State of Kuwait seeks to create appropriate investment climate through suitable investment opportunities that allow the attraction of private equity, up-to-date technology and knowledge by implementing strategic projects based on Public Private Partnership (PPP) schemes. In addition to providing citizens with opportunities to participate in such project, promote savings and realize additional income sources.
In this connection, State of Kuwait enacted Law No 116 of 2014 regarding Public Private Partnership (PPP) on 23rd July 2014. The Law was published on the official gazette “Kuwait Al-Youm” on volume No. 1197 dated 17th August 2014.
Issuance of such a Law is a logical development to treat certain gaps in Law No. 7 of 2008 concerning regulation of B.O.T, and other similar schemes, and certain provisions of Law Decree No. 105 of 1980 regarding State Property.
The Law contains 48 articles, where Article (46) thereof obliges Minister of Finance to issue the Executive Regulations within 6 months from the publishing date thereof on the Official Gazette.
Law No 116 of 2014 regarding Public Private Partnership established a set of new criteria that can be summarized as follows:
1. Correction of generic title of the law:
The Law was titled Public Private Partnership. It pointed out that B.O.T. and all other similar schemes are types of schemes that fall under the title “Public Private Partnership” scheme.
2. Formation of Supreme Committee on PPP projects and defining its functions:
Article (2) of the Law sets out the formation of Supreme Committee on PPP Projects and defines its functions. Such Committee shall replace Supreme Committee on Projects constructed on the State’s real estate properties, which was formed pursuant to Decree No 145 of 2008. It shall undertake functions and powers of the Authority Board of Directors.
3. Creation of a Public Authority named PPP projects authority and defining its functions:
Article (4) of the Law sets out the creation of such authority, which shall replace “Partnerships Technical Bureau”, in order to legalize the status of the entity that will offer partnership projects given its multiple technical, preparatory, or executive responsibilities.
4. Regularization of the status of projects existing prior to effective date of the law:
Article (7) of the Law addresses the contracts concluded in accordance with the partnership scheme prior to the effective date of the Law emphasizing its implementation. Thereof as per the terms contained internally and in order to maintain stability of existing legal positions and apply the basic principle of “pacta sunt servanda” or “the consent makes the law”; provided that such contracts shall be terminated upon expiry of the term thereof as set forth in the respective contract and may not be extended or renewed in violation of the provisions of this Law.
5. Offering PPP projects with total cost not exceeding KD 60 million through competition. An investor may hold the entire share capital of the project company:
Article (12) of the Law handles the PPP projects with total cost not exceeding KD 60 million where it assigns the Authority to cooperate with the public entity in offering such projects through a competition among the investors interested in investing in the project. The successful investor may incorporate the project company or consortium company.
It is self-evident that the successful investor or consortium in this case will hold the entire share capital of the project company.
Needless to mention that the provision permitting the successful investor to solely incorporate the project company and possess its entire capital is an exception to the basic rule set forth under Companies Law No 25 of 2012, as amended, concerning the minimum number of incorporators and shareholders in a shareholding closed company. The same provision shall apply to the consortium company if the parties to the consortium are less than the minimum limit required for incorporating and holding the entire share capital of via closed shareholding company in accordance with Companies Law.
6. Empowering PPP projects authority to subscribe for the share allocated to the citizens:
Article (14) of the Law sets forth that the Authority shall subscribe for the share allocated to the citizens pending the project operation, particularly that the project is not expected to generate any revenues before this. The Authority is also authorized to subscribe for the share allocated to public bodies in order to maintain integrity of the company’s capital and eliminate obstacles hindering the incorporation of public shareholding companies, and hence determine the method whereby such shares shall be distributed after subscription by the Authority and when the project is in operation.
7. Council of Ministry is authorized to make decisions on offering certain projects with cost not exceeding KD 250 million through competition:
Article (16) of the Law allows Council of Ministers to make decisions on offering certain projects with cost not exceeding KD 250 million through competition instead of incorporating a public shareholding company. This is an exception to the provisions of Article (13) of this Law in order to provide more flexibility in involving the private sector to contribute to investment projects of private nature.
8. Increasing the contract term to 50 years:
Article (18) of the Law fixes the maximum term of the contract to fifty years. Such term shall be calculated effective from the completion date of construction and fit-out works.
9. Premium initiatives and projects:
Article (20) of the Law sets a specific mechanism for the benefits that the concept originator would obtain. Such benefits are dependent on the concept nature if it is determined to be a distinct initiative or project.
10. Intellectual property rights are reserved for the concept originator:
Article (22) of the Law reserves intellectual property rights for the concept originator. It also reserves the State’s right to benefit from such concepts.
11. Project financing:
Article (23) of the Law has primary significance as it permits the investor to adopt the financing methods set out therein including pledge of proceeds and shares held by them through creating the necessary guarantees to finance and execute the project.
This Article includes a provision stating that the borrowing amount may not exceed the percentage specified in the project documents as well as not exceeding the period set for the project or the remaining period thereof. It is also prohibited to pledge or sell the land on which the project is constructed.