Public-Private Partnership Contracts: The 2030 vision’s Optimal Tool for Infrastructure Development!

For the progress and well-being of KSA and its citizens, the government seeks to build bridges of a sustainable partnership with the private sector to implement development plans within Vision 2030. To achieve this, the Kingdom provides ways to facilitate that partnership’s procedures and support and develop cooperating companies through programs dedicated to achieving national goals and objectives.

This is done through cooperation between the Saudi government and private sector companies to share the expertise and assets available to both parties to deliver a service or product related to the public interest, in addition to allowing the sharing of resources, risks, and potential profits as a result of this cooperation.

What are Public-Private Partnership Contracts (PPPs)!!

According to the Saudi Privatization law issued by Royal Decree No. (M/63) on March 18, 2021, and Cabinet Resolution No. (436) on March 16, 2021, “PPP” contracts are defined as “a contractual arrangement linked to the infrastructure or public service, resulting in It has a relationship between the government and the private party, and has the following elements:

1- It must be for a period of five (five) years or more.

2- That the private party performs works that include two or more of the following: designing, constructing, managing, operating, maintaining, or financing the assets, whether the assets are owned by the government, the private party, or both.

3- The existence of a qualitative and quantitative distribution of risks between the government and the private party.

4 – the consideration to which the private party is entitled or obligated under this contractual arrangement; Based mainly on the level of his performance in the implementation of the obligations assigned to him

Taking into account the freedom of each country to define the elements and conditions of the partnership between the government and the private sector, this definition is in great agreement with the United Nations definition of this type of partnership, as it defined it as “cooperation and joint activities between the public and private sectors for the purpose of implementing major projects, and so that The resources and capabilities of both sectors are used together, in a way that leads to the rational sharing of responsibilities and risks between the two sectors, in order to achieve an optimal balance for both sectors”.

Article (54) of the executive regulations of the Saudi Privatization law has specified the methods of the partnership between the public and private sectors, by way of example, but not limited to, and these methods are:

1- Build-Operate-Transfer (BOT).

2- Build – own – operate (BOO).

3- Build – own – operate – transfer (BOOT).

4- Build-Transfer-Operate (BTO).

5- Design – Build – Maintenance (DBM).

6- Design – Build – Operate (DBO).

7- Design – Build – Financing – Maintenance (DBFM).

8- Design – Build – financing – operation – maintenance (DBFOM).

9- Design – Build – Financing – Operation (DBFO).

10- Design – Build – Management – Financing (DCMF).

11- Rehabilitate – own – operate (ROO).

12- Any other method of partnership that meets the definition of the partnership between the public and private sectors, and is approved by the competent authority upon approval of the document.

Article (3) of the regulation also specified the minimum for public-private partnership projects not to be less than 200 million Saudi riyals, to be calculated based on the expected total nominal value for the duration of the project, after calculating capital and operational expenditures and government-owned assets for which the private sector is granted any rights, and potential financial obligations and expected financial income.

According to the Saudi privatization law and its implementing regulation, public-private partnership projects must be linked to the infrastructure or public interest, such as the education, health, housing, environment, waste recycling, water, and electricity sectors, and also labor, transport, justice, financial and commercial sectors.

To evaluate and identify opportunities for the allocation of projects that can be assigned to the private sector within the partnership program in accordance with the Saudi privatization law, specific criteria are used such as the nature of the activity, sector targets, capital expenditures, quality and efficiency, cost, management efficiency, operation, ability to finance, and previous experiences.

Advantages and Objectives of Public-Private Partnership!

Public-private partnership projects aspire to achieve several strategic goals for the state, the most important of which is liberating state-owned assets for the private sector, in addition to allocating specific government services by strengthening the role of the private sector in providing services and making government assets available to it, which improves the quality of services provided and contributes to Reducing its cost, stimulating economic diversification, promoting economic development and increasing competitiveness to face challenges and regional and international competition, in addition to attracting foreign direct investment, and improving the balance of payments.

The third article of the Saudi privatization law stipulates the government’s objectives for partnership projects, which are:

1- Assisting in achieving the strategic objectives of government agencies, rationalizing public spending, increasing state revenues, raising the efficiency of the national economy, and increasing its competitiveness to meet the challenges and regional and international competition related to privatization projects.

2- Raising the level of comprehensiveness and quality of services and providing them at the appropriate time and cost, raising the efficiency of assets related to privatization projects, improving the level of their management, and working to equip or restructure the sectors, organs, assets, and public services to be allocated.

3- Stimulating the local and foreign private sectors to invest and actively participate in the national economy through projects that achieve the developmental feasibility of the government and the economic feasibility of the public and private sectors, and increase the share of the private sector in the domestic product to achieve growth in the national economy.

4- Working on expanding the scope of citizens’ participation in the ownership of government assets, increasing job opportunities, and optimizing the employment of the national workforce.

This is done in accordance with the privatization program launched in 2018 and sought to identify government assets and services that can be privatized in a number of sectors, develop the system and mechanisms for privatization, and define frameworks for partnership between the public and private sectors to enhance the quality and efficiency of public services, and support the contribution to economic development, according to specific stages.

In the previous stage, the program succeeded in setting the general frameworks for the privatization system through the issuance of the privatization law and the establishment of the National Center for Privatization, which aims to regulate the procedures related to the projects of this system and to enhance the participation of the private sector in accordance with regulatory procedures in a transparent and fair manner, and to ensure the integrity of the procedures related to contracts to provide a regulated, Attractive, and stimulating investment environment for the private sector in order to invest in the short and long term. The program also contributed to activating the supervisory committees of the sectors.

The total value of investments from public-private partnerships reached 62 billion Saudi riyals, the value of non-oil government revenues amounted to 143 billion riyals, and the total financial value of the efficiency of government spending through partnership operations amounted to about 14 billion Saudi riyals.

Partnership Procedures!

Article 12 of the Saudi Privatization Law stipulated that the procedures for offering the privatization project be carried out through public competition, limited competition, or direct contracting.

The general rule in accordance with Article (69) of the implementing regulation of the privatization law is that the privatization project shall be proposed through a public competition, and no other means may be used except in accordance with the provisions and conditions of the regulation.

Article (104) of the regulation permits the use of the limited competition method in the following cases:

– The presence of a limited number of no more than three qualified persons (inside and outside the Kingdom) who possess the technology or technical capacity necessary to implement the privatization project based on the approved document.

– That the privatization project was put forward through the general competition in accordance with the regulations, and the participating competitors did not meet the criteria required for qualification, or their offers did not meet the criteria required to select the best bidder.

– Emergency cases in which a threat to public safety, public security, or public health is certain and unexpected, or where there is a breach that threatens the loss of life or property, or the cessation of public service provision, which cannot be dealt with by public competition procedures.

Article (107) of the Regulations also permitted the use of direct contracting in the following cases:

– Emergency cases in which a threat to public safety, public security, or public health is certain and unexpected, or where there is a breach that threatens the loss of life or property, or the interruption of the provision of public service, which cannot be dealt with by general competition procedures or limited competition.

– submitting the privatization project through limited competition in accordance with the Regulations, not being able to reach an agreement with any of the competitors, or not receiving or offering any statement of qualifications; It was likely that no statement of qualifications or offer would have been received had the project been re-proposed.

– The presence of only one qualified person who possesses the technology or technical capacity necessary to implement the privatization project based on the approved document.

– The need for the privatization project to benefit from intellectual property rights (such as patents) owned by only one person, and there are no alternatives to those rights.

To be continued..

If you want to be acquainted with the Saudi privatization law, and the legal system for Public-Private partnership projects (PPP) In KSA, ALF Law Firm is pleased to continue clarifying the legal steps and procedures stipulated in the Saudi privatization law in a series of successive articles. Just Follow ALF!