Construction

GCC governments need proper regulations and frameworks for PPP to succeed

Andrew Mackenzie says Kuwait at the forefront of legislation, rest of the GCC lagging behind

Public-private partnerships (PPP) will need GCC governments to introduce proper regulations and strong legal frameworks if they are to succeed, leading experts have told Middle East Construction News.

While there has been collaboration between the public and private sectors for some time, the relationship has been restricted to service contracts and to the water, energy and transport sectors. Most projects in the GCC region developed using a recognised PPP model have traditionally done so under each market’s own version of tender and procurement laws.

One of the key reasons PPP has yet to make a mark in the region is due to the lack of legislation, however, experts have pointed out that this is beginning to change.

“I’m pleased to see that countries and states that are interested in PPP are trying to regulate it and introduce a framework for it. That’s the very first step,” said Andrew Mackenzie, partner at Baker McKenzie Habib Al Mulla, a law firm specialising in construction disputes and arbitration.

“We haven’t yet seen an explosion of these projects. We’re beginning to see a few of them pop up more regularly, particularly in the power or water sector – where private companies want to partner with public bodies to provide desalination plants or power projects of a particular nature.”

Ahmed Almihdar, senior research analyst at JLL agreed with this, pointing out that a PPP legislative framework is lacking in most GCC markets, with the exception of Kuwait and Dubai.

“Kuwait has made the most progress in establishing a PPP framework, having released a PPP law in 2008 and expanding it in 2014. Dubai introduced its own PPP law in 2015 and is looking likely to update it in the coming years. Oman and Qatar have also announced that they are drafting a PPP law, while Saudi Arabia established the National Centre for Privatisation in 2017 and is thought to be drafting its own PPP law as well,” he said.

Mackenzie added that while Kuwait has led the way, other countries have been slower to follow.

“Kuwait has decided that they want to be at the forefront of PPP. Bahrain was on the bandwagon, but has been slower to develop in some instances. Saudi Arabia has the most interesting platform. While the UAE, and Dubai in particular, has dominated the construction market over the last few years, everyone has said that the sleeping giant that is Saudi Arabia will eventually awaken, and we’re now seeing that.

“It’s PFI – Public Finance Initiative – I think it’s taking very serious steps to develop the market and inject funds into it. I think they have looked into it in many ways. They’ve looked at mistakes in the region and asked themselves ‘do we need to be funding this ourselves, completely? Why can’t we spread the risk and get some banks and other private entities involved? Why can’t the private sector shoulder some of the burden to build public infrastructure that we all benefit from?’

Highlighting the $500 billion NEOM city development as a particular example, Mackenzie told MECN.com that it would be a perfect test for the private-public partnership model.

“I think Saudi Arabia will begin to take the lead on more of these megaprojects, but the UAE, Oman, Kuwait, Bahrain and Qatar have a number of significant projects in the pipeline. As we move towards $70, possibly even $80, a barrel in oil prices, these projects become far more commercially viable as more liquidity returns to the market.”

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