Current market conditions for infrastructure finance present numerous challenges. Government revenues are shrinking and private infrastructure investors are both scarce and risk averse, thereby creating an acute need for alternative sources of capital. Privatisations have become increasingly unpopular and difficult to execute, largely eliminating another source of government liquidity.
Public Private Partnerships (PPPs) are defined by the World Bank as “long-term contracts between a private party and a government entity for providing a public asset or service, in which the private party bears significant risk and management responsibility, and remuneration is linked to performance.” PPPs typically do not include service contracts or turnkey construction contracts, which are categorised as public procurement projects, or the privatisation of utilities where there is a limited ongoing role for the public sector.
PPP project contracting is commonly used for major public infrastructure projects such as new roads, hospitals, schools, telecommunication systems, airports or power plants.
PPPs in Oman
In Oman, as in other civil law jurisdictions, a distinction is made between public contracts such as concessions, where the private party is providing a service directly to the public and taking end-user risk, and PPPs, where the private party is delivering a service to a public party in the form of a bulk supply, such as a build-operate-transfer project for a water treatment plant, or the management of existing facilities (e.g., hospital facilities) against a fee.Oman has been a pioneer in the Middle East for PPP projects especially in the form of independent power producer projects (IPPs) and independent water and power projects (IWPPs).
In 1994 Oman saw its first PPP project, the Al-Manah independent power project, and has since regularly used the PPP model. As recently as April this year, the Oman Power and Water Procurement Company (OPWP), advised by Curtis, signed agreements to establish the Salalah Independent Water Project with an ACWA Power-led consortium with Veolia and DIDIC.
A quarter of a century on from the Al-Manah project, Oman is now on the verge of issuing a new PPP law. Oman will also establish a dedicated authority to oversee the implementation of this law.
Why regulate PPPs in Oman?
PPPs in Oman are not wholly unregulated. Local laws that apply to PPPs include Oman’s Privatisation Law, Royal Decree 77/2004, which allows public utilities to be privatised or restricted under the law. Further IPPs and IWPPs are currently tendered by the OPWP pursuant to Royal Decree 78/2004 amended by Royal Decree 59/2009 (Energy Sector Law) and Royal Decree 36/2008 (Tenders Law). The Tenders Law is the key legislation that regulates government procurement in Oman. It establishes a Tender Board and sets out requirements relating to advertising of tenders, forms of bid submission, bid timetable and evaluation, etc.Key elements to look for in the new law
Effective PPP programs hinge on the ability of governmental entities to delegate some of their functions to one or more private parties. Thus, PPP legislation should unambiguously identify the governmental entities authorised to enter into PPPs, the types of functions or services that may be delegated to private parties and the types of assets or facilities that may be developed, constructed, owned and operated under a PPP structure. These determinations require careful balancing of government policy objectives, the public interest and the need to incentivise private sector participation.Legislation authorising government entities to enter into PPPs also may specify categories of permissible transactions. For example, some jurisdictions may wish to limit PPP transactions to a build-lease-transfer format, while others may contemplate more long-term (or even more permanent) arrangements for private participation. At a minimum, the PPP-enabling legislation should identify the sectors in which PPPs are authorised and any limitations on the structure and duration of private sector participation.
Legislation should designate, or create, a governmental entity to oversee and facilitate PPP development and implementation (PPP Entity). For example, a PPP Entity should be authorised to both receive PPP proposals from constituent government entities (e.g., authorities, municipalities) and propose PPP projects and issue “requests for proposals” (RFPs) for PPPs.
In evaluating proposed projects, the PPP Entity should be required to perform an economic analysis and an initial risk/reward assessment of the proposed project. The PPP Entity also should have the authority to enter into PPP contracts and ancillary arrangements including contracts to retain professional advisers (e.g., engineers, financial advisers, attorneys) and take other actions necessary or desirable to effectuate the goals of PPP legislation.
Finally, PPP legislation may authorise certain types of government financial support including credit enhancement instruments (e.g., bonds, letters of credit) and, in limited cases, sovereign guarantees. Other types of governmental support may be appropriate depending on the project and the government’s objectives. At bottom, however, PPP legislation must answer the central question of whether the delegation of public functions will require the commitment of public credit to or on behalf of private parties and, if so, whether such commitments conflict with constitutional or public policy constraints in the relevant jurisdiction.
