Worldwide: Middle East And Africa PPP Guide: The Emergence Of Public-Private Partnerships (PPPs) In The Middle East And Africa

Last Updated: February 16 2016
Article by Neil Cuthbert and Atif Choudhary

Introduction

The purpose of this article is to analyse and summarise the emergence of the public-private partnership (PPP) model in the Middle East context (with a focus on the Gulf Cooperation Council (consisting of Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates) (GCC)) and also in the context of selected emerging markets in Africa that have recently looked to introduce the PPP model. Although Governments and the private sector have a history of working together to procure energy, infrastructure and other projects in these regions, they have largely done so in the absence of codified or other clear PPP legal frameworks of the kind seen in more developed jurisdictions.

With oil prices continuing to stall and without any obvious signs of recovery, and with fiscal deficits beginning to be seen across the region, Governments in the GCC are looking to step away from their traditional reliance on oil revenues and sovereign reserves in order to continue with their ambitious plans for development. Populations continue to grow and require more sophisticated infrastructure and services, and increasing industrialisation and the recognition of the need for economic diversification all mean that the GCC nations are, like many others, looking to new methods of financing projects. Likewise in Africa, population growth remains staggeringly high and a continuation of budgetary limitations for Governments also means that alterative methods for funding infrastructure and services needs must be found. It is becoming apparent that PPPs lie at the forefront of such alternative methods.

In order to implement this change in direction, certain of the jurisdictions in the GCC and Africa already have, and other jurisdictions are in the process of developing, viable PPP legal frameworks. The rationale for this is not only to provide legal certainty for foreign investors who may be hesitant to invest heavily in markets with under-developed legal systems, but to set out clear boundaries in relation to matters which are important to all project parties, such as risk allocation and mitigation.

This article provides a brief introductory overview of the PPP model generally, its history in the GCC and selected jurisdictions in Africa, challenges which are inherent in its successful implementation and a summary of the implementation of PPP legal frameworks within the GCC and selected jurisdictions in Africa. What will become clear is that although each jurisdiction is at a different stage of developing its own PPP legal framework, there is a distinct political will and necessity to embrace the PPP model which has been largely successful in the wider international projects market.

Reference in this article to "projects" or "PPP projects" (which terms are used interchangeably) are not intended, unless otherwise specified, to be a reference to projects in any particular sector. The broad principles explored in this article can, by and large, be applied to infrastructure, transportation, energy, education, healthcare and other sectors. Likewise, references to "Governments" are intended to mean the relevant Government and/or the relevant procuring Government entities.

What is PPP?

The term "public-private partnership" does not have a particular legal meaning per se. It can be used to describe a wide variety of arrangements involving the public and private sectors working together in some way. It is therefore necessary to be very clear about why the public sector is looking to partner with the private sector, what forms of PPP they have in mind, and how they should articulate this complex concept.

Among the key rationale for the use of the PPP model in the context of projects are the following:

  1. the utilisation of private sector capital and expertise for the efficient procurement of Government projects;
  2. more certainty for project delivery timelines and budgets;
  3. the sharing and allocation of risk as between the Government and the private sector parties, to that party best placed to manage such risks; and
  4. the easing of Governments' balance sheets and the freeing of capital to be directed towards other needs.

As the name suggests, PPPs are considered a partnership (in the broadest sense) between Governments and the private sector, not a divestment of responsibility. While the Government retains overall responsibility for delivering the particular service, the means and responsibility for such delivery are passed to the private sector. The Government retains control over the means of delivery by way of intricate and detailed payment and performance mechanisms.

The following table compares certain key elements of projects procured using traditional methods, to those procured using the PPP model:

There is no single or 'standard' form of PPP project or structure.

A PPP project can essentially take whatever form the parties desire in order to meet the objectives of the project in question. However, a few of the more common forms implemented include the following:

  1. Build-operate-and-transfer (BOT) – the private party usually undertakes the designing, building and financing of the relevant facility. Once completed, the private party then carries out the operation and maintenance of the facility during which times it is allowed to charge facility users appropriate tolls, fees, rentals and charges not exceeding those proposed in its bid or as negotiated and incorporated in the relevant contracts with the Government. The facility is transferred to the Government at the end of the fixed term; these are sometimes referred to as "DBFO(T)" projects.
  2. Build-own-and-operate (BOO) – this is similar to the BOT arrangement, although the private parties retain ownership of the facility at the end of the fixed term.
  3. Build-transfer-and-operate (BTO) – this is another variation of the BTO arrangement whereby title to the facility is transferred to the Government, whilst the private parties retain the right to operate and maintain the facility on behalf of the Government.
  4. Rehabilitate-operate-transfer (ROT) – this is similar to the BTO arrangement; however, it involves the rehabilitation or upgrade of an existing facility rather than construction of a new facility. Following rehabilitation or upgrade, the concessionaire operates the facility in the same way as a BOT and then transfers it back to Government at the end of the agreed period.
  5. Lease – this is a model whereby a Government entity leases a public facility or land to a private party. The private party is usually only required to operate a facility or develop land. The private party is required to pay the Government leasing fees and its own revenue stream is user-pay charges.

Structure of PPPs

The diagram below sets out the key parties and contracts in a typical PPP project. Note that not all of these parties and contracts will necessarily appear in all PPP projects, depending on the parties involved, project sector, jurisdiction etc. – this diagram is by way of illustration only of what is common/typical.

An in-depth discussion on the role of each party in a PPP project is beyond the remit of this article. However, in order to better understand the purpose and objectives of PPP projects, it is helpful to understand the broad role of the major parties and documents in a typical PPP project. These are:

Government

The Government, as the procurer of the project, is obviously a very central figure in any PPP arrangement. The contract which underpins the relationship between Government and the private parties (which usually act through a special purpose vehicle or special purpose company (SPV) incorporated by the sponsor(s)) is usually a Concession Agreement and/or an Offtake Agreement. A Concession Agreement would be used, for example, in a road project, and sets out the rights, responsibilities and risk allocation for each party and will also set out the basis upon which the SPV will generate its revenues (usually either through availability payments from the Government or the right to charge tolls for use of the road). An Offtake Agreement would be used, for example, for an energy project, and is a long-term agreement whereby the Government entity agrees to make payments to the SPV over the life of the contract for the relevant output such as water or electricity (usually through capacity and output payments).

As the Government has a strong interest in delivery of the project, on time and to the requisite standard, it is common for it to have step-in rights under the relevant agreement(s) in the event the project is not implemented correctly. These stepin rights supplement various other performance controls and penalties agreed between the parties.

Generally speaking, it will also be the Government which is responsible for procuring the project site which would be leased or licensed to the SPV for the period of construction and operation.

Private parties/sponsors

The sponsor(s), acting through an SPV, is the Government's main, and usually only, counterparty to the Concession Agreement and/ or Offtake Agreement (although the lenders will usually have an indirect interest through a direct agreement). The SPV bears responsibility for the design, financing, construction, operation and maintenance of the project, although, apart from financing, many of such responsibilities are commonly passed down to contractors and operators (who are often the sponsor(s) themselves or their affiliates) and/ or their subcontractors. The SPV is remunerated as set out above.

Lenders

The lenders to the SPV play a critical role in any PPP project. The ability for the lenders to be repaid lies almost exclusively with the success or failure of the project. It is for this reason that the lenders are intimately involved with all aspects of project negotiations and risk allocation. For example, the lenders would need to be comfortable that the Concession Agreement and/or Offtake Agreement is in sufficient form, as it is the SPV's revenue pursuant to such documents which will dictate the ability of the SPV to repay its loan facilities with the lenders.

Part of lenders' recourse usually includes step-in rights in the event the SPV is unable to carry out the project as envisaged. Lenders will also take security over all of the assets of the SPV/project.

To continue reading this article, please click here.

About Dentons

Dentons is the world's first polycentric global law firm. A top 20 firm on the Acritas 2015 Global Elite Brand Index, the Firm is committed to challenging the status quo in delivering consistent and uncompromising quality and value in new and inventive ways. Driven to provide clients a competitive edge, and connected to the communities where its clients want to do business, Dentons knows that understanding local cultures is crucial to successfully completing a deal, resolving a dispute or solving a business challenge. Now the world's largest law firm, Dentons' global team builds agile, tailored solutions to meet the local, national and global needs of private and public clients of any size in more than 125 locations serving 50-plus countries. www.dentons.com.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Events from this Firm
24 Oct 2017, Seminar, Washington, DC, United States

The Dentons Forum for Women Executives invites you to join us for a luncheon featuring guest speaker Liza Mundy, journalist and author. Ms. Mundy recently released her latest book, Code Girls, the riveting untold story of more than 10,000 spirited young American women who cracked German and Japanese codes to help win World War II.

27 Oct 2017, Seminar, New York, United States

Please join us for a milestone event, our 10th annual CLE Seminar for In-House Counsel.

1 Nov 2017, Seminar, Washington, DC, United States

Celebrate the 58th anniversary of Dentons' Government Contracts practice

 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.