Dubai's new law for public-private cooperation creates opportunities

The eagerly anticipated public-private partnership (PPP) law came into force in November 2015, ushering in what could be a new era in infrastructure development. The idea is to empower investors, both foreign and domestic, to take a bigger long-term role in financing and operating large projects. The law is expected to have an immediate impact in several key sectors. Infrastructure is a primary one, with PPPs considered a likely approach for expanding Al Maktoum International Airport, extending the metro system and building up the World Expo 2020 site in a fast-developing area known as Dubai South.

In the past in Dubai PPP structures have been allowed in utilities projects. Most infrastructure projects have been contracted out by the Dubai government, and on completion handed back to the emirate for ownership and management. The new law makes PPPs possible in other areas. “The private sector will be offered the opportunity to play a more strategic role in the design, construction, financing, and ongoing operation and maintenance,” according to Adrian Creed, projects partner at law firm Clyde & Co.

Greater Freedom

The new law offers flexibility in project structure, allowing for leases, concessions, management contracts and various ownership structures or revenue-sharing mechanisms. Common to them all is the trade-off of greater involvement by outside investors in exchange for allowing them more participation in design and revenue sharing. The move, which echoes others in the region, comes at a time when project financing is expected to be more difficult due to lower oil prices affecting government revenues. Dubai has not been directly impacted, as it is not an oil exporter, but the indirect impacts from the regionally integrated economy have set the table for PPPs to help finance the state’s development aims.

Projects are expected to fall under the authority of the Roads and Transport Authority, which has committed to procuring 30% of projects using the PPP model. The new law also applies to government entities funded through the Dubai government’s budget, as well as those funded in other ways, such as the government-related entities often relied on to build government-envisioned projects.

Conditions 

Under the new law projects of less than Dh200m ($54.4m) in value require approval only from the relevant government partner. Those worth Dh200m-500m ($54.4m-136.1m) must also receive approval from Dubai’s Department of Finance. Above that threshold, approval from Dubai’s Supreme Committee is required. Ownership regulations have not yet been put in place to determine whether special-purpose vehicles between government and foreign investors could be located in a free zone, or would be subject to local-ownership rules that require foreign investments to be structured as joint ventures in which local partners own at least 51%. Another element that is not yet clear is whether Dubai’s government will guarantee projects or potential buyers of their output. Such guarantees have been used in the past for utility projects, but according to Clyde & Co they are likely to be available only for projects that would not attract investment otherwise.

According to a review by the Dubai office of global law firm DLA Piper, other elements of the new law are that PPP agreements are limited to a maximum duration of 30 years and are exempt from existing procurement rules in Dubai law if the agreement does not contain specific provisions on the matter. While government entities looking for private sector partners have their own priorities for PPP projects, ideas can also be proposed by private investors.

The new PPP law does not specify any minimum levels of ownership or interest for the government, but any government shareholdings involved are likely to be managed by the Investment Corporation of Dubai, which is the emirate’s investment arm for holding wholly or partially owned government businesses.