Oman’s Public Private Partnership Legislation

One of the Sultanate of Oman’s main economic and social development strategies for the achievement of its 2040 vision is the enhancement of partnerships between the public and private sectors. For many years, Oman has implemented a very successful programme of public/private partnership projects in the electricity and potable water sectors. Recently, however, the following three pieces of new legislation have been promulgated to extend such successful partnerships into other sectors of the Oman economy:

1. The Law of Partnership between Public and Private Sectors, promulgated by Sultani Decree No. 52/2019 (the PPP Law);
2. The Establishment of the Public Authority for Privatisation and Partnership (the PAPP) and the Issuance of its Regulation, promulgated by Sultani Decree No. 54/2019; and
3. The Implementing Regulations of the PPP Law, promulgated by the PAPP’s Decision No. 3/2020 (the PPP Regulations);

(together, the PPP Legislation).

The PPP Legislation applies to the procurement and development of “Partnership Projects”. Partnership Projects are defined in the PPP Legislation as projects for the implementation of public works or the provision of public services of a social and economic importance, or for the improvement or development of existing public services, provided such projects offer a social and economic return to Oman and are in line with Oman’s development strategy and plans. It seems however that Oman’s independent power and water projects, currently governed by Oman Electricity Sector Law, will not be subject to the PPP Legislation, and will continue to be procured and regulated in accordance with the Electricity Sector Law.

In this article, we consider in more detail the following aspects of the PPP legislation’s provisions:

1. Some key statutory features of Partnership Projects and Partnership Contracts, which differ to some extent from Oman’s electricity and water sector PPPs to date;
2. The various ways in which Partnership Projects may be procured under the PPP Legislation; and
3. The Government’s ongoing supervisory role during the development phase of awarded Partnership Projects.

A Key Features of Partnership Projects and their related Partnership Contracts under the PPP Legislation

The structure of Partnership Projects

Firstly, the PPP Legislation prescribes that a Partnership Project must adopt a “BOOT” structure, (i.e. a build, own, operation and transfer structure). This differs from Oman’s IPPs and IWPs whose structure is typically that of a “build, own, operate” or “BOO” project. Under the PPP Legislation, title to Partnership Project assets (if owned by the Project Company during the Partnership Contract) must revert to the Government on the expiry or earlier termination of the applicable Partnership Contract, whereupon they and the related Partnership Project rights can be retendered to the private sector.

The duration of Partnership Projects

The PPP Legislation permits a maximum duration of 50 years in respect of Partnership Projects and their related Partnership Contracts. In contrast, the duration of Oman’s IPP and IWP offtake contracts is generally limited to 15 or 20 years, although contract terms can be extended by negotiation and, at least to date in the power sector, new contracts can be bid for.

Statutory requirements in respect of a Partnership Project’s Project Company

A dedicated SPV

The PPP Legislation requires the Project Company to constitute a special purpose vehicle exclusively dedicated to the Partnership Project, unless otherwise approved by PAPP.

Project Company ownership

As in respect of Oman’s IPP and IWP project companies, the PPP Legislation permits 100% foreign ownership of a Project Company. However, the PPP Legislation also contemplates that, in respect of any particular Partnership Project, the Government may participate in the Project Company with the approval of the Ministry of Finance. This contrasts with Oman’s electricity sector, where generally Oman IPPs/IWPs are exclusively privately owned.

Project Company form

The PPP Legislation generally requires a Project Company to take the initial form of a closed joint stock company. The rationale for this statutory requirement is presumably because only an Oman joint stock company’s shares are mortgageable, and it is anticipated that implementation of a Partnership Project will generally require commercial debt financing for which security over the Project Company’s shares will require to be granted to the lenders. Only if Partnership Project implementation does not require debt financing, may the Project Company take the form of an LLC or if otherwise exceptionally approved by PAPP.

The PPP Legislation prohibits conversion of a Project Company to a public joint stock company until the operational phase of the Partnership Project.

PAPP approval of Project Company actions

Under the PPP Legislation, many key Project Company’s actions are subject to the PAPP’s prior approval. These include any change to the Project Company’s legal form, and any Project Company capital reduction, merger, acquisition, change of shareholders or shareholdings, or sale of Project Company assets etc.

B Procurement of Partnership Projects

Competitive tendering

As in the case of the Electricity Sector Law, the PPP Legislation provides for Partnership Project procurement generally by means of a competitive tender. Unlike in the case of the Electricity Sector Law, the PPP Legislation disapplies the Tender Law with respect to Partnership Project procurement, with the PPP Legislation itself prescribing the applicable tendering and award requirements. However, the competitive tendering principles, process and requirements are very similar to those prescribed under the Tender Law and applied in practice to Oman’s IPPs/IWPs, except that, in relation to Partnership Projects, the PAPP performs the functions that the Tender Board performs in respect of Government procurements generally, or that the Authority for Electricity Regulation Oman performs in respect of electricity sector procurements.

As is usual in Oman Government procurements, all Partnership Project competitive procurements are required to be based on the principles of transparency, equality and freedom of competition. Generally a pre-qualification process will precede competitive tendering so that only technically and financially prequalified bidders will proceed to tender, although the two processes may be amalgamated where the nature of the Partnership Project renders this optimum. Where initial market testing is desirable, both processes may be preceded by an expression of interest phase.

Other Partnership Project procurement processes

There are two other possible means of Partnership Project procurement under the PPP Legislation, as follows.

Partnership Project Ideas

Partnership Project procurement may also be initiated by the private sector in addition to the PAPP, by means of the submission of a “Project Partnership Idea” to the PAPP for its consideration, supported by an initial feasibility study and if in principle approved by PAPP, a subsequent integrated feasibility study. If the Project Partnership Idea is accepted for tendering by the PAPP, the owner of the Idea will recover its feasibility study costs and be entitled to participate in the Partnership Project’s competitive tender. The Idea owner is also subject to some preferential treatment in tender evaluation, although Project award to the Idea owner is not guaranteed. However, the Idea owner’s intellectual property rights in relation to the Idea is guaranteed under the PPP Legislation.

Partnership Projects of a Special Nature

Finally, the PPP Law permits a different procurement process in relation to “Partnership Projects of a Special Nature”. These constitute Partnership Projects whose technical, financial and other relevant parameters cannot be definitively determined prior to the procurement process. For this kind of Partnership Project, non-binding bids may be initially solicited by PAPP and then be subject to a “competitive dialogue” between PAPP and bidders, in a manner which will clarify PAPP’s project requirements while guaranteeing appropriate confidentiality to bidders. On the basis of this competitive dialogue, the final tender documents will be issued to bidders. In this way, PAPP can develop a tender document which has received market input on a PPP Project’s technical, financial and legal aspects in a manner which ensure the optimum procurement outcome.

C The Government’s ongoing supervisory role during the development phase of awarded Partnership Projects.

After Partnership Project award, both the concerned authority (who is the counterparty to the Partnership Contract), and the PAPP perform ongoing monitoring and supervisory roles in relation to Partnership Project development and operation. For example, the competent authority is entitled to receive from the Project Company quarterly reports and all other requested information in respect of Partnership Project development and operation and has ongoing statutory supervisory and inspection rights in respect of such matters. As part of its statutory duties towards the competent authority, the Project Company is required to implement relevant experience, technology and knowledge transfer to the competent authority. At a higher level, the PAPP exercises Project Company control in respect of some key Project Company actions during the life of the Partnership Contract, for example in respect of the sale or any disposal of Project assets for which PAPP’s prior approval is a statutory requirement.

In summary, therefore, the PPP legislation appears to establish a clear framework for PPP Project procurement, development and operation, which builds on the success of Oman’s electricity and potable water sector procurements, while granting opportunities for new Oman economic sectors to attract private sector expertise and finance for the mutual benefit of Oman’s public and private sectors.