In early February, the UAE announced a major government shake-up to prepare the UAE for the future. Under the new plans, a number of ministries are to be consolidated and most government services will, in the future, be outsourced to the private sector.
The rationale for the change is that ministries should focus predominantly on setting policies, drafting laws and regulating private sector activities, rather than undertaking commercial activities themselves. The UAE Vice president, Sheikh Mohammed bin Rashid Al Maktoum said on Twitter that “I would like to announce that the UAE President has approved the biggest structural changes in the history of the federal government.”
It is striking that this "federal" announcement comes so soon after the publication on 20 September 2015 of Dubai's new PPP law (Law No.22 of 2015), and when taken together, it is clear that a considerable opportunity is now emerging for the UAE private sector, both in Dubai and the UAE as a whole.
The stated objectives of the new Dubai PPP law include (i) lessening the financial burden on the state budget, (ii) transferring risk from the public sector to the private sector, and (iii) changing the key role of the public sector from "investor and developer" to "policy maker and regulator."
Abu Dhabi's approach
In Abu Dhabi, which does not have a PPP law, the government is increasingly looking to use Musataha Agreements to facilitate the private sector developing infrastructure or longer term projects that might otherwise have been developed by Abu Dhabi itself. A Musataha Agreement creates a real property right (a right in rem) which entitles its holder to construct a building or to invest in, mortgage, lease, sell, or purchase a plot of land belonging to a third party for a period of up to 50 years, provided that such acts do not contravene any Executive Council resolutions. This right must be registered with the Abu Dhabi Municipality and is renewable once by mutual consent of the parties for a further period of up to 50 years. In 2014, a new Abu Dhabi Musataha template was issued focussing particularly on the long term needs of the health and education sectors. We therefore expect to see significant opportunities in Abu Dhabi for the private sector in these two areas in particular.
Notwithstanding the fact that there is no federal UAE PPP law, many federal bodies in the UAE are developing new procurement methodologies and contractual templates which contemplate long term "PPP style" concessions with the private sector. The intention is to facilitate delivery of projects and services by the private sector in areas that were previously the exclusive domain of the state by developing new forms of contracts.
One of the interesting areas to watch will be the extent to which government departments and ministries in the UAE will be willing and able to award contracts to the private sector without going through a formal compulsory competitive tender. Often, the private sector is reluctant to approach the government with new ideas that could bring benefits, efficiencies or other advantages to the UAE. Their concern is that, if the government decides to proceed with one or more of their proposals, all of the time and effort taken by the private sector to develop and promote the initiative may be wasted if they are not then awarded the contract because of tender law restrictions. Some of these private sector concerns will now be alleviated in Dubai because the new PPP Law makes it is easier for government departments in Dubai to accept unsolicited proposals than for government departments elsewhere in the UAE. Under Articles 12 and 14 of the new Dubai PPP Law, the private sector is permitted to make unsolicited proposals for PPP projects and the relevant government agency is expressly permitted to contract directly with the entity that makes such a proposal. There is no requirement for such proposals to be put to compulsory competitive tender.
With many private sector businesses currently facing challenging market conditions, the new "outsourcing" policy adopted at a federal level and the new PPP law in Dubai should provide a good long term platform for the private sector to continue to develop and grow in the UAE.
This article was first published in ASIAN-MENA COUNSEL.