The new PPP Law
Basma Fahmi and Aly El Shalakany
Shalakany Law Office
Cairo
Basma Fahmi (Bio)
Aly El Shalakany (Bio)
The Public Private Partnership Law (No.67 of 2010) (the PPP Law) was passed on May 18 2010 as part of the Government's strategy to reform the country's economy and increase energy and infrastructure development by leveraging private sector know-how and efficiency in public utility services.
Before the PPP Law was introduced, the Government's procurement of previous projects was governed by the Tenders and Bids Law (No. 89 of 1998). Under Law 89 the procurement of goods or services are carried out by virtue of a tender, competitive negotiation or, in special cases, through direct agreements. Although Law 89 may have been an adequate framework for procuring simple goods and services on a regular basis, the Government realised this was not an adequate framework for large scale complex projects. This led to the new PPP Law which introduces important new features that were much needed in Law 89.
The PPP road map
In general, the new PPP Law has streamlined the process and provided clear guidelines for procurement of major infrastructure projects. This will not suit smaller projects and, consequently, the PPP law only applies to projects procured on a PPP basis with a minimum investment value threshold of E£100 million ($16 million). Providing those thresholds are met, a clear and transparent 'road map' for the lifetime of the project kicks in to guide the various parties as to their roles and responsibilities. If an administrative authority wishes to procure a project, it should set up a PPP unit (if it has not already done so), which will prepare and submit a proposal to the PPP supreme committee. The committee will then assess the feasibility of the proposed project under the technical supervision of the PPP Central Unit.
Providing the project gets the go ahead from the PPP committee, the administrative authority, under the supervision of the PPP Central Unit, then appoints legal, technical and financial advisors to assist them with preparing a more comprehensive due diligence and timetable for procuring and implementing the project. Subsequently, the administrative authority will invite private sector participants to apply for prequalification. Those who meet the prequalification criteria then get shortlisted and are provided with the necessary documentation for them to conduct their due diligence, request clarifications and provide any comments they may have. Once that feedback is obtained, an RFP (request for proposal) is released. The private sector is then invited to submit either a final tender based on the RFP or a non-binding tender, followed by a competitive dialogue and submission of a final binding tender. The proposals are assessed and graded technically before being assessed financially based on the value for money principle. Finally, a preferred bidder is selected, the concession agreement is signed, the project company established, the funding committed and the project achieves financial close.
Biggest improvements
Although there are a number of significant improvements, in addition to the points in the overall regulatory framework discussed above, one of the main improvements is that the PPP law regulates what happens when things don't go according to plan. The PPP concession agreement can be amended during the lifetime of the project to accommodate unforeseen events, such as changes in law. If these unforeseen events are adverse to the private sector and cannot be mitigated, the administrative authority is under an obligation to compensate the private sector to remedy the situation. The PPP Law has also introduced and formed a petition committee that settles complaints and petitions submitted by investors during the tendering phase and lifetime of a PPP concession. This is a vital change as, compared to the previous regime, it allows for an open dialogue between the private sector and the public sector during the lifetime of the project. Although the neutrality of the committee is questionable, as the committee is mainly comprised of the Minister of Finance and other public officials and only one independent expert, at least it is a step in the right direction. As was the case with Law 89, the standard mechanism for resolving disputes is by arbitration. The PPP Law, however, also allows the parties to agree on a non-judicial method of dispute resolution. Meanwhile, if a major dispute has arisen and construction and/or commercial operation of project has ceased without being remedied, the PPP Law introduces step-in rights whereby the administrative authority or the lenders have the right to manage the operation of the project, whether directly or through a third party, in the event that the project company materially breaches its obligations and doesn't remedy the breach within specified grace periods.
The verdict
The new PPP Law is certainly a step in the right direction and should lead to the government attracting considerably more foreign investment and achieving a high quality of service to its citizens over the long term. The main concerns are whether there is sufficient political backing to create a unified vision amongst the various ministries to support the program. As far as we are aware, there are still some ministries, especially in the Oil, Gas and Power sectors that have not yet wholeheartedly embraced the PPP program and continue to procure under different procurement regimes. Having said this, the current transitional government has signaled that improving infrastructure is one of the main drivers of growth and, accordingly, is central to the government's plans. Private sector participants' interest in Egyptian infrastructure projects has not waned due to the current political unrest, but there is wide spread consensus in the market that investors will wait and see what the medium to long term policy is in relation to infrastructure before making any significant investments. This medium to long term view is expected to crystallize once the anticipated presidential elections take place in the first quarter of 2012.