The kingdom has previously tried to implement PPP projects, with mixed success. It has been successful with utility projects and more recently in the renewables sector and in flour mills. However, when the government tried to graft this model on to the transport and aviation sectors, the efforts were less successful.
An example is the prestigious Landbridge North South corridor. When investors woke up to potential problems, including the question of ownership of the desert land through which the railway would be built, enthusiasm fell away rapidly.
The kingdom has had mixed success with its previous attempts to implement PPP projects. It has been successful with utility projects and more recently in the renewables sector and in flour mills. However, when the government tried to graft this model onto the transport and aviation sectors, the efforts were less successful.
The new law goes a long way toward fixing gaps in existing legislation – such as measures to protect foreign investors, exempting PPPs from the Procurement Law as applied to infrastructure projects in the country, liberalization of leasing of real estate in Makkah and Madinah, and lifting of restrictions on foreign investment in the healthcare and private education sectors.
The PSP law also provides a number of exemptions where existing Saudi law may otherwise inhibit the growth of PPP—for example, the use of English language in government contracts and the potential relaxation of Saudization requirements, Fahad Abuhimed, managing partner at the Saudi law firm Abuhimed Alsheikh Alhagbani, told Zawya.
“It is also critical to note that in comparison to the previous PPP regulatory framework, the [law] has adopted a more flexible approach in terms of the government approvals required for PPP projects,” he added.
There also remain potential issues in the execution and speed of implementation. “Authorities will need to address potential obstacles, such as a slow speed toward implementation and execution of the legislation, and minimizing issues related to too much bureaucracy and delays to payments, which are often cited by companies operating in the Kingdom,” Neil Quilliam, Associate Fellow at Chatham House and Managing Director at Azure Strategy, told Zawya.
Much of the detail of how the PSP law is to be applied will be set out in the implementing regulations, which have yet to be issued, said Mhairi Main Garcia, partner at the law firm Dentons.
“More analysis will be required once these have been issued. However, the PSP law sets out a clear legislative framework which, when coupled with the detail of the implementing regulations, should provide a transparent and coherent basis for the tender and implementation of PPP and privatization projects in Saudi Arabia,” Garcia added.
The FDI objective
A key objective of privatization is to attract foreign direct investment (FDI) to promote economic diversification. The government has set a target for FDI inflows to reach 5.7 percent of GDP by 2030. One of the key issues for foreign investors has been a perceived lack of transparency in the procurement and contracts processes.
Quilliam said that while it will certainly create a better environment for FDI, the Kingdom faces other issues that may deter investors. “The promise of transparency in tendering will be seen as an encouraging sign alongside other measures that have been introduced over the past few years. But the bigger issues associated with reputational risk, will also have a bearing on appetite for FDI,” he added.
A clear and transparent framework that is in sync with international standards will have the effect of making Saudi Arabia an attractive destination for foreign investors, agreed Abuhimed.
“As an example of focus to attract FDI, the PSP law provides that international investors will be treated equally with local investors when it comes to bid evaluation and award of projects,” he said.
He noted, however, that other legislation is needed to complete the PPP framework, including the Implementing Regulations, the Governing Rules, and the National Center for Privatization’s Manual.
(Reporting by Brinda Darasha; editing by Seban Scaria)
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© ZAWYA 2021