Private sector welcomes Saudi Arabia's draft PSP law

26 August 2018
Saudi Arabia’s draft PSP law will give much-needed transparency to the private sector as the nation works towards its goal of becoming an investment powerhouse, says Tim Armsby

The draft Private Sector Participation law (PSP law) – published on 8 July by Saudi Arabia’s National Centre for Privatisation & Public Private Partnership (NCP) – is a welcome development for foreign investors looking to enter the Saudi market, and underlines the kingdom’s sincere commitment to reform.

Saudi Arabia already has a long track record of private sector involvement in the power and water sector, especially in the development of independent water and power plants.

The previous year witnessed the launch of the 9.5GW Redpo renewable energy programme, and 2018 has already seen the launch of a series of water and wastewater projects by the Water & Electricity Company with private sector support.

Greater participation

While it remains to be seen if these existing programmes will come within the scope of the PSP law or remain separate, the draft PSP law is aimed at a considerable expansion of private sector participation beyond the utility sector.

Specifically, in line with Riyadh’s Vision 2030 plan, the PSP law will boost participation in 10 key sectors. Indeed, public-private partnerships (PPPs) are already being prepared for projects in the education, health and transport sectors.

Much of the law is aimed at facilitating PPPs, but in contrast with many other PPP laws, the proposed new law is also aimed at the privatisation of state-owned assets, such as those of the Saline Water Conversion Corporation. The Sale of Assets (SOAs) is defined in the draft law jointly with PPPs as PSP projects.

The draft law will act as a framework and will be supported by more detailed regulations issued by the Rules of Conduct of the Supervisory Committees, the Privatisation Projects Manual and the Rules Governing the Work of the Supervisory Committees – all of which were introduced earlier this year.

Fully provisioned

The draft includes many of the typical provisions you would expect to see in a PPP law. These include a definition of the scope of projects that will fall within the remit of the law and the role of the government bodies responsible for implementing PSPs.

Tender procedures are also covered, with a clear requirement for transparency and the avoidance of monopolies, as well as the main contract terms and dispute resolution procedures in relation to the PSP tender process aimed at resolving issues quickly.

Projects that will fall within the remit are generally filtered by sector and financial size (to be specified), but there is also the power to include or exclude particular projects. 

Supervisory committees will be established for each of the key sectors. They will have a key role in the implementation of PSPs, both forming work teams to prepare and tender projects, and also acting as principal body approving each stage of project implementation, with oversight from the Council of Economic & Development Affairs.

The NCP’s role will principally be one of enabler, providing assistance in formulating regulations and standardised documents, creating privatisation frameworks, and preparing government assets and services identified for privatisation to ensure quality outcomes.

Key PSP law details

Importantly, the law, as drafted, would exempt PSP projects from the scope of certain laws, including the government tenders and procurement law.

The draft law clarifies that PSPs will not be considered administrative contracts and enshrines the principle that foreign legal entities will be entitled to the same treatment as national entities.

Additionally, it provides for the provision of government support (including guarantees), expressly allows for the use of arbitration, and exempts PSP contracts from the application of the provisions of paragraphs B, C, D and F of Article 13 of The Law of the Board of Grievances. These provisions will most definitely be welcomed by private sector participants looking at the kingdom.

According to the draft law, the Supervisory Committees will be empowered to transfer employees and third-party contracts. This is presumably aimed more at privatisation rather than PPPs.

The Supervisory Committees will also have the power to amend and terminate PSP contracts, which will no doubt be subject to comment. There is also some lack of clarity as to the role of the key governmental entity in the procurement and subsequent management of a PPP project given the broad role of the Supervisory Committees.

Improved transparency

The draft law certainly provides more transparency on many aspects of PPPs, which will undoubtedly give the private sector and foreign investors increased confidence about conducting business in the kingdom.

It will also ensure there is a consistent approach to the pipeline of projects and the overarching role of the NCP should ensure that projects are delivered in an efficient manner relying on a standardised approach where relevant.

Moreover, we are sure to see further changes to the nation’s regulatory framework in the coming years in support of Saudi Arabia’s impressive ambitions to emerge as an investment powerhouse in the region.

About the author

Tim Armsby is head of finance and projects (Middle East) at Pinsent Masons

Read more: Harmonising privatisation in Saudi Arabia

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