Ibrahim Sattout and Akusa Batwala of ASAR – Al Ruwayeh & Partners in Kuwait look at the new PPP law
The Kuwait parliament issued Law No. 116 of 2014 regarding public-private partnerships (the “PPP Law”) on August 17 2014 and its executive regulations (Decree No. 78 of 2015) were issued in March 2015 when the law came fully into force.
The new higher committee and authority
The PPP Law provides for the establishment of the Supreme Committee for Public Private Partnership Projects and define its competences and authority. This Committee replaces the Supreme Committee established under the BOT Law (Law No. 7 of 2008). The composition of the New Supreme Committee is however very similar to the previous committee.
The competences of the Supreme Committee have however been expanded and now include: approving the public entities’ requests for the procurement of PPP projects; approving the requests for the allocation of land necessary for the implementation of PPP projects; approving the successful investor based on the recommendation of the Authority of Public Private Partnerships (the “Authority”); and approving the PPP agreements. Articulation of its competencies in this manner will assist in clarification of the role of the New Supreme Committee.
Articles 4, 5 and 6 provide for the establishment of the Authority of the Authority, and determine its competencies and scope of authority. This Authority will replace the current Partnership Technical Bureau (PTB). The competences of the Authority, in co-operation and coordination with public authorities, have also been expanded.
Article 9 of the PPP Law makes it clear that the Public Tenders Law (Law 37 of 1964) will not apply to projects procured under the PPP Law and the executive regulations of the PPP Law will provide for the procurement procedures. Therefore foreign bidders participating in projects procured under the PPP Law should not have to comply with the requirements of Law 37 of 1964.
The project company
Article 10 of the PPP Law provides that the Authority or the successful investor shall establish the Project Company. The significance of this article is that it explicitly provides whose responsibility it will be to establish the project company.
Article 11 of the PPP Law goes on to provide that any consortium that is awarded a project under this law is required to establish one or more consortium companies in accordance with the laws of the State of Kuwait. Such companies would hold the consortium’s shares in the Project Company. The law further provides that the project agreement will not be entered into until such consortium company has been established.
As a general rule, companies incorporated in Kuwait must have 51% Kuwaiti participation unless specifically exempted. However, Article 34 of the PPP Law exempts companies formed under this law from the nationality requirements. This would mean that a project company and the consortium companies established under the PPP Law may have foreign shareholders owning more than 49% of its capital.
With respect to percentage ownership of the project company, Article 13 of the PPP Law provides that no less than (6%) and not more than (24%) shall be allocated to public entities while no less than (26%) shall be allocated for subscription by the winning investor (and initiator where applicable). The final (50%) shall be allocated for public subscription by Kuwaiti nationals.
Financing under the PPP Law
It should be noted that a number of changes have been introduced. We summarise below a few of the same which include the following:
i) the contract documents may distinguish between the assets owned by the investor from those owned by the project company. This would permit the Investor to mortgage and provide in-kind guarantees on any assets owned by the investor of the project’s assets.
ii) the investor or the Project Company may assign to the lenders any amounts payable to it or to the project company pursuant to the project contract.
iii) the investor may mortgage its shares in the project or consortium company to the lenders (with the approval of the New Supreme Committee even if the mortgage is made in the two years following the establishment of the project).
iv) the mortgage contract may contain terms allowing the lenders in the event of default of the investor, to own the pledged shares or request its sale.
This appears to provide more flexibility and options with respect to the possible guarantees that may be provided by the investor / Project Company, and therefore should provide additional comfort to the lenders.
These options are elaborated on in the PPP Law Executive regulations, which admit for the first time in Kuwait the concept of step-in rights and regulate the direct agreements to be entered into between the parties to the project.
Privileges, exemptions and dispute resolution
The PPP Law provides that the project bid documents shall also include the privileges and incentives that will be granted to the investor. These include tax and customs exemptions in addition to those other privileges and incentives provided for in Law 116 of 2013 regarding the Promotion of Foreign Direct Investments in Kuwait.
The project contracts will be governed by Kuwaiti law and there is the possibility of referring disputes to arbitration; however such a referral is subject to the approval of the Supreme Committee.
The PPP Law also provides for the establishment of a grievance committee made up of legal, financial and technical experts with the competence to receive grievances from all concerned parties in respect amongst other things, of the procurement process.
The project contract
Article 35 of the PPP Law provides a list of issues that should be incorporated into all project contracts. These include but are not limited to: the nature and scope of works and services to be provided; the ownership of funds and assets of the project; the obligations of the parties at takeover and when handing over the project at the end of the term of the project; the price of products or fees for the service provided; the contract term; investment period; and construction details.
Repealing of the BOT Law No. 7 of 2008 and Law No. 40 of 2010
The PPP Law repeals the BOT Law and Law No. 40 of 2010 (relating to labuor cities) and any other text or law which contradicts the PPP Law.
In summary, the PPP Law appears to be a positive development of the PPP regime in Kuwait. However, pending the full procurement of a project under this law, it will have to be seen whether this PPP Law does indeed make the procurement of such projects more straight forward and therefore attractive to the private sector.
ASAR – Al Ruwayeh & Partners
About the author
Ibrahim Sattout is a Partner at ASAR – Al Ruwayeh & Partners. He is admitted to Beirut Bar Association and he has over 22 years of experience, 15 years of which have been spent in Kuwait.
His extensive experience includes banking, finance, commercial, corporate and business acquisition transactions, litigation and arbitration. He has been extensively involved as lead and co-counsel in several government and project finance transactions ranging from typical transactions to highly complex ones. He has worked on such transactions from inception to completion and hence has wide experience in regulatory matters, interfacing with government authorities, conducting due diligence exercises, preparing due diligence reports and drafting transaction documents.
Ibrahim frequently acts as legal counsel for local and foreign banks with respect to financing transactions in Kuwait.
Ibrahim has acted recently as the local legal advisor to the Partnership Technical Bureau (PTB) in respect of the structuring and procurement of the Az Zour North (Phase 1) independent water and power producer (IWPP) project. Ibrahim and ASAR team provided advice to the PTB on all aspects of the project, including the tender and award process, conducting due diligence, drafting and reviewing the project documents, providing Kuwaiti law advice relating to the project and local compliance matters, financing of the project, the incorporation of the project company and the IPO.
Ibrahim is currently leading the ASAR team in advising the KAPP and relevant government entity, as part of the consortium comprising the Transaction Advisor on the process of the development of the following projects under the BOT Law: Az Zour North Water and Power Project (IWPP) Phase 2 and Al Khairan IWPP. He is also part of ASAR team advising international investors in respect of certain government projects in Kuwait.
Ibrahim is fluent in English, Arabic and French
ASAR – Al Ruwayeh & Partners
About the author
Akusa is a Senior Associate at ASAR – Al Ruwayeh & Partners with over thirteen years of legal experience. At ASAR, she practices in the areas of commercial and corporate law, government contracts, public private partnerships, telecommunications and employment. Akusa is currently involved in advising on a number of government infrastructure projects being handled by the firm including; power, water, wastewater treatment, solid waste management and real estate development. The majority of these projects are being procured under the Public Private Partnership (PPP) model.
Akusa was part of the ASAR team that advised the Kuwait Authority for Partnership Projects (KAPP) formerly the Partnerships Technical Bureau (PTB) and the Ministry of Electricity and Water (MEW), as part of the Transaction Advisor, on all local legal aspects of the ground breaking Az Zour North IWPP Phase 1.
Akusa is currently involved as) part of the ASAR team that is advising KAPP and the MEW as part of the Transaction Advisor, on the Az Zour North IWPP Phase 2 and the Al Khairan IWPP Phase 1. Akusa is also involved as part of the ASAR team that is advising potential bidders and private investors on the Umm Al Hayman WWTP and the Municipal Solid Waste Treatment Facility – Kabd. She was also involved in advising the lenders on the financing of the expansion of a BOT waste water project in Kuwait.