CMS.