Open doors: PPPs may be the path forward for the emirate

Project finance has for many years been strong across the Middle East, especially in the power, water, and oil and gas sectors in various GCC countries. This trend looks likely to take a bold new direction with the promulgation in Dubai in 2015 of a new law relating to public-private partnerships (PPPs). Traditionally sovereign wealth has been used to procure such major infrastructure as was needed. However, falling oil prices are continuing to have an impact, and there are now significant government deficits across the region. Dubai is no different from the rest of the GCC in this regard, despite being less dependent on hydrocarbons revenues than many of its neighbours.

Nonetheless, populations continue to grow and require more sophisticated infrastructure and services, and increasing industrialisation and the recognition of the need for economic diversification all mean that the Dubai government is, like many others, looking to new methods of financing the necessary infrastructure. With Dubai being the host city for World Expo 2020, it is anticipated that new demands will increase exponentially in the coming years.

New Normal

PPPs have been around since the mid-1990s in the UAE in the power/water sector in the form of independent power projects and independent water and power projects. Although they take different forms in different countries, PPPs have become well established across the globe in the past 20 years in various sectors. As pressure on government budgets grows within the low oil price environment, we are seeing increased interest in rolling out the PPP structure in other sectors in many GCC countries. Dubai will certainly be able to benefit from a considerable amount of that global experience due to the multicultural nature of its population.

Dubai’s government published a new law creating a legal framework for PPPs in the emirate in September 2015, Law No. 22 of 2015. This came into force in the following month and will facilitate greater collaboration between the public and private sectors. To date, there have been a small number of projects in Dubai that have been undertaken in partnership with the government creating an operational concession. Most major projects have, however, been tendered and procured on a construct-only basis, with some being let as design and build or engineering, procurement and construction contracts, with the government entity taking over and operating the facilities once complete. This may change under the new law.

Legal Aims

The aims of the new PPP law include regulating PPPs, procuring the best services at the best prices, improving the quality of public services, increasing productivity, and transferring knowledge and experience from the private to the public sector, specifically to UAE nationals. Explicit reference is also made to mitigating the financial burdens and risks for the general government budget. The new PPP law will apply to all government entities included within the budget. Excluded from that are projects related to electricity and water, which are governed by Law No. 6 of 2011, works contracts and the supply of materials and services, which are governed by Law No. 6 of 1997. The Supreme Committee for Financial Policy retains general discretion to include any government entities and or exclude contracts as it sees fit.

The new PPP law also contains a framework for the tendering and awarding of PPP projects, but much of the detail required is to be included in implementing regulations that are yet to be issued. Certain key issues also remain uncertain, namely, the availability of government guarantees for payment, capitalisation requirements and local-foreign ownership for the relevant project company (usually a special purpose vehicle). In summary, while it is still early days for PPPs in Dubai, the government’s intentions are clear.