A strong relationship between the Dubai government and the private sector will be key to address the infrastructure needs of the Emirate over the medium and long term.
Dubai has introduced a new PPP law (the “Law”) to tap private sector funding and expertise for infrastructure projects.
The Law came into force on 19 November, 2015, and is expected to generate significant project activity, as well as attract substantial interest from foreign investors.
The Law applies to PPP projects originated by Dubai government agencies and subject to the general government budget. Power and water projects are, however, excluded from its scope and will remain governed by existing legislation.
Dubai’s Roads and Transport Authority (RTA) was at the forefront of the Law. Its Union Oasis Project, a five tower project above Union Square Metro Station, will be one of the first projects to use the Law.
The Law indicates strong political support for PPP in Dubai, which is key to any successful PPP policy, with the aim of encouraging private sector participation in projects.
The PPP model should allow the government to take advantage of the private sector expertise, and ease the financial burden and risks of capital-intensive projects on government budgets.
The Law outlines a transparent bidding process. Offers will be evaluated by an internal committee formed by the government agency, with the project being awarded to “the most feasible offer technically and financially”. It also allows bidding developers to form a consortium.
Government agencies do not, however, need to follow a competitive tender process, and unsolicited PPP proposals are possible.
The Law sets out a sliding scale of requirements for government approvals by reference to total project costs incurred by the government agency. This entails that projects worth up to $54m (AED198.3m) must be approved by that agency’s director general; projects between $54m and $136m (AED499.5m) must be approved by the Department of Finance; and, projects in excess of $136m must be approved by the Supreme Fiscal Committee.
The Law specifies that the project company must be licensed to operate in Dubai, and in most cases, must be a special purpose vehicle.
It does not specify whether the project company must be incorporated as a local entity under the requirements of the UAE commercial companies law, or whether it can be established as a free zone entity.
The Law does not relax requirements requiring local ownership of businesses established as limited liability companies (LLC); therefore, it should be assumed that project companies incorporated as an LLC will have to comply with the so called 51/49 rule which prevents foreign investors from owning more than 49% of UAE companies. The Law also provides that the government agency may hold an interest in the project company.
The Law allows for a range of potential PPP structures. It provides that BOOT, DBO, lease and concession agreements may be used together with any other structures approved by the Supreme Fiscal Committee.
The Law does not yet impose restrictions on finance sources; however, it does state that the obligations under the financing arrangements will be borne by the project company alone. Partnership contracts with government agencies can be entered into with a term of up to 30 years.
This detailed and clear legislation offers the legal framework necessary for a successful PPP policy, and is a step forward towards addressing Dubai’s future infrastructure needs.
Stephen Jurgenson (partner), Kilian de Cintré (associate), and Katharine Sonneborn (counsel) work at law firm Winston & Strawn’s Dubai and London offices.