Friday, December 25, 2015

Dubai Public Private Participation Law –PPP Law- Attract more private investment in 2016

Dubai New PPP Law draw more private investment into infrastructure projects in 2016, through the law, Dubai will be able to invite private companies and investors to finance and operate assets that otherwise would have been funded by government budgets.

With oil prices dipping below US$40 a barrel this month, the time to rely on private sector money may be more urgent that ever before not only for the UAE but for all Arabian Gulf countries.

With the IMF warning that some regional economies could use up their financial buffers within five years as they face a combined fiscal deficit exceeding $700 billion between 2015 and 2019, the incentive to go for PPP is urgent. Even Kuwait has revamped its PPP law to try to attract more investors to its slew of projects.

“In a high oil price environment, there was limited incentive for the regional governments to use PPP structures outside of the traditional power and water sectors,” says Dubai-based Mario Salameh, the head of project finance MENA at HSBC bank. “We will be watching closely for signs that the mood is changing given the lower oil price environment and the additional pressure this brings when developing and funding infrastructure projects.”

Dubai’s new PPP law excludes the power and water sector, which has its own legislation. Dubai Electricity and Water Authority has awarded few IPP projects, the latest being the $1.8bn Hassyan clean coal power project in October 2015.

The law covering public-private partnerships is due to be introduced on November 19, and will allow the emirate to tap private sector funding for key projects such as the expansion of Al Maktoum International Airport and the extension to the Dubai Metro Red Line from Nakhel  Harbour and Towers to the Expo 2020 site.

However, as regional economies face increasing budgetary pressures resulting from the weaker price of oil, public sector clients are increasingly turning to private finance to help pay for projects.

The consortia bidding to build the extension to the Dubai Metro Red Line will be able to use public-private partnership (PPP) models as part of their bids, according to Dubai Roads & Transport Authority’s chief engineer for rail operations, Shahrin bin Abdol Salam.

The new Dubai law will remove the need for project-specific legislation for entities and for the government to act as guarantor for projects, as has been the case with the limited private finance rules that currently cover the power and water sector.

It will allow any government entity to use PPPs to develop infrastructure so long as they meet certain conditions.

For instance, all projects worth more than Dh200 million will need to form a special purpose vehicle (SPV) overseen by a committee containing a project CEO and a representative from the Department of Finance, although projects over Dh500m will still need the approval of the Supreme Committee.

However, supplementary regulations are also needed to determine whether SPVs can be based in free zones and offer foreign investors stakes of more than 49 per cent.

The first project to use PPP funding will be the new Union Square station plaza containing a number of towers that are set to be built above the existing Dubai Metro station.
The introduction of a new PPP law in Dubai follows on from the implementation of similar regulations in Kuwait and Bahrain.