LET’S MAKE A DEAL

Dubai 2016 | ECONOMY | FOCUS: PPP LAW

Private investors looking to play a part in Dubai's future infrastructure projects no longer have to wait as the new Public and Private Partnership (PPP) law will allow the Emirate to keep on building.

The Dubai government has made the implementation of PPPs in the Emirate a much more realistic prospect. Dubai Law No. 22 of 2015 Regulating Partnerships between the Public and Private Sectors, which came into force on November 19, 2015, will be key to addressing the infrastructure needs of the Emirate.

Due to increasing budgetary pressures being faced by regional economies with weaker prices of oil, the public sector has felt an increasing need to turn to private finance to help fund projects. Before the current oil price environment, there was a lack of incentive for regional governments to use PPPs outside the power and water sectors.

With this new law, the Dubai government aims to decrease the financial burden on the emirate's budget, transfer risk to the private sector, and move its role as an investor and developer to one of a policy maker and regulator. In return for the private sector's expertise, investors will be given the chance to play a more strategic role in the financing, design, construction, maintenance, and ongoing operation of future infrastructure projects. For this reason, the Dubai government is seeking to initiate new forms of long-term partnership and concessions in a wide range of sectors.

One of the government agencies that has paved the way for PPPs has been the Roads and Transport Authority (RTA), which previously issued its own policy on PPPs for transport and services, committing to undertake 30% of its projects under this model, hence the launch of an internal PPP committee. However, the new law is now applied to all PPP projects originated by Dubai government agencies and subject to the general government budget. Despite the new law being “horizontal,” thus covering various sectors, it does not apply to electricity and water projects that are governed by the Electricity & Water Sector Law (No 6. of 2011) or simple work or supply contracts that are governed by the Procurement Law (No 6. of 1997).

The new law will end the need for the government to act as a guarantor for projects and the project-specific legislation. Instead, projects will be awarded to the most feasible offer, based on technical and financial specifications. If the total project cost is less than AED200 million, it will be approved by the respective entity's director general or CEO, and if the total cost is between AED200 million and AED500 million, it will be approved by the Department of Finance. If the cost exceeds AED500 million, the Supreme Committee will be responsible for approving the project. According to the new legislation, the PPPs will hold a term of up to 30 years, allowing the private sector enough time to realize a return on its investment.

The new legislation will allow Dubai to find private-sector funding for key projects, such as the extension of the Dubai Metro Red Line to the Expo 2020 site. Future PPP projects will send a clear statement of policy intent to international investors, developers, and the lending community. The legislation is demonstrating to the market that PPPs are welcome in the Emirate and that they have the full support of the Dubai government. Upon the completion of successful PPP projects, Dubai is expecting to see an increase in the frequency and number of infrastructure projects in the medium to long term. The new PPP legislation is a great initiative and expected to bring the Dubai government closer to the private sector for years to come.