The publication on 20 September of Dubai's new PPP law (Law No.22 of 2015) is significant because it signals a clear statement of Dubai's intent to use private sector finance and expertise to help meet its future infrastructure needs.

Whilst Dubai has implemented a handful of PPP projects prior to the introduction of this new law, notably the recent solar PV projects, the general approach has been to procure infrastructure on a pure EPC basis, with those infrastructure assets then being owned, managed and run by "Dubai Inc".

The expression “PPP” refers to "public-private partnerships" and what the new law is aiming to do is to create greater collaboration between the private and public sectors in Dubai. In particular, the Dubai government is looking to develop new forms of long term concessions or partnerships. This will result in future tenders being released giving the private sector a more strategic role in the design, construction, financing and ongoing operation of certain Dubai infrastructure assets.

Recently, Dubai’s Roads and Transport Authority (RTA) announced its intention to develop both the Union Oasis Station and The Dubai Transportation Academy projects as PPPs. For the Union Oasis project, private developers are currently completing the prequalification requirements; it is intended that this project will be a mixed used development project with a 30 year concession period. Given how far advanced the RTA is, we expect many of the early Dubai PPP deals will come through this agency.

What does the new law say?

Objectives of the new 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". Given Dubai's breathtaking growth over the last few decades, it is no surprise to see this change in emphasis.

Why is a new law needed in Dubai?

Most PPP style projects could be implemented in Dubai without this new law. Whatever potential legal and regulatory impediments may exist for a particular infrastructure sector or project can almost certainly be overcome by appropriate contract drafting. So why pass a new law?

Most importantly, this new law sends a clear statement of policy intent to the developer, investor and lender community. The new law says to the market that (i) this style of project is welcome and has the full backing of the state, and (ii) you can expect future "dealflow."

The second reason is particularly important because bidding for this type of project is time consuming, complex and the front end bid costs are high. Normally, bidders and lenders will need to engage their own legal, financial and technical consultants to assess the proposed contractual framework and suite of project documents, with lenders passing their costs on to the bidder. What this means is that the developer community will not normally be interested in focusing on a jurisdiction where there are occasional ad hoc PPP deals; they would rather commit to a market where there are multiple bid opportunities so that if they invest the time and money, the chances are they will eventually succeed in winning a project.

What noteworthy provisions are contained in the new law?

The new law will come into force on 18 November 2015. A summary of some of the key provisions are set out below:

  • there is flexibility as to what form of contract can be used (management/operating agreements, leases, concessions etc.)
  • the new law applies to all government agencies that are funded by the state budget
  • projects in the power and water sector are not covered by this new law
  • a private sector developer is permitted to make an unsolicited PPP proposal
  • ultimate oversight for the PPP lies with the Dubai Financial Audit Department
  • a public body is permitted to take market soundings and undertake initial "strawman" work from potential bidders prior to officially going to the market with an RFP
  • a detailed RFP needs to be fully developed before any new PPP project can be put out to tender
  • bidders are permitted to form consortia
  • the government may take an equity stake in the project spv
  • save in exceptional cases, all projects must be executed through an spv whose sole purpose is to undertake the relevant PPP project
  • the form of PPP contract has to provide clear terms in relation to a number of matters, including Emiratisation quotas and environmental protections
  • save in exceptional circumstances, the maximum tenor of a PPP contract is 30 years
  • subcontracting and sale of PPP assets is not permitted save with the consent of the relevant government agency
  • UAE governing law is mandatory
  • disputes cannot be subject to overseas arbitration

Some general observations

One issue that is not addressed is whether the Dubai government will issue sovereign payment guarantees to sit behind any offtake/payment obligations of a government department or agency. These have been previously been on offer for Dubai power projects. Additionally, the law is silent as to capitalisation requirements for the spv, whether a project spv can be established in a free zone, and whether the 51/49 rule will apply. Supplementary regulations to the new law will be promulgated but no indication has been given as to when these will be issued.

It will be interesting to see which government agencies now push ahead with new PPP initiatives. Clearly, the RTA will be at the forefront, and perhaps we will see some of the government departments responsible for social infrastructure projects moving forward to launch their own projects in the healthcare, education or affordable housing sectors. In any event, the new legislation will be welcomed by the market. It is a clear and well drafted law that will encourage the private sector to seek out future PPP opportunities in Dubai.

To read the full version of this article, please visit Construction Week.