Issuance of the Private Sector Participation Law in Saudi Arabia

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The Saudi Press Agency announced today the approval of the long-awaited Private Sector Participation Law (PSP Law), making Saudi Arabia the latest country in the region to have adopted legislation governing public-private partnerships (PPPs). Although Saudi Arabia has long implemented PPPs and privatisation projects, prior to today no formal laws specifically governed PPPs. Such projects historically fell under the ambit of the Government Tenders and Procurement Law, when not specifically exempted. Today, for the first time, PPP and privatisation projects fall under their own legal framework.

The PSP Law aims to modernise the Saudi economy by targeting 16 sectors for privatisation with a goal of increasing the private sector's contribution to GDP from 40% to 65%. It seeks to increase private sector participation in infrastructure projects, provide public services through private enterprise, privatise public services, promote PPPs, reduce government spending and develop procedures for implementing PPP and privatisation (PPP&P) projects, all while promoting transparency, fairness and integrity in PPP&P contracts.

The issuance of the PSP Law follows the 2018 publication of the draft Private Sector Participation Law, which sought to attract foreign investment in Saudi Arabia’s infrastructure projects, and the 2017 launch of the National Centre for Privatisation & PPP (NCP). The NCP was established to enable privatisation and public-private partnerships under Saudi Vision 2030 by formulating regulations, creating privatisation frameworks, preparing government assets and services identified for privatisation, and developing an efficient privatisation process that targeted sectors will follow to solicit and engage private sector participation, as well as promote opportunities domestically and internationally.

The PSP Law has not yet been published but, like most laws that are issued following the publication of a draft law, it is expected to generally reflect the principles of the draft Private Sector Participation Law (draft PSPL). It is expected that the PSP Law, like the draft PSPL, will offer a series of exemptions for projects and companies falling within its application. Among the most notable of these is the exemption of PPPs and sale of asset projects from the application of the Procurement Law. Similarly, as an exception to the Law of Real Estate Ownership and Investment by Non-Saudis, if approval is granted by the Council of Ministers in private sector participation projects, non-Saudis may own real estate in whole or in part, except for properties located within the boundaries of the cities of Makkah and Medina. The draft PSPL also permits exemptions from the Labour Law and from Saudisation requirements in relation to certain PPP projects in the Kingdom.

The Saudi Press Agency announced that the PSP Law provides a framework for the public sector to participate in project companies while protecting the rights of private owners. Moreover, the NCP is targeting specific public sectors for privatisation while launching a pipeline of PPP&P opportunities and initiatives that will open state-owned enterprises to the private sector.

The PSP Law is certain to attract foreign investment and facilitate Saudi Arabia’s ambition to launch the region’s leading projects in tourism, industrial development and environmental sustainability, including the Red Sea tourism development project, the incubation of an indigenous military manufacturing sector and the launch of the smart city of NEOM, designed to be a model for sustainable living.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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