May 7, 2024

Public-Private Partnerships (PPPs) In Construction Arbitration

Trends And Case Studies From the Mena Region

The use of Public-Private Partnerships (PPPs) has become a significant tool in bridging the gap in infrastructure provision, particularly in the Middle East and North Africa (MENA) region.

PPPs play a critical role in infrastructure development, and their practices in the construction arbitration space are noteworthy. This article provides insights into the performance, challenges, and dynamic environments of PPPs, offering valuable reflections for partners operating under PPPs.

Key Takeaways

The World Bank’s Definition of a PPP: “A long-term contract 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 are a major tool for infrastructure development in the MENA region, with a value upwards of $69.6 billion worth of deals underway.
The PPP market in MENA is experiencing impressive growth, with an average increase of 29% year-on-year over the past decade.
The UAE and Saudi Arabia are at the forefront of this PPP boom, with power, water, and oil & gas projects being particularly attractive.
Common PPP models include Build-Operate-Transfer (BOT), Build-Own-Operate-Transfer (BOOT), Design-Build-Finance-Operate (DBFO), Operations & Maintenance (O&M), Build-Own-Operate (BOO), and Joint Venture.
There is a ‘décalage’ between practice and the legislature in MENA countries as PPP legislation promulgation has been delayed for years. PPPs in the form of Build, Operate, and Transfer (BOT) were used as early as 1858 for the construction of the Suez Canal, which is considered one of the oldest concessions in history.
Common reasons for disputes in PPP projects include:
- Unclear risk allocation: Disagreements about how risks are shared between public and private partners can lead to disputes.
- Shifting legal landscape: Changes in regulations or unforeseen legal developments can cause disputes about their impact on PPP contracts.
- Force Majeure events: Events beyond anyone’s control, like pandemics or natural disasters, can trigger disputes regarding their contractual implications.
The right legal advisor can play a critical role in preventing and resolving PPP disputes by:
- Structuring the PPP agreement to clearly define risk allocation and responsibilities.
- Drafting unambiguous contracts that minimize room for misinterpretation.
- Anticipating potential challenges and incorporating risk mitigation strategies.
- Providing expert guidance on dispute resolution mechanisms.

Introduction to Public-Private Partnerships in the MENA Region

PPPs are transforming infrastructure development in the Middle East and North Africa (MENA) region. These strategic alliances between governments and private companies address a critical challenge: the growing demand for infrastructure that often clashes with limited public budgets.

The high levels of investment required for large and national infrastructure projects cannot be usually financed but from governmental resources. Yet, the high procurement, logistical, and technical expertise required for state of the art or large and national infrastructure projects requires private sector participation.

PPPs can offer a win-win solution. By leveraging private sector efficiency, innovation, and capital, alongside a government’s commitment to social responsibility, PPPs can deliver essential infrastructure projects – from transportation networks to power plants – faster and more effectively.

The MENA PPP Landscape: A Booming Market for Infrastructure Development

The Middle East and North Africa (MENA) region is witnessing a surge in PPPs for infrastructure development. With a staggering $69.6 billion worth of PPP deals currently underway, the region is poised for significant growth in this arena.

Here are some key takeaways that paint a picture of the thriving MENA PPP landscape:

Impressive Growth: The value of PPP projects in the MENA region has grown by an average of 29% year-on-year over the past decade, with the number of projects increasing by 11% annually.
Regional Leaders: The UAE and Saudi Arabia are at the forefront of this PPP boom, driving investment and project development.
Favorable Sectors: Power, water, and oil & gas projects are particularly attractive due to their well-defined risk-return profiles, making them easier to finance.
Promising Future: A substantial pipeline of $247 billion worth of planned and unawarded PPP projects exists, led by the power, construction, and water sectors. This indicates continued strong growth in the coming years.

What Is an Example of a Public-Private Partnership?

Let’s delve into a specific example of a PPP: the Build-Operate-Transfer (BOT) model. This model is commonly used in national road construction projects. Here’s how it works:

Financing and Construction: The private sector takes the lead in financing, building, and managing the highway.
Independent Operation: The private entity operates the road without government interference, typically collecting tolls to recoup their investment over time and generate profit.
Eventual Transfer: After a predetermined period, ownership and control of the road transition back to the public sector.

This win-win scenario offers substantial benefits:

Public Sector Advantage: The government gains access to much-needed infrastructure without upfront costs.
Private Sector Incentive: The private partner earns revenue through tolls, creating a profitable venture.

The BOT model exemplifies the core strength of PPPs. It can foster collaboration between public and private sectors, ultimately contributing to infrastructure development and economic growth, particularly in developing countries.

What Are Some Types of Public-Private Partnerships? A Look at Common Models

Public-Private Partnerships (PPPs) offer a dynamic approach to infrastructure development, leveraging private sector expertise and capital alongside public sector vision. But with different models in play, understanding their nuances is crucial. Here’s a breakdown of some frequently used PPP structures:

Build-Operate-Transfer (BOT):

Private Sector Responsibility: Construction, operation, and eventual transfer of ownership to the public sector after a predetermined concession period.
Common Applications: Popular for transportation and power infrastructure projects where private sector expertise in efficiency and management is valuable.
Example: Imagine a private company building and managing a toll highway for 25 years before transferring ownership to the government.

Build-Own-Operate-Transfer (BOOT):

Similar to BOT, with a Key Distinction: Private ownership remains throughout the concession period, with ownership ultimately transferred to the public sector only upon completion.
Applications: Often used for water or waste treatment facilities where private sector involvement can enhance operational efficiency.
Example: A private company designs, builds, owns, and operates a wastewater treatment plant for 30 years before transferring ownership to the city.

Design-Build-Finance-Operate (DBFO):

Private Sector as a One-Stop Shop: The private entity takes the lead in design, construction, financing, and operation of the infrastructure.
Public Sector Retention of Ownership: Despite private sector involvement, ownership remains with the public sector throughout the project lifecycle.
Applications: Suitable for social infrastructure projects like hospitals or schools where long-term private sector expertise in operation and maintenance can be beneficial.
Example: A consortium designs, builds, finances, and operates a new public hospital for 20 years, with ownership remaining with the government.

Operations & Maintenance Contract (O&M):

Focus on Upkeep and Efficiency: A private contractor is hired solely for the operation and maintenance of an existing publicly owned asset. No private financing is involved.
Public Retains Ownership: The public sector retains full ownership of the infrastructure throughout the contract period.
Applications: Ideal for existing assets requiring specialized expertise for operation and maintenance, potentially leading to cost savings for the public sector.
Example: A private company is contracted to maintain and operate a public transportation network, ensuring its smooth functioning.

Build-Own-Operate (BOO):

Full Private Sector Responsibility: The private entity finances, builds, owns, and operates the infrastructure on a permanent basis, with no ownership transfer to the public sector.
Public Access Through Contracts: The public can access the services provided by the infrastructure through user fees or contractual arrangements.
Applications: Often used for power plants or specific urban infrastructure projects where private sector investment and long-term operational control are desired.
Example: A private company builds, owns, and operates a power plant, selling electricity to the public under a long-term contract.

Joint Venture:

Public-Private Collaboration: Both public and private entities contribute financially and share ownership of the project. Responsibilities for financing and coordination are handled jointly.
Focus on Community Empowerment: Often used for urban development projects where resident participation and long-term stakeholder value are important.
Example: A joint venture between a city government and a developer builds a mixed-use housing project with shared ownership and community engagement initiatives.

Celebrated PPP Projects in the MENA Region: Powering Progress Through Collaboration

PPPs are transforming the MENA region’s infrastructure landscape. These strategic alliances leverage private sector expertise and capital to deliver large-scale projects, fostering economic growth and enhancing public services. Here are six recent, large-scale PPP projects that exemplify the success of this collaborative approach:

New Cairo Wastewater Treatment Plant, Egypt ($150–200 Million) : A consortium of Egypt’s Orascom Construction Industries and Spain’s Aqualia (Orasqualia) won the bid for a public-private partnership (PPP) to build, operate and transfer (BOT) a 250,000 m³/day treatment plant. This is the first successful transaction under the Government’s PPP program and model for future PPPs. Regional and international investors attracted to Egypt’s PPP market
New Administrative Capitale, Egypt ($15 Billion): Creation of 20 housing complexes.
Green Hydrogen and Ammonia Plant, Morocco ($10.7 Billion): This groundbreaking project in Guelmim-Oued Noun marks a significant step towards clean energy production in Morocco. The PPP model will facilitate the development of a world-scale facility for producing green hydrogen and ammonia, promoting energy security and sustainability.
National Renewable Energy Programme (NREP), Saudi Arabia ($10.3 Billion): Aimed at diversifying its energy mix, Saudi Arabia’s ambitious NREP is a prime example of a large-scale renewable energy PPP. This program will see the construction of several solar and wind power plants with a combined generation capacity exceeding 10 GW, contributing significantly to the Kingdom’s clean energy goals.
Al-Ula Tourism Development, Saudi Arabia ($9.3 Billion): The Royal Commission for Al-Ula has embarked on a transformative PPP project to develop this historic region into a world-class tourism destination. The project encompasses the restoration and development of archaeological sites, cultural attractions, and sustainable tourism infrastructure, fostering economic growth and job creation in the region.
Al-Zour North IWPP, Kuwait ($6.9 Billion): This critical infrastructure project involves the construction of a large-scale Independent Water and Power Plant (IWPP) using a PPP model. The Al-Zour North IWPP will address Kuwait’s growing demand for electricity and desalination capacity, ensuring water security and powering future development.
Green Ammonia Production Project, Saudi Arabia ($6.5 Billion): The Public Investment Fund (PIF) of Saudi Arabia is leveraging a PPP to establish a green ammonia production facility. This project will utilize renewable energy to produce carbon-neutral ammonia, supporting the development of a sustainable hydrogen economy in the region.
Nasiriya Integrated Project & Al-Faw IWPP, Iraq (Combined Value: $12 Billion):

Nasiriya Integrated Project ($6 Billion): This large-scale PPP project focuses on the modernization and expansion of an existing oil refinery in Nasiriya, Iraq. The project will enhance refining capacity and product quality, contributing to Iraq’s energy security and economic development.
Al-Faw IWPP ($6 Billion): Another vital infrastructure project, the Al-Faw IWPP will utilize a PPP model to construct a new independent power and water desalination plant. This project will address the growing demand for electricity and desalinated water in southern Iraq.

Beyond these projects, several other noteworthy PPP initiatives are underway in the MENA region, including:

Bahrain Integrated Public Transport Network ($5.9 Billion): This project aims to develop a comprehensive public transport network in Bahrain, enhancing mobility and connectivity for residents.
Kingdom National Schools Programme: Phase 3, Saudi Arabia ($5.3 Billion): This PPP initiative focuses on the construction and development of new schools across Saudi Arabia, improving access to quality education for the nation’s youth.
Ruwais Green Hydrogen Plant, UAE: This project, currently under development, aims to establish a large-scale green hydrogen production facility in the UAE. It signifies the nation’s commitment to clean energy transition and innovation.

These projects showcase the immense potential of PPPs in the MENA region. By fostering collaboration between public and private sectors, these partnerships are driving large-scale infrastructure development, promoting economic diversification, and creating a brighter future for the region.

PPPs National Laws

The New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958, Iraq’s accession on 4 March 2021 marks an important milestone, as most countries in the MENA region (except for Libya, Somalia, and Yemen) are parties to the NYC.
The Washington Convention of 1965, which created the International Centre for Settlement of Investment Disputes (ICSID), save for Libya, most countries in MENA are contracting states.

Such Conventions are essentials to insure the PPPs reward.

PPP Laws and Regulations in Egypt

The main legal framework for PPP in Egypt is governed by:

The Public Partnership Law of 2010 (Law 67): This law outlines the rules and procedures for PPP projects. It covers various aspects, including project selection, procurement, risk allocation, and dispute resolution.
PPP Executive Regulations: These regulations provide detailed guidelines for implementing PPP projects under Law No. 67. They address specific issues related to project preparation, bidding processes, and contract management.
Public Procurement Law of 2018 (Law 182): While not specific to PPPs, this law also plays a role in the procurement process for public infrastructure projects.

Updating to the rules in place for agreeing to arbitrate or arbitrating with entities involving any “element” of the “State.”:

Prime Ministerial Decree No. 3218 of 2022 was issued to expand further the powers of the “High Committee for Arbitration and International Disputes” (the “Committee”) presided by the Prime Minister, which was established by PM Decree No. 1062 of 2019, as amended by PM Decree No. 2592 of 2020. In addition to its already broad scope, this Committee is now responsible for reviewing, drafting, and approving any contracts with a foreign investor, or any contracts including an arbitration agreement, or any amendments to such contract, or any procedure entailing termination or rescission of such contracts. The entities addressed by the said decree are “administrative authorities, inter alia, Ministries, Public Authorities, Governmental Bodies and affiliated entities, corporations affiliated to the State or where the State is a shareholder in any manner”.
The Committee is granted broad powers to intervene in how the said entities may prosecute arbitral proceedings or settle the underlying disputes, where these entities are prohibited from taking any step without referring to the Committee.
On 3 January 2024, Egypt’s House of Representatives passed a significant amendment to the Desert Land Law, enabling foreigners to own land for investment projects: The amendment explicitly allows foreign investors to acquire land for investment purposes, in alignment with the regulations outlined in the Investment Law. This amendment removes previous constraints that mandated Egyptian ownership to be at least 51 per cent of a company’s capital and limited individual ownership to a maximum of 30 per cent of its capital.
On 29 October 2023, Egypt introduced significant amendments to its Importers Registry Law through Law No. 173 of 2023, adjusting the ownership and operational criteria for entities involved in import activities for direct trading on the domestic market in Egypt: These changes include the removal of the previous 51 per cent minimum Egyptian ownership requirement for companies in the import sector, allowing wholly foreign-owned entities to engage in import operations under specific conditions.
On 27 August 2023, the President of Egypt directed the Government to implement a package of incentives, including tax exemptions, to support projects in strategic industries. As per the directives, these projects will be exempted from all taxes except the value-added tax (VAT) for up to five years. The exemption will be applied only to projects that are implemented and begin operations within a maximum period of three years, based on their size.
On 7 August 2023, the Egyptian General Authority for Investment and Free Zones (GAFI) announced the creation of a new single-approval system for projects to facilitate investments.
On July 25, 2023, the Parliament unveiled Law No. 160 of 2023 (Law 160) in the Official Gazette. This new legislation introduces significant changes to Investment Law No. 72 of 2017, aimed at enhancing the incentives offered to foreign investors, promoting widespread investment distribution across the country, and broadening the scope of eligible companies permitted to initiate, operate, and manage projects in Egypt.

PPP Laws and Regulations in the UAE

The UAE Ministry of Finance has introduced a significant change aimed at attracting private sector investment in federal government projects. Federal Decree-Law No. 12 of 2023 establishes a legal framework for PPPs across federal entities.

Key Goals of the New Law:

Encourage private sector participation in strategic development projects.
Increase investment in social and economic projects.
Enhance government efficiency in implementing strategic projects.
Leverage private sector expertise in finance, administration, technology, and knowledge.
Accelerate project delivery with added value for public funds.
Minimize financial and operational risks for the government.
Transform the management of infrastructure and public services.
Improve the competitiveness of UAE projects in local and global markets.

Alignment with Operation 300bn:

This new decree aligns with Operation 300bn, a national initiative to boost the private sector’s contribution to the UAE’s economy. Operation 300bn focuses on increasing the industrial sector’s contribution to GDP to Dh300 billion ($81.68 billion) by 2031 – up from Dh133 billion in 2021. The law complements the National In-Country Value program, which aims to increase private sector participation, diversify outputs, and localize supply chains.

Exemptions to the New Law:

Pre-existing partnership contracts.
Projects below a specified value threshold.
Public asset and service privatization projects.
Supply and procurement contracts related to national security.
Federal entities, sectors, and projects exempted by UAE Cabinet decisions.

Experts believe this new law will provide much-needed clarity and guidance for federal entities developing PPP projects. This will encourage broader participation from ministries and government entities, accelerating the exploration of PPP opportunities.

Following Dubai and Abu Dhabi’s Lead:

The federal PPP law follows similar initiatives undertaken by Abu Dhabi and Dubai in recent years. Both emirates have established regulations and dedicated units to promote PPPs within their jurisdictions.

PPP Laws and Regulations in Saudi Arabia

Saudi Arabia is opening its doors to private investment through a significant number of PPP projects. The National Center for Privatization (NCP) has approved in April 2023 around 200 development projects across various sectors like transport, housing, tourism, and healthcare. This includes building modern roads, developing entertainment areas, and privatizing major airports.

These projects aim to improve infrastructure and attract investment. Details of 140 projects are already available for local and international investors. The government hopes this will contribute to Vision 2030, a national strategy focused on economic diversification and private sector growth.

Specifically, the Ministry of Logistics and Transport is spearheading highway construction projects connecting key cities. Additionally, airports in Abha, Hail, Taif, and Al Qassim are slated for privatization and expansion. These initiatives offer significant opportunities for investors to participate in Saudi Arabia’s development.

The Saudi Public Sector Participation Law (PSP Law)

The Public Sector Participation Law (PSP Law) which took effect on July 24, 2021, is a significant development for PPPs in Saudi Arabia.

Here are the key takeaways for private investors and lenders:

Scope:

Applies to projects involving infrastructure or public service delivery with a term of five years or more. Private sector involvement includes activities like design, construction, operation, maintenance, and funding.
Projects initiated before the law’s enactment are exempt unless approved by the National Center for Privatization (NCP).

Dispute Resolution:

PPP contracts can have provisions for binding international arbitration.
The location of arbitration proceedings (within or outside Saudi Arabia) will be determined by NCP regulations.

Investor Protection:

Foreign investors are subject to the same rules and procedures as Saudi investors regarding tendering and award processes.

Project Termination:

The procuring authority can unilaterally terminate the contract “in the public interest.” However, the PSP Law allows for compensation of lost earnings to the private sector in such cases, mitigating risk for investors.

Permitting Process:

The Council of Economic and Development Affairs (CEDA) can intervene and expedite permit or approval issuance for PPP projects facing delays.

Employment and Saudization:

The NCP, with approval from the Ministry of Human Resources and Social Development, can exempt specific PPP projects from Saudization quotas.

Additional Regulations:

Implementing regulations by the NCP board will provide further details on aspects like asset transfers.
The NCP board will also determine mandatory contractual provisions for PPP agreements.
On 2 December 2022, Saudi Arabia’s Public Investment Fund (PIF) announced the establishment of the Aseer Investment Company (AIC) to promote local and foreign direct investment to develop and transform the region into a year-round tourism destination. AIC will unlock a wide range of investment opportunities for domestic and international investors across a number of sectors including tourism, hospitality, healthcare, sports, education, food, and many other fast-growing domestic industries. It will contribute to fostering public-private partnerships, creating jobs for the local community and promoting the region’s tourism and attractive investment opportunities.
The enactment of the Saudi Civil Code through Royal Decree No. 191 of 1444H in June 2023, which signifies a historic legal transformation. It takes effect on 16 December 2023, also in line with Saudi Arabia’s Vision 2030, fostering investment, economic growth, and legal development across the MENA region for a more interconnected future.
Article 17 SCCA: The third-party funding in investment arbitration is allowed.
On 22 January 2024, the Government of Saudi Arabia launched its first administrative enforcement court. The court will take up disputes between local and foreign investors who find themselves at odds with Government institutions.

Overall Impact:

The PSP Law aims to create a more investor-friendly environment for PPPs in Saudi Arabia.
It addresses concerns around dispute resolution, project termination, and foreign investor treatment.
This legal framework is expected to boost private sector participation in infrastructure development and economic diversification in the Kingdom.
The Saudi Government will be in good position to efficiently establish a clear pipeline of bankable projects to assist them in their ambitions to achieve Vision 2030.

PPP Laws and Regulations in Kuwait:

Kuwait has promulgated PPP legislation No. 116 of 2014, which contains a complete procedural and substantive framework for PPPs. PPP legislation in Kuwait considers the PPP pattern as an exception from the Public Procurement Law in Kuwait Law No. 49 of 2016.

On 14 June 2016, Kuwait’s National Assembly passed the new Public Tenders Law which governs the awarding of public investment projects. This law allows for the first time foreign companies to take part in public investment projects without a local agent as the case has been for over a half century.

On July 16, 2023, the Financial and Economic Affairs Committee passed a decision allowing foreign companies to establish branches within Kuwait and conduct operations directly, eliminating the prior requirement of a local agent. This change extends to participation in government tenders as well. Formerly, in accordance with prevailing trade regulations, foreign companies were prohibited from establishing branches in Kuwait or engaging in commercial activities without the involvement of a local agent.

PPP Laws and Regulations in Morocco:

Morocco’s new Arbitration and Mediation Code promulgated by Law No. 95-17, published in the Official Gazette on 13 June 2022, marks another significant step towards a more modern legal framework aligned with international standards. This legislation aims to attract new investments and enhance Morocco’s appeal to international businesses. The Moroccan Code of Civil Procedure of 1974 continues to apply to arbitration agreements and arbitral proceedings existing to the date of enactment of the new Arbitration Act.

Law no. 86-14 PPP, which was enacted by Dahir No. 1-14-192 of December 24, 2014, amended, and supplemented by Dahir No. 1-20-04 of March 6, 2020: the public-private partnership contract must provide for the settlement of disputes by conciliation, conventional mediation, arbitration, or court proceedings. It may provide for recourse to a conciliation procedure, prior to any recourse to conventional mediation, arbitration, or judicial proceedings.

The chapter of the Commercial Code relating to payment periods also recommends the parties to appoint a mediator in the event of disputes.

Article 43 of Law No. 20-08: the lawyers are required to encourage their clients to resort to mediation or other ADR mechanisms.

PPP Laws and Regulations in Libya:

The Libya’s new Commercial Arbitration Law No. 10 of 2023, published in July 2023, represents a significant legal milestone in Libya’s history. It aims to align with international best practices, foster economic growth and induce trust in the judicial system.

Recent Trends in MENA PPP Arbitration

The landscape of MENA PPP arbitration is undergoing a dynamic transformation. Here’s a breakdown of some key trends:

Rising Dispute Volume: We’re witnessing a surge in PPP disputes across the MENA region. These disputes often center around three main areas:

Risk Allocation: Disagreements about how risks are shared between public and private partners are becoming more common.
Legal Changes: Shifting regulations and unforeseen legal changes are leading to disputes about their impact on PPP contracts.
Force Majeure Events: Events beyond anyone’s control, often referred to as “acts of God,” are increasingly triggering disputes regarding their contractual implications particularly in an ever-globalized world where events have greater impact beyond limited borders.

Shift Towards Institutional Arbitration: There’s a growing preference for institutional arbitration over ad-hoc arbitration for PPP disputes. Established institutions like the London Court of International Arbitration (LCIA) and the International Chamber of Commerce (ICC) offer several advantages:

Neutrality and Expertise: These institutions provide a neutral forum with arbitrators experienced in PPP disputes.
Streamlined Procedures: Established rules and procedures ensure a more efficient and predictable arbitration process.

Rise of PPP Specialist Law Firms: Recognizing the complexities of PPP disputes, some law firms in the MENA region, including Youssef + Partners, are establishing dedicated PPP teams. These specialized teams offer clients in-depth knowledge and expertise in navigating the nuances of PPP arbitration.
Evolving Dispute Landscape: The nature of PPP disputes is becoming increasingly diverse. Beyond the traditional issues such as:

Contract Interpretation: Disputes regarding the meaning and interpretation of PPP contracts.
Scope Changes: Disagreements about modifications to the project’s scope and their impact on costs and timelines.
Payment Delays: Disputes arising from late or withheld payments by the government or private partner.

We are also seeing a rise in disputes related to requests for extensions of time and additional funding due to unforeseen circumstances.

These trends highlight the growing importance of robust dispute resolution mechanisms in MENA PPP projects. By understanding these trends, governments, private companies, and legal professionals can be better equipped to navigate the complexities of PPP arbitration in the region.

Arbitration as the Preferred Dispute Resolution Mechanism for MENA and GCC Public-Private Partnerships (PPPs)

When disagreements arise, arbitration stands out as the superior dispute resolution mechanism compared to traditional court litigation. Here’s why:

Confidentiality and Privacy: Unlike open court trials, arbitration upholds confidentiality. This is crucial for PPP disputes involving sensitive commercial information. Arbitration shields parties from the public disclosure of trade secrets and other proprietary information.
Expertise of Arbitrators: Parties have the autonomy to select arbitrators with specific expertise in PPPs. This ensures disputes are decided by arbitrators who understand the intricacies of these complex partnerships, unlike judges who may lack specialized knowledge in this area.
Flexibility and Party Autonomy: Arbitration empowers parties with greater control over the dispute resolution process. This includes selecting the applicable arbitration rules, the location of the hearing, and even the language used during the proceedings.
Time and Cost Efficiency: Compared to litigation, arbitration is generally faster and more cost-effective. Strict deadlines for submissions and awards, coupled with limited opportunities for appeals, expedite the process and minimize expenses for all parties involved. Strictly speaking arbitration costs and fees are costlier than litigating before national courts; however, this is typically so precisely because in arbitration, parties have the right to and the opportunity to present its arguments, experts, witnesses as it deems necessary. As a result, costs are higher because parties have the opportunity to exercise greater party autonomy and have a full day in court.
Enforceability of Awards: Arbitration awards are internationally enforceable under the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards. This is particularly advantageous for resolving disputes arising from international PPPs that involve parties from different jurisdictions.

A Look at PPP Dispute Resolution through Case Studies

PPPs offer a powerful tool for infrastructure development, but disputes can arise. By examining real-world cases, we can glean valuable insights to improve future PPP agreements.

The Egyptian’s approach:

Egyptian Court of Cassation, Challenge No. 12262 of JY 90, hearing session dated 24 June 2021 – Al Kharafi v. Libya case: The claims arising out of the issuance of a decision by the Libyan Minister of Industry, Economy and Trade by virtue of which a license previously granted to the claimant for the establishment of a touristic investment project in Tripoli, Libya, was annulled The Egyptian Court of Cassation reversed the Cairo Court of Appeal’s decision and upheld the arbitral award. The Court clarified that a nullity action is not an appeal, and annulment courts cannot conduct a review of the merits. Hence, errors in the tribunal’s assessment do not justify annulment. Prior to the Court of Cassation’s decision, the Cairo Court of Appeal decided to set aside the arbitral award for breach of the public policy rule of proportionality in the assessment of damages. The Court considered that the arbitral tribunal awarded an exorbitant compensation that is exaggerated beyond the actual harm sustained by Al Kharafi.
Egyptian Court of Cassation, Challenges Nos. 1964 & 1968 of JY 91, hearing session dated 8 July 2021 – Damietta Port Authority v. DIPCO: The investment at hand was a shareholding by KGL of 25 percent in Damietta International Ports Company (DIPCO) S.A.E., with a concession to build and operate a container terminal at the Damietta port. The claims arising out of the Damietta Port Authority’s termination of a 40-year concession contract for a port project concluded with the DIPCO consortium in which the claimant holds a stake. The BIT between Egypt and Kuwait was applicable.

The Court of Cassation held that BOT contracts fall within the category of administrative contracts, if it meets three conditions: it must be concluded by a public entity, have as its object the establishment, operation or maintenance of public utilities (Arabic: marāfiq al-’āmma, corresponding to the French notion of services publics), and must provide the public entity with exorbitant powers beyond those ordinarily available to private parties. The administrative courts have exclusive jurisdiction over disputes involving administrative contracts pursuant to Article 10(11) of the State Council Law no. 47/1972.

The Court of Cassation held that the award violated Egyptian public policy in deciding on the validity of an administrative decision. This was perceived as an encroachment on the jurisdiction of administrative judiciary of the State Council (Conseil d’Etat), which is exclusively entrusted with the competence to consider the validity of administrative decisions/decrees.

The Saudia Arabia’s Case: Based on the available information, we are not aware of any decision in which Saudi Arabia has been condemned. The cases that have been decided thus far have been ruled in favour of Saudi Arabia, while there are still pending cases yet to be resolved. Thus, it would be difficult to assert the exact attitude taken by Saudi Arabia against the enforcement of awards made against it.

The UAE’s Approach: In January 2022, the Abu Dhabi Court of Cassation annulled an arbitral award as the arbitrator had accepted the appointment without revealing previous employment with the claimant’s legal representative’s firm.

Queen Alia Airport, Jordan: This case highlights the importance of clear and unambiguous contract language. Disputes arose due to vague provisions concerning concession agreement terms and profit sharing percentages. This emphasizes the need for meticulous contract drafting to avoid future misunderstandings.

Lusail Light Rail Transit, Qatar: This project underscores the risks associated with delayed payments and shifting project scopes. The dispute highlights the importance of robust “variation clause” provisions, which allow for adjustments due to unforeseen circumstances, and clear interim payment schedules to maintain project cash flow.

Legal Considerations for MENA PPP Contracts and the Role of Expert Advisors

PPP contracts in the MENA region present a unique set of legal considerations. Here are some key areas demanding meticulous attention:

Balancing Interests: Crafting a contract that fairly balances the risk-reward profile between the public and private sectors is paramount. This includes addressing issues like project financing, risk allocation, and dispute resolution mechanisms.
Regulatory Landscape: The legal framework governing PPPs can vary significantly across MENA countries. In-depth knowledge of the specific regulations within each jurisdiction is essential for ensuring compliance and avoiding potential pitfalls.
Contract Clarity: Ambiguous language in PPP contracts can be a recipe for future disputes. Expert legal advisors can ensure meticulous drafting, leaving no room for misinterpretation of rights and obligations.
Long-Term Vision: PPP contracts are often long-term commitments. Anticipating potential changes in circumstances, such as technological advancements or market fluctuations, requires foresight and careful legal structuring.

The Essential Role of Legal Advisors:

In this intricate legal environment, the role of expert legal advisors becomes indispensable. Here’s how they provide invaluable support:

Structuring the Deal: Skilled advisors can assist in structuring the PPP agreement to meet the specific needs of the project, ensuring a balanced allocation of risks and rewards.
Negotiation Expertise: Negotiating PPP contracts requires a deep understanding of the legal landscape and the ability to advocate effectively for your client’s interests.
Risk Management: Anticipating and mitigating potential risks is crucial for the success of any PPP project. Legal advisors can identify potential risks and develop strategies to address them.
Dispute Resolution: Should disputes arise, experienced legal counsel can guide clients through the chosen dispute resolution mechanism, maximizing the chances of a favorable outcome.

By partnering with experienced legal advisors like Y+P you can navigate the complexities of MENA PPP contracts with greater confidence. This collaborative approach is key to ensuring the success of these vital infrastructure development projects, fostering economic growth and progress throughout the region.

Conclusion

PPPs are transforming the MENA region’s infrastructure landscape by leveraging private sector expertise and capital. These partnerships are fostering economic growth, enhancing public services, and delivering large-scale projects. With a growing legal framework and increasing private sector participation, PPPs are expected to play a vital role in the region’s future development.

FAQs

What are some of the recent PPP trends in the MENA region?

Recent trends in MENA PPPs include:

A rise in the volume of disputes, often centered around risk allocation, legal changes, and force majeure events.
The impact of COVID-19 on projects, leading to disputes related to delays, cost overruns, and extensions.
A growing preference for institutional arbitration for dispute resolution.
The emergence of PPP specialist law firms in the region.

What are the main reasons PPP disputes happen?

PPP disputes can arise from unclear division of risks between public and private partners, changes in laws, or unforeseen events like natural disasters.

What are the PPP laws in Egypt?

Egyptian national PPP law approve and encourage contracts with foreign investor by enabling foreigners to own land, facilitating import activities for direct trading on the domestic market, decreasing taxes or by creating a new single-approval system for projects.

What are the PPP laws in Saudi Arabia?

Saudi Arabia’s Public Sector Participation Law (PSP Law) allows private investment in infrastructure projects over 5 years. It offers international arbitration for disputes and protections for foreign investors.

What are the PPP laws in UAE?

A new UAE federal law encourages private participation in government projects by providing a clear legal framework for PPPs. This aims to boost infrastructure development and economic growth.