Tuesday, November 5, 2019

Oman Drives Privatization and PPP Initiatives


A series of laws were passed earlier this year that signify Oman’s ambition to be more active in adopting PPP models and drive privatization.  These laws comprise:

(a) The Public Private Partnership Law (Sultani Decree 52/2019) (“PPP Law”);
(b) Privatization Law (Sultani Decree 51/2019) (“Privatization Law”); and
(c) Establishment of the Public Authority for Privatization and Partnership (Sultani Decree 54/2019) (“PAPP” or “Authority”).

During the recent PPP Oman Forum held in October 2019, it was reiterated that PPP is one of the cornerstones of Vision 2040 and that projects valued at approximately OMR 2.5 billion are envisaged for implementation during the current (ninth) five-year development plan spanning health, education, transportation and public services sectors.

In this article we highlight some of the key provisions of the PPP Law, Privatization Law and the role of the Authority.


The PPP Law was published in the Official Gazette on 7 July 2019 and came into force on 8 July 2019 with Executive Regulations (and related decisions) to be issued by 8 July 2020.  The PPP Law applies to Partnership Contracts and consultancy contracts relating to them.  Whilst the Tender Law and the Privatization Law are expressly carved out from such contracts, the PPP Law does not affect provisions of any other laws relating to management, lease, licensing, usufruct, or concession of any public facility.

The term “Partnership Contract” is broadly defined and is essentially the contract between the government (public) body and the private project company.

The key takeaways from the PPP Law are:

(a) Partnership Contracts must relate to partnership projects which have economic or social return and are in line with the strategy of the Sultanate and its development plan;

(b) Partnership Contracts are subject to competitive bidding, but direct award is possible with permission from the Council of Ministers;

(c) mandatory conditions and specifications for a partnership project (such as information and specifications about partnership project, value of temporary bond and calculation of final bond, technical, financial & legal principles on which bid will be evaluated, essential conditions of Partnership Contract along with statement of non-negotiable conditions);

(d) if a bid is submitted by a consortium, it is prohibited for any qualified candidate who is a member of the consortium to submit another bid (whether alone or in conjunction with another person (such as consortium or company in which he holds majority of capital or exercises control));

(e) the Authority is permitted to negotiate with a winning bidder and if negotiations fail, the Authority can negotiate with another bidder, but the Authority is not permitted to re-negotiate with a bidder with whom negotiations failed;

(f) requirement to establish a project company which may be 100% non-Omani owned;

(g) restrictions on project company during term of Partnership Contract (e.g., not permitted to sell shares, modify legal form, create encumbrances over shares (other than for the purposes of raising finance));

(h) mandatory content of Partnership Contract (ranging from identity of parties, insurance requirements, oversight, unilateral termination rights by public body and dispute resolution, amongst other requirements);

(i) step-in rights by public body (with consent from the Authority) to take over partnership project;

(j) mechanism for transfer of assets to State after expiration or termination of Partnership Contract;

(k) Partnership Contract must be subject to the laws of Oman;

(l) obligations on project company (such as prohibition to mortgage / sell land, compliance with Omani law, transfer of know-how, non-discrimination of products, preservation of assets, issuance of periodic reports); and

(m) the Authority can exercise control and oversight over partnership project.

Privatization Law

The Privatization Law was published in the Official Gazette on 7 July 2019 and came into force on 8 July 2019.  The Privatization Law contemplates the issuance of Executive Regulations by the Authority by 8 July 2020.  The Privatization Law expressly repeals the Privatization Law from 2004.

The key takeaways from the Privatization Law are:

(a) distinction between:

1. Privatization Project” (where a public project or a company wholly or partially owned by the government is transferred to a private person); and

2. Company Transformation Project” (where a public project is to be transformed into a joint stock company wholly owned by the government);

(b) definition of “Project Company,” which means:

1. in respect of a Privatization Project:  an Omani joint stock company which may be 100% non-Omani owned and whose rules and regulations in respect of capital etc. will be as set out in the Executive Regulations; and

2. in respect of a Company Transformation Project:  a joint stock company wholly owned by the government whose mechanism for appointing its board shall be specified by the Council of Ministers;

(c) Tender Law does not apply to Privatization Project or Company Transformation Project;

(d) public projects or companies which are wholly or partially owned by the government must only be privatized in the manner prescribed by the Privatization Law and such privatization must be part of the privatization programme; if not within privatization programme, the Council of Ministers to approve privatization;

(e) award procedures for a Privatization Project subject to rules of transparency, publicity, equal opportunity, non-discrimination and free competition;

(f) the Authority may negotiate with winning bidder on items which were not marked “non-negotiable”;

(g) if negotiations fail, the Authority may negotiate with next bidder, but the Authority may not re-negotiate with a bidder with whom negotiations previously failed;

(h) content of privatization contract to be stipulated in Executive Regulations;

(i) mechanism for Omani employees who are subject to the State law and who are affected by a Privatization Project or Company Transformation Project;

(j) if employees are transferred then they cannot be dismissed within a period of five years from date of transfer provided that these employees abide by work systems and other controls; and

(k) status of employees who are not absorbed by the Project Company shall be adjusted per the rules decided by the Council of Ministers.

Role of the Authority

The Authority assumes an important and active role. Both the Privatization Law and the PPP Law make frequent references to the Authority.  The law establishing the Authority lists the expansion of PPP, increased private sector activity and job creation as some of the Authority’s objectives as well as specifying the role of its Board and its CEO.  It will be interesting to observe the role of the Authority as PPPs and privatization projects get underway.