General frameworki Types of public-private partnership
PPP projects under the PPP Law are essentially procured on a build, operate and transfer (BOT) basis. That said, variants of PPP models may be used, including design–build–operate–transfer or design–finance–build–operate–transfer. Essentially, a concession is granted to a successful investor, as defined in the PPP Law, to finance, build, operate and transfer the project and its assets to the state upon the expiry of the agreed term. The PPP Law, however, also envisions the use of service and management contracts.
The type and structure of the PPPs is further provided for in the definition of the PPP model in the PPP Law, which provides as follows:
Public Private Partnership Model: a model whereby a private Investor invests in State-owned real estate property – if required – in one of the projects procured by the Authority [i.e., KAPP] in collaboration with one of the Public Entities after signing an agreement with the Investor to implement or build or develop or operate or rehabilitate a service or an infrastructure project, and to provide financing thereto and operate or manage and develop the project, for a specified term, after which the project shall be transferred to the State; the foregoing shall be carried out in one of two forms: 1) the implementation of the project in consideration for fees – for services or works performed – to be paid to the Investor by the beneficiaries or by the Public Entities who have entered into an agreement with the Investor, and whose objectives are in compliance with the project or by both the beneficiaries and the Public Entities; and 2) the purpose of the project is for the Investor to implement a project with strategic importance to the national economy and to exploit it for a specified term. In both cases, the Investor shall pay a fee for the use of any State-owned real property allocated for the project.
While Article 10 of the PPP Law provides that the type of the PPP model to be procured, the mechanisms for the procurement and the implementation of the project are to be determined based on the approval of the Higher Committee and in accordance with the provisions of the PPP Law; it does not elaborate on the different types of PPP models.
The principal features of the PPP models contemplated by the PPP Law are that:
- the project would be located on state-owned real estate property (if required);
- the project would be procured by KAPP in collaboration with a public entity;
- a PPP agreement would be signed between the public entity and the private investor to implement, build, develop, operate or rehabilitate a service or an infrastructure project and to provide financing thereto and operate or manage and develop the project;
- the project would be for a specified term, after which the project and its assets should be transferred to the state; and
- the investor would receive consideration for provision of the services or works required under the PPP agreement.
Additional features of the PPP model structure under the PPP Law include:
- a public joint-stock project company that will undertake the PPP project will be incorporated by KAPP (for projects valued above 60 million dinars);
- pursuant to Article 13 of the PPP Law, the shares of such project company will be distributed as follows:
- no less than 6 per cent and no more than 24 per cent of the share capital shall be allocated to the public entities entitled to acquire such shares;
- no less than 26 per cent of the share capital shall be allocated to the successful investor for subscription in accordance with the PPP Law, taking into account the percentage of shares allocated to the initiative proposer under Article 20 of the PPP Law; and
- 50 per cent of the share capital shall be allocated for subscription through an initial public offering to living Kuwaitis listed in the register of the Public Authority for Civil Information on the date of the invitation to pay the price of the shares;
- the procurement of these projects will be governed by the PPP Law and its Executive Regulations rather than the Public Tenders Laws that would otherwise regulate government projects; and
- any consortium that is awarded the project is required to establish one or more consortium companies in accordance with Kuwaiti law. Such company will hold the shares of the successful investor in the project company if a public joint stock company is incorporated. If none is required, then such company will undertake the project.
Where the total cost of the project does not exceed 60 million dinars, the successful investor will have to establish a project company, but such company will not be required to be a public joint stock company with its shares distributed as per Article 13 of the PPP Law. Similarly, where a project is considered to be of special nature, and whose total cost does not exceed 250 million dinars, the successful investor will not have to establish a public joint stock company.
In light of the specific language of Article 34 of the PPP Law, which exempts companies formed under the PPP Law from the nationality requirements provided for under the Commercial Code, it is clear that the foreign ownership restrictions provided for under the Commercial Code should not apply to a project company established for purposes of executing a PPP project under the PPP Law. This would mean that a project company and the consortium companies established under the PPP Law may have foreign shareholders owning more than 49 per cent of its share capital. Additionally, once the company is listed on the Kuwait Stock Exchange, its shares may be freely bought by non-Kuwaitis, which may result in the majority of the company being owned by non-Kuwaitis.
The PPP Law also contemplates projects being procured as a result of unsolicited proposals or initiatives submitted to the government. If such a proposal is accepted by the Higher Committee, the project would follow the regular PPP procurement procedures; however, the proposer of such initiative would have his, her or its costs reimbursed by the project company, and would receive a 5 per cent advantage over other bidders if he, she or it participates in the procurement process. Additionally, if the project is implemented through a public joint stock company, a percentage not exceeding 10 per cent of the shares of the project company, deducted from the successful investor's percentage, will be allocated to the proposer.ii The authoritiesThe Higher Committee
Articles 2 and 3 of the PPP Law provide for the establishment of the Higher Committee for Public-Private Partnership Projects (the Higher Committee) and determine its competences and authorities. The Higher Committee is comprised of:
- the Minister of Public Works, the Minister of Commerce and Industry, the Minister of Electricity and Water, and the Minister of Municipality;
- the Director General of the Public Authority for Environment;
- KAPP's Director General, as member and rapporteur;
- three experienced specialists appointed by the Council of Ministers from among the civil servants; and
- a representative of the relevant public entity sponsoring the PPP project, who shall be invited to meetings without having a voting right.
The competences of the Higher Committee now include: setting the general policies for projects and initiatives of strategic importance to the national economy; approving requests of public entities for the procurement of PPP projects; proposing PPP projects to public entities; identifying public entities that shall participate in the procurement of the projects; approving the requests for the allocation of land necessary for the project; approving studies and concepts of PPP projects; approving the successful investor based on KAPP's recommendation; approving the PPP agreements to be executed by the public entity and deciding upon the request of the contracting public entity for contract termination (including for public interest).Ministry of Finance
The decisions of the Higher Committee are only effective upon their approval by the Minister of Finance. Additionally, the Minister of Finance is required to present to the Council of Ministers an annual report on all the projects that have been executed or implemented in accordance with the provisions of the PPP Law and to forward a copy of this report to the National Assembly.Kuwait Authority of Public-Private Partnership Projects (KAPP)
Articles 4, 5 and 6 of the PPP Law provide for the establishment of KAPP and determine its competencies and the scope of its authority. KAPP's competences include:
- assessment and completion of feasibility studies;
- development of the mechanism for the submission and evaluation of initiatives;
- development of contract templates;
- incorporation of the project companies;
- follow up on implementation of PPP agreements; and
- overcoming obstacles on implementation and proposing project incentives.
These are the government entities that participate in the PPP projects and are defined by the PPP Law as any government entity, ministry, department or any public entity with a supplementary or independent budget that enters into an agreement with a private investor to carry out a project in pursuance of the PPP model and in compliance with the provisions of the PPP Law, or that participates by investment in the project company by owning shares in the project company established for the implementation of the PPP project.iii General requirements for PPP contracts
Article 35 of the PPP Law and Article 26 of the Executive Regulations to the PPP Law provide a list of the matters that should be incorporated into all projects contracts. These include but are not limited to:
- the nature and scope of works and services that shall be executed by the project company and the terms and conditions of such execution;
- technical, environmental, financial and safety conditions of the project;
- the ownership of the project's funds and assets, the obligations of the parties in respect of handing over the project and the terms and conditions of transfer of ownership at the end of the project;
- allocation of responsibility for obtaining licences, permissions and approvals;
- each party's financial obligations and its relation to the financing of the project;
- the price of products or fees for the service provided;
- regulation of the right of the public entities to amend terms of construction, maintenance, operation and other obligations of the project company;
- the events of termination of the agreement including for public interest;
- the distribution of risks in the event of amendment of laws, accidental events and force majeure, and determination of compensation as the case may be;
- the contract term, and the term of the investment period, construction and preparation or completion of development works; and
- the dispute resolution mechanism.
Article 36 provides that the public entity shall be able to amend the terms and conditions of construction, equipment, development and other works and fees for services provided for in the contract. However, such amendments may only be made in compliance with the terms of the contract and with the approval of the Higher Committee.
Article 39 of the PPP Law provides that while the PPP agreements should in principle be drafted in Arabic, the same article states that it may also be drafted in a foreign language (e.g., English) subject to the approval of the Higher Committee.
The Fatwa and Legislation Department and the State Audit Bureau are two government departments that play a crucial role in conclusion of the PPP agreements. They must both approve the agreements before they are executed.
Bidding and award procedure
Article 9 of the PPP Law provides that procurement under the PPP Law will be exempted from the application of the Public Tenders Laws. Instead, the PPP Law and its executive regulations shall regulate the procurement and award procedures for such PPP agreement.
Accordingly, the rules and procedures for the submission of proposals, the technical and financial evaluation, the selection of the competent authority to undertake such evaluation, the procedures for opening the envelopes, the documents that would be submitted within each envelope and the pre- and post-qualification procedures are all derived from the PPP Law and its Executive Regulations.i Expressions of interest
The expression of interest (EOI) is the first step of the procurement process by which KAPP will gauge the interest of investors in the project and determine whether to proceed. The EOI should be published in the Official Gazette, local and international media (as considered necessary) and on KAPP's website. The announcement should include a summary of the project and its objectives, the proposed location of the project, if any, the rules for submitting a response to the EOI and any other information or conditions related to the project.
The EOI is then followed by the qualifications stage. Once approved by the Higher Committee, KAPP in coordination with the relevant public entity should publish the invitation for qualification (RFQ) for the project. The announcement shall be made in the Official Gazette, in at least two daily Kuwaiti newspapers in Arabic and English, other local or international media (as required) and by publication on KAPP's website. Every investor interested in bidding for a project is required to prove his or her capability (qualifications) to perform the project and to perform his or her obligations if the project is awarded to him or her.
Companies may bid individually or as a consortium and will be evaluated by the Competition Committee based on the criteria developed by KAPP and the procuring public entity. The results of the evaluation have to be approved by KAPP and the Higher Committee, following which they shall be announced.ii Requests for proposals and unsolicited proposals
The concerned public entity in cooperation with KAPP will prepare the project offering documents (RFP) in compliance with the PPP Law and present the same to the Higher Committee for approval. The public entity and KAPP may seek the assistance of local and international consultants to review and prepare the RFP. Pursuant to Article 22 of the Executive Regulations of the PPP Law, the RFP should contain the following:
- instructions to the bidder;
- reference conditions including the technical and financial conditions and specifications of the project and the basis of awarding the project;
- a confidentiality agreement;
- the contract form and language, including the draft partnership contract and the lease contracts of the plot, if any;
- the letter agreement if the project is awarded to a consortium and the substitution contract for the replacement of the investor in the event of the latter's failure to perform its obligations; and
- any other conditions or documents in agreement with the nature of the project.
Articles 23 and 24 of the Executive Regulations further elaborate on the contents of the RFP.
The announcement of the availability of the RFP (which can be purchased by the qualified bidders) shall be made in the Official Gazette, in at least two daily Kuwaiti newspapers in Arabic and English, other local or international media (as required) and by publication on KAPP's website.
The instructions to the bidders will, among other things, include the instructions for submission of the response to the RFP. This will include the deadline for submission and the guidelines on the preparation of the same. The response will typically include two envelopes; one for the technical proposal and another one for the financial proposal.
The Competition Committee shall evaluate the technical proposal on the basis of the criteria provided for in the RFP, prior to considering the financial proposal. KAPP shall notify the investors whose technical proposals are accepted and those excluded. The Competition Committee shall then hold a public meeting to open the financial envelopes of the qualified investors. Such investors shall be invited to the envelope opening session. A representative of the relevant public body shall also be invited to attend such session.Unsolicited proposals
Private individuals and entities are permitted to submit 'initiatives' to KAPP for consideration. Initiatives are defined as:
[A]n innovative and creative concept of a PPP Project, unprecedented in the State of Kuwait, approved by the Higher Committee, based on a comprehensive feasibility study and submitted by the concept proposer to the Authority, providing an economic return or social benefits in line with the State's strategy and development plan.
Accordingly, the initiative must be submitted with respect to an innovative or unprecedented concept and with a comprehensive feasibility study. If the initiative is approved, the entity that submitted the initiative would be entitled to the reimbursement of the cost of the feasibility study and preferential treatment should they participate in the tender, as further discussed above.iii Evaluation and grant
The Competition Committee shall evaluate the financial proposal on the basis of the criteria provided in the RFP, and shall prepare an evaluation report of both the technical and financial proposals. KAPP shall notify the preferred bidder of their status and the concerned public body of the name of the preferred bidder. KAPP shall also notify the other investors of their ranking and will release their bid bonds except for the preferred bidder's and the second-ranked bidder.
KAPP shall then invite the preferred bidder to negotiate the details, reservations or explanations contained in the submitted bid. In all events, such negotiations should not involve any contractual conditions considered in the RFP as non-negotiable conditions or that constitute a material deviation according to the project offering documents. There should also be no amendment to the technical and financial conditions based on which the bid is provided.
If negotiations with the preferred bidder are unsuccessful, KAPP and the public entity may initiate negotiations with the second-ranked bidder. If an agreement is reached with the preferred bidder (or the second-ranked bidder), and upon approval of the Higher Committee of the recommendation to select such bidder as the winning investor, the bidder shall be invited to sign the Letter of Agreement and then the project contract with the relevant public body and KAPP.