Dubai's new Public-Private Partnerships (PPP) law, published in the Official Gazette on 20 September 2015, will regulate PPPs and change the landscape for projects in the Emirate. The new PPP law will come into force 60 days from its publication (i.e. 19 November 2015).
The new PPP law sets out several objectives (Article 3). These include to:
- encourage the private sector to participate in development projects;
- enable the Government of Dubai (the Government) to implement its strategic projects efficiently and effectively;
- increase productivity and improve the quality of public services;
- reduce the front-end costs and the financial risks to the Government; and
- ensure private sector entities transfer knowledge to partnering Government agencies.
The new law in practice
The new PPP law will apply to all Government agencies that are subject to the general budget of the Government (Article 4). The law can be extended to those agencies not subject to the general budget by authorisation of the Supreme Fiscal Committee (the Supreme Committee).
The new law will apply to all types of projects, except for electricity and water projects and contracts of works and the supply of materials (Article 4), which are governed by separate laws, namely, Dubai Law No. 6 of 2011 and Law No. 6 of 1997 respectively.
The structure of the PPP will depend on the economic, financial, technical and social feasibility of the project and must follow one of the following prescribed methods (Article 7):
- private entity finances, completes and operates the project for the time period agreed before assigning and transferring full ownership to the Government agency in a concession type agreement or build-own-operate-transfer (BOOT) model;
- private entity finances, completes and operates the project for the time period agreed before assigning and transferring the usufruct rights (the rights to use and enjoy the project) to the Government agency or a build-operate-transfer (BOT) model;
- private entity to complete the project and then transfer ownership to the Government agency but maintain rights of commercial use and operation for an agreed time period; or
- Government agency transfers the benefit of the project to the private entity for commercial use for an agreed time period.
Some of the key provisions of the new PPP law are outlined below.
The Partnership Committee and approval of projects
Contracting Government agencies must form a Partnership Committee made up of members nominated by the agency's Director General, which will be responsible for carrying out the tasks set out in the new PPP law (Article 11).
The Director General has the authority to approve projects with a total cost to the Government not exceeding AED200m. Where the cost exceeds AED200m but is less than AED500m, written approval of the Department of Finance must be obtained. Projects costing more than AED500m must be approved by the Supreme Committee (Article 10).
The new PPP law provides for an open competitive tender process following publication of the details of the project in the media (Article 14).
Consortium bids are permitted; however, consortium members may not submit separate bids (Article 21).
There are financial and technical standards for each bidder to satisfy with projects being awarded to the most “feasible offer technically and financially” following an assessment based on criteria set out in the tender documents (Article 23).
The successful bidder will normally be required to establish an SPV (the Project Company) to carry out the project. The Government agency may be a shareholder of the Project Company but only if the Project Company takes the form of a Dubai LLC (Article 25).
The Project Company is free to secure financing directly with any banking institutions at its own risk (Article 36).
The Partnership Contract
The Partnership Contract (entered into by the Government agency and the private entity) has no prescribed form but must cover certain issues, such as the nature and scope of the works, specifications of the project, ownership of assets, duration and termination rights (Article 26).
Under the Partnership Contract the Project Company must (Article 32):
- maintain the project's assets;
- provide all information, documents and data required by the Government agency, Department of Finance or the Financial Audit Department;
- transfer knowledge and expertise to the Government agency; and
- train the Government agency's employees and ensure that environmental and health and safety requirements are met onsite.
Some additional key points to note in relation to Partnership Contracts under the new PPP law include the following.
- The Project Company is not permitted to conclude any contracts with sub-contractors without the prior written consent of the Government agency (Article 32).
- The duration of the Partnership Contract must not exceed 30 years from the date of signing the contract (not from the date of completion of construction of the project) (Article 27).
- The Partnership Contract will be governed by the provisions of the new PPP law and must not be subject to any laws that contravene the laws of Dubai (Article 35). We would, thus, expect that the majority of Partnership Contracts will be governed by UAE law as applicable in the Emirate.
- The new PPP law does not stipulate a forum for dispute resolution under the Partnership Contract however, disputes may not be referred to arbitration outside the Emirate (Article 35).
- The Partnership Committee, subject to obtaining the consent of the Director General of the Government agency, may amend any of the conditions of the Partnership Contract wherever the public interest requires (Article 30). This may be of particular concern to investors but the risk can be mitigated by including effective contractual safeguards.
The new PPP law sends a clear message: Dubai is encouraging the use of PPP and is seeking to create an environment for substantial private-sector investment into its projects and public services. With this new law offering a degree of protection to the private sector, we can expect to see more investment and talent coming into the Emirate and the development of even more cutting edge projects.