Qatar: new Public Private Partnerships law issued

• Qatar

• Energy and infrastructure

09-07-2020

After years in the making and much anticipation, Qatar has issued its long awaited public private partnerships law (Law No. 12 of 2020, the “ PPP Law ”) which Eversheds Sutherland assisted in drafting. Whilst existing Qatar procurement law permits the use of public private partnerships (“ PPPs ”) - and indeed Qatar is in the midst of several PPP procurements across asset classes - the PPP Law has two key benefits over the existing Tenders and Auctions Law (Law No. 24 of 2015).

First, the PPP Law introduces a new process designed to streamline and accelerate the conception and design of PPP projects, whilst leaving considerable flexibility and discretion to governmental authorities to tailor individual PPPs to meet specific project needs. Second, the law signals to local and international investors and lenders Qatar’s strategic commitment to PPPs.

Key governmental stakeholders involved in administration of PPPs

The Ministry of Commerce and Industry (the “ Ministry ”) is now the statutory authority generally responsible for the administration of the PPP Law and, within the Ministry, the PPP department has supervisory duties over the PPP programme in Qatar and oversight over individual PPP projects. The PPP Law refers to this department as the “ Competent Department ”. The Competent Department’s duties were previously carried out by a department within the Ministry of Finance. The Minister of Commerce and Industry (the “ Minister ”) is charged with making certain decisions and forwarding his recommendations at key decision points in a PPP project’s conception and development. Ultimately, the Council of Ministers must approve a project’s concept report, and the Prime Minster must approve a project’s final business case and the award of the contract to the recommended preferred bidder.

Any Qatari governmental entity, including government agencies, public authorities, public corporations and the Ministry itself (“ Government Entities ”), may sponsor a PPP project under the PPP Law. The PPP Law’s broad definition suggests that state-owned enterprises such as Qatar Petroleum or the Qatar General Electricity Corporation (“ Kahramaa ”) may be subject to the provisions of the PPP Law.

Applicability and effectiveness of the PPP Law

Upon the effectiveness of the PPP Law, all future PPPs in Qatar will be conducted in accordance with the PPP Law unless the Minister proposes otherwise. Any exemption will require approval from the Council of Ministers.

The PPP Law is silent as to whether it is of retroactive effect, leaving some ambiguity as to whether PPP projects in Qatar which are currently in various stages of procurement need to comply with its provisions. What is clear, however, is that the Minister needs to “issue the necessary decisions for the execution of the provisions of” the PPP Law. Accordingly, for the time being, current PPP projects are expected to proceed under the Tenders and Auctions Law.

Covered PPP projects

A covered “ Partnership ” is an “agreement … for the implementation and financing” of works or services delivered in accordance with an authorised project delivery model and which is concluded between the sponsoring Government Entity (referred to in the law as the “Contracting Authority”) and any private legal entity or a consortium of private legal entities (referred to in the law as the “Private Sector”). Hence, a natural person cannot contract for a Partnership.

The PPP Law lists five types of authorised project delivery models: (i) a development lease or usufruct; (ii) build-operate-transfer (“ BOT ”); (iii) build-transfer-operate (“ BTO ”); (iv) build-own-operate-transfer (“ BOOT ”); and (v) operation and maintenance (“ O&M ”). Other project delivery models may be utilised if recommended by the Minister and approved by the Council of Ministers.

The PPP Law implies broad applicability. Since nearly all major contracts in Qatar involve a Government Entity and the Private Sector, it is possible that contracts which may not ordinarily be thought of as PPP projects may be caught within the ambit of the new PPP Law (for example, routine O&M contracts involving large public corporations). This is because there aren’t other Partnership scope limitations (such as a minimum contract term or contract value, for example). The Minister’s implementing decisions may provide further clarity on this point when issued.

Project initiation and planning under the PPP Law

A key objective of Qatar’s PPP programme is to ensure that projects selected for PPPs deliver value-for-money to the Government Entity sponsoring the applicable project. As a consequence, the PPP Law focuses in considerable part on ensuring that Government Entities, the Competent Department, the Ministry and the Minister (and ultimately, the Council of Ministers and the Prime Minister) conduct considerable pre-tender due diligence to ensure that projects proposed to be delivered as PPPs are both attractive to prospective private sector investors and affordable to the government.

Any Government Entity or the Competent Department may identify a project for implementation as a Partnership and submit it to the Minister for approval in principle. In addition, the Private Sector may submit a proposal for a Partnership for Ministerial approval as well — meaning that unsolicited proposals are permitted under the PPP Law.

Once approved in principle, the applicable Contracting Authority must prepare a project concept report to include a brief overview of the project, its suitability for delivery as a Partnership and the respective roles and responsibilities of the parties. The project concept report must be presented to the Minister, who in turn must present it to the Council of Ministers along with his recommendation. If approved by the Council of Ministers, a formal “ Project Business Case ” must then be prepared.

The Project Business Case is a detailed study of the financial, technical and legal merits of the proposed Partnership and the PPP Law requires that it include at minimum analysis of 10 discrete items which are set out in Article 7 of the PPP Law . The Project Business Case is developed by the Contracting Authority, in coordination with an ad hoc “ Project Committee ” which is formed in coordination with representatives of “relevant” Government Entities, and is composed of representatives of the Competent Department, the Contracting Authority and the State Audit Bureau. When complete, the Project Business Case must be presented by the Minister to the Prime Minister for approval, along with the Minister’s recommendation.

In addition to its role in developing the Project Business Case and the tender documents, the Project Committee has four key duties:

0. Prepare the “Project Policy Document” (in effect, a summary of the Project Business Case).
0. Evaluate tender responses from bidders.
0. Negotiate contracts relating to the tender (which, it is important to note, gives considerably more discretion to negotiate with bidders than the Tenders and Auctions Law provides).
0. Submit a recommendation to the Contracting Authority as to the preferred bidder.

Conducting the tender

The Contracting Authority will develop the tender documents in coordination with the Project Committee. A Partnership is first announced to the public by a publication in a local or international newspaper and publication on the Contracting Authority’s website, the Ministry’s website and Qatar’s government procurement portal. This announcement must specify which of the authorised tender methods the Contracting Authority will use. The Contracting Authority may utilise any of (i) two-phase tendering; (ii) restricted tendering pursuant to established lists or prequalification; (iii) procurement by negotiation; (iv) competition; (v) auction; or (vi) direct agreement. The PPP Law also leaves flexibility for the Council of Ministers, on recommendation of the Minister, to approve other tender methods.

The tender documents issued by the Contracting Authority must include the following details at minimum:

(A) General information about the project necessary for bidders to prepare and submit bids.

(B) Technical and financial project specifications, and required qualifications of bidders.

(C) The legal form of the special purpose entity to be formed by the successful bidder (the “Project Company”) and any conditions on the Project Company.

(D) Principal terms and conditions of the PPP agreement (the “Partnership Agreement”).

(E) Government incentives to be offered to the Project Company, its shareholders or its main contractors or sub-contractors. This may include fiscal or tax incentives.

(F) Criteria and methodology of the tender process and bid evaluation.

(G) Forms and documents to be submitted by bidders.

(H) Values of the preliminary and/or final bond, if required.

(I) A timetable for tender procedures including the bid submission deadline.

Prospective investors should in particular welcome that government incentives are required to be clearly specified in the tender documents so bidders are able to price their bids on the basis of that support. The PPP Law itself does not require that bonds be issued locally so it is possible that international surety providers may be able to provide this support; however, nothing prevents the Contracting Authority from including a tender requirement that required bonds are to be obtained from local banks.

Key PPP Law features of likely interest to prospective investors and lenders

The PPP Law contains many additional requirements and minimum required terms for the Partnership Agreement; however it is worth focusing on a few key features likely to be of particular interest to prospective investors and lenders:

• As noted above, the “Private Sector” includes individual sponsors or a consortium of sponsors. However, unless the tender documents specifically say otherwise, consortium members must be exclusive. Multiple bids are prohibited.
• The Contracting Authority may, but is not required to, take an equity stake in the Project Company. If a Contracting Authority intends to participate as a stakeholder in the Project Company, this would need to be specified in the tender documents.
• Subject to the following bullet point, the Project Company must be a special purpose entity and cannot conduct business other than the PPP project.
• If authorised under the tender documents and their evaluation conditions, a bidder may be authorised to implement a PPP project directly (without forming a Project Company) if it has the financial and technical capability to do so.
• The PPP Law expressly authorises the Private Sector to charge fees to end users by selling services authorised under the Partnership Agreement. This is an important authorisation as certain regulated activities do not allow the Private Sector to provide and charge for services. This is likely to simplify future Kahramaa-sponsored PPPs as it would appear that this will authorise the Private Sector to produce and sell power to the grid and end users (which is not authorised under existing law and required special Emiri Decrees in the past).
• Title to the project, its assets and its equipment must revert to the State at the end of the contracted Partnership term. There are other legal limitations on the Private Sector’s ability to own certain types of government assets which must be considered as well.
• If a tender is cancelled, a bidder has no right to claim compensation or recovery of any costs. The PPP Law does not authorise compensation of unsuccessful bidders, but it is not prohibited, suggesting that it may be included in the tender documents.
• The maximum term of contract is thirty (30) years; however, a longer period for an individual Partnership may be authorised by the Prime Minister.
• The PPP Law authorises the 100% foreign ownership of the Project Company, and the Prime Minister may exempt the Project Company from some or all of the foreign investment restrictions imposed on foreign nationals and entities (including the ownership, usufruct or lease of real estate).
• Any type of financing, from whatever source, is authorised but may be restricted in the tender documents. Therefore, the default rule will be that foreign lenders and the international capital markets are authorised financing sources but the Contracting Authority may decide to restrict this on individual projects.
• The Project Company may provide security over its contractual rights (i.e., its rights in the Partnership Contract and receivables owing under it) and its assets. However, the PPP Law is unclear on what “its assets” constitute and it is unlikely that the Project Company can grant security over project assets themselves, title to which must revert to the Contracting Authority at the end of the term.

• The Partnership Contract must be governed by Qatar law and ordinarily the courts of Qatar will have jurisdiction to hear all disputes arising under the Partnership Contract. However, on Prime Minister approval, international arbitration may be included in the Partnership Contract which may increase interest from international investors and lenders in future PPP projects.

Concluding thoughts

Qatar’s new PPP Law provides a robust framework for the conception and development of new PPP projects in Qatar. We expect international investors and lenders will, in particular, have greater confidence in Qatar’s PPP programme going forward because the new law is more fit for purpose for PPPs than the procedures and requirements under the existing Tenders and Auctions Law.

Certain provisions recommended by Eversheds Sutherland in its draft of the PPP Law did not make the final published version, including the confirmation that a budget needs to be approved for payments by the Contracting Authority over the relatively long term of Projects. Certainty over the availability of an approved budget during the life of a long-term Project is a key element that will be sought by the Private Sector and lenders alike. Such a confirmation could take several forms, for example, a comfort letter or a government guarantee, as the case may be.

Other provisions that are not covered in detail within the PPP Law will need to be carefully considered during the negotiation of the Partnership Agreement, including lenders’ step-in rights, responsibility for obtaining licences and permits, as well other provisions that could be relevant to certain projects but not others, such as pricing and fees for services offered to end-users taking into consideration repayment of capital costs and compensation for project availability.

Whilst the PPP Law is drafted broadly and, as a consequence, is ambiguous in parts, we expect that when the Minister issues decisions to implement the law this will provide additional guidance to both Government Entities, who wish to utilise the PPP Law for new projects, and the Private Sector.

The PPP Law was published in Arabic the Official Gazette on 11 June 2020. For the convenience of interested parties and practitioners in Qatar, we have prepared an unofficial English translation of the PPP Law which is available here .

If you would like to view a webinar recording on the new PPP law, please click here