11 April 2016, Dubai, United Arab Emirates: The Dubai Law Number 22 of 2015, governing public-private partnerships came into force on November 2015 (the P3 Law or the Law). The P3 Law applies to partnerships entered into between all government entities under the Dubai government’s general budget, and private establishments and companies. It does not apply to electricity and water projects or simple works contracts or supply contracts.
Public Private Partnerships: An Overview
Public-Private Partnerships (Also, PPP Law or P3) in effect is transfer in hands of private sector of the financing of delivery of the public undertaking’s asset. Under P3 the public and private sector undertakings enter in to a emblematic form of contractual arrangement in relation to construction, operation, finance or broadly to manage infrastructure facilities, and turnkey projects. Besides considering P3 as an option, governments can consider other alternative options including:-
Outright sale of project to a private sector undertaking;
assigning certain aspects of projects to private undertakings and outlining the scope of assignment; and
traditional public delivery alternative
PPP structures can offer range of benefits and these may include reduction in government debt, transfer of risk from public sector undertaking to private sector, benefitting from technical expertise and capabilities of private sector, efficient management and control of overall project by parties, efficient budget planning for public sector undertaking besides several other advantages. That said, P3s are not immune to risks and this often calls for a careful planning and due diligence to ensure risks are eliminated project execution efficiencies are explored to the fullest.
The New Dubai Public-Private Partnership Law
In the United Arab Emirates, P3 structures have been adopted in past within the educational and electricity and water sectors in past. As per Dubai’s Department of Economic Development, Abu Dhabi Public Private Partnership PPP schools added up to 61 schools for 2007-2008 academic year, (24 in Abu Dhabi, 27 in Al Ain, and 10 schools in the Western Region (Al Gharbia). P3s across the Middle East (until recently) were undertaken on case to case basis in absence of specific legislation governing P3s.
The new P3 law applies only to Emirate of Dubai and is not Federal in nature. The law extends to all forms of partnerships, joint-ventures and alliances between government undertakings and private companies within the Emirate of Dubai but the law however excludes projects linked with production and supply of water and electricity (Law number 6 of 2011 and Law number 6 of 1997 respectively). Dubai’s Supreme Committee for Fiscal (formed pursuant to Decree number 15 of 2014) has the exclusive right to pass necessary resolutions to exclude projects and/or sectors in future (Article 4). The term ‘Public Sector’ is defined to include all government entities whereas ‘Private Sector’ includes all private establishment and companies. The Law Defines ‘Department’ as Department of Finance.
The P3 Law sets out broad set of objectives under Article 3 which include regulating partnership between private and public sector undertakings, encouraging private sector to participate in development projects, enable government to perform its strategic projects efficiently, utilise financial administrative, regulatory, technical and technological capabilities and experiences available in private sector with the aim of obtaining best possible services at minimum cost. Other objectives include - increased productivity, transfer of knowledge and experience from private sector, value addition to public funds, risk minimisation, higher competitiveness for projects in local, regional and international markets and to enhance principles of governance.
Article 7 defines permitted structures of the Project based on a range of P3 models, including, concession agreements and other models such as build operate transfer (Article 7 (1)), design build, and operate, lease, build, own, operate and transfer (BOOT), or use of any of these models together with other models. Once a model has been selected by a government entity, it must obtain approval from relevant authorities before entering into a P3.
Competent Authorities and Formation of Partnership Committee
Article 8 of the Law sets out competent authorities who have the power to approve the partnership project(s). The Director General of the respective Government entity (this includes the chief executive officer, secretary general and others occupying similar positions) has the right to approve partnership contract(s) up to AED 200 million which will result in revenue generation or savings . In cases where the value of project exceeds AED 200 million, requisite approvals must be sought by Department of Finance. Finally, the Supreme Committee for Financial Policy shall have the right to approve partnership contracts that are valued above AED 500 million. Article 35 of the P3 Law clarifies that partnership contracts will be governed pursuant to the provisions of P3 Law and unless the partnership contract provides otherwise, the laws of Dubai including Law No. 6 of 1997 regarding Contracts of Governmental Departments in the Emirate of Dubai shall apply (the Law Number 6).
In this respect, it must be stated that Article 83 of Law number 6 clearly outlines that courts in the Emirate of Dubai shall have jurisdiction over determining and disputes between any department and parties contracting therewith in connection with the contracts concluded in accordance with the provisions hereof. This entails that UAE governing law is mandatory and overseas arbitration will not be recognised.
With observation of the directives issued on 02.07.92 in respect of the Government cases, the courts of the Emirate of Dubai shall have the jurisdiction over determining any disputes between any department and the parties contracting therewith in connection with the contracts concluded in accordance with the provisions hereof.
Article 9 vests broad powers in Department of Finance to include laying public policy, propose updating and development of laws, providing assistance to Government entities, in addition to other powers aimed at achieving objectives of P3 Law.
Article 11 of the P3 Law sets out the requirements for formation of partnership committee and reads as under:-
“An internal committee shall be formed at the Government Entity, to be called the "Partnership Committee" and its members shall be nominated under a resolution by the Director General. The Partnership Committee shall undertake all the duties as provided by this Law and the Resolutions issued hereunder. The Resolution forming the Partnership Committee shall determine the mechanism of its operation and how to hold its meetings.”
Project Proposals, Selection Criteria, Conditions, and Bidding Process
Article 12 of the P3 Law permits proposal from either party (Government entity or Private sector undertaking) to propose projects. This affords greater flexibility by allowing projects to bypass the public tender process. Article 13 clarifies that in so far execution of partnership contracts is concerned, the Department of Finance shall have the power to supervise the execution of such contracts.
Article 14 read with Article 29 of the Law and dealing with criteria for selecting a partner provides that selection of partners shall be governed by principles of transparency, equal opportunities, and in public interest. Article 15 providing for ‘Qualifying Companies’ provides that the government undertaking shall comply with required procedures prior to bidding for any tenders. Although the Law provides that requisite resolutions may be passed by the Partnership Committee, it is presently unclear whether the Law will extend to free zone companies and/or free zone establishments. Article 29 sets out that the project entity must treat the users of services provided by project equally and the laws governing partnership contract in connection with services should be applied equally to users.
Article 16 dealing with preliminary meetings to be held by Government Entity permits private entities to require Government Entity to be bound by principles of confidentiality and non-disclosure in relation to economic or financial projections in connection with the Project.
Article 17 read with Article 19 dealing with conditions and securities as to bidding process sets out that bid announcements shall include all necessary details in relation to the Project including the partnership requirements on the financial, administrative, and technical aspects, the type of project, the method of partnership, conditions to participate in tender, financial securities to be provided in addition to procedures and events where securities and insurances may be seized or refunded. Article 19 provides that subject to Government Entity obtaining all necessary approvals may invite qualified partners to obtain conditions and specification book of the project proposed to be offered for partnership. It further states that those invited to bid should be given reasonable opportunity and time to be able to disclose information and documentation. Finally Article 20 dealing with acceptance of bids sets out that in order for bids to be accepted, each and all conditions and procedures stipulated under conditions and specification book must be satisfied.
Article 21 to Article 24 deal with varied aspects of the bid process covering:-
The Law allows a consortium of companies to make a single bid (Article 21);
bids shall be assessed carefully by the Partnership Committee with due assessment and consider the financial, technical and legal aspects (Article 22);
the Partnership Committee shall invite the bidders to attend a meeting and the Project shall be awarded to the bidder submitting best bid financially and technically amongst other bids presented to the Partnership Committee (Article 23); and
bids may be cancelled pursuant to Article 24 if only one bid has been received or upon exclusion of other bids only one bid stands available, cases where all or most of bids are inconsistent with the required conditions and specification and are difficult to be assessed, cases where value of least bid is unreasonably in excess of initial assessments or value of highest bid is less than assessments in respect of contracts that realise the projected revenues; and finally if public interest calls for cancellation of tender.
Establishment of Project entity
In line with Article 25, the P3 Law provides that the Government entity concerned with the Project may participate with the private sector provided that such participation takes form of a limited liability company. This means the local ownership provisions requiring fifty one percent (51%) shares to be held by a UAE National as per UAE Commercial Companies Law (Federal Law number 2 of 2015, as amended) will apply. If (whether on account of due diligence or otherwise) the Government entity is not willing to participate then the private entity must establish a new entity solely for the project and to be named as ‘Project Company’. The condition as to Limited Liability Company imposed under Article 25 could be read to suggest that free zone companies may not be considered for Project(s).
Terms of Partnership Contract
Article 26 of the P3 Law establishes basic provisions that will regulate the partnership contract between the parties and covers eighteen terms which briefly require inclusion of:-
nature and scope of works and services to be performed;
title to assets of project and the intellectual property rights vested in the project, provision as to transfer of title at the end of project;
responsibility to obtain licenses, permits and approvals;
financial and technical obligations of respective party;
ascertainment of sale price of product or service and principles to determine and amend the same;
regulating the right of Government entity to terminate the partnership contract or to amend the conditions of contract and scope;
nature and value of insurances, performance bond(s) to be sought;
risk allocation and determining rules to distribute project risks in event of force major or urgent circumstances;
determining events where Government entity may terminate the contract in whole or in parts, setting out procedures and penalties, procedures in relation to continuity of project, provisions as to use of services of the personnel of the Government Entity and determination of percentage of UAE personnel in the company;
environmental factors; and
any other items as determined by Supreme Committee, the Government Entity under the Resolutions passed by them in respect of this Law.
Article 27 of the Law provides that the term of Partnership Contract shall not exceed thirty (30) years from the date of execution of contract or other date as determined by the Partnership Committee. Any extension beyond thirty (30) years is subject to prior approval of the Supreme Committee.
Article 37 dealing with grievance allows an affected party to file a grievance to the Department of Finance against any resolution or procedure taken against it within thirty (30) days from date of relevant resolution or procedure. Such grievance must be supported by material documentation. The Department of Finance shall then have thirty (30) days time to consider the grievance.
The P3 route has been put to use by Dubai’s Road and Transport Authority. Canada has expressed its keen interest in sharing expertise and the launch of Smart Dubai Platform is also reflective of P3 model. This evidences a welcome to the P3 Law and is likely to result in combined synergies which will finally lead to new infrastructure, new services and development plans.