The National Center for Privatization & PPP ("NCP") Board of Directors has approved the Private Sector Participation Law Implementing Regulations (the "Implementing Regulations"). The Implementing Regulations are now a major component of the regulatory framework governing private sector participation ("PSP") in projects in the Kingdom of Saudi Arabia, which also includes the Private Sector Participation Law (the "PSP Law"), and the PSP Governing Rules.

The PSP Law, which came onto force on 24 July 2021, was promulgated by Council of Ministers' Resolution No. 436 dated 3/8/1442H (corresponding to 16 March 2021) and Royal Decree M/63 dated 5/8/1442H (corresponding to 18 March 2021). It made important changes to the legal and regulatory environment in which PPP and divestment projects are undertaken in the Kingdom, in order to facilitate the implementation of the "Privatization Program (Delivery Plan 2020): A Saudi Vision 2030 Realization Program" (the "Privatization Program") forming part of the "Vision 2030" plan.

Although the Kingdom has a history of implementing public-private partnership ("PPP") and divestment projects, the PSP Law is the country's first formal law governing PSPs. The Implementing Regulations provide important additional details to give substance and clarity to the PSP Law. Developed according to international best practices informed by local experience, the Implementing Regulations contain various provisions, including provisions governing the value thresholds for PSP projects; the identification, prioritisation, analysis, tendering, awarding and closing of such projects; the duties and powers of the contracting authority; local content requirements; and anti-monopoly provisions. These regulations replace the Privatization Projects Manual and the Rules of Conduct of the Supervisory Committees of Privatization Targeted Sectors.

Key provisions

The Implementing Regulations give substance to and implement the PSP Law. Important provisions include:

  • Five general principles for the procurement of PSP projects: The Contracting Authority and its various sub-teams are required to exercise their tasks and powers on the following principles – fairness; transparency; contractual enforceability; planning scrutiny; and the identification of achievable outcomes and economic benefits.
  • Four procurement routes: The Implementing Regulations permit the procurement of PPP and divestment projects by four methods - public competition, limited competition, direct contracting and unsolicited proposals. Each of the latter options is contingent on the unsuitability of the previous options respectively, or a failure to identify a suitable bidder through a previous procurement process using one of the previous options.

PSP project procurement routes

  • Under Article 69 of the Implementing Regulations, the default route for the procurement of PSP projects is public competition, except were the Implementing Regulations make specific allowances.
  • A PSP project may be tendered through a limited competition for one of three reasons:
    • the presence of no more than three qualified bidders globally who possess the means to implement the PSP project;
    • the failure of a public competition process to produce qualified or preferred bidders; or
    • the existence of a certain and unexpected threat to the public, or where there is a breach that threatens life or property, or the cessation of public service provision, which cannot be dealt with through public competition procedures.
  • Invitations to bid shall only be sent to the bidders listed in the decision approving the use of the limited competition method.
  • A PSP project may be tendered through the direct contracting method for one of four reasons:
    • the existence of a certain and unexpected threat to the public, or where there is a breach that threatens life or property, or the cessation of public service provision, which cannot be dealt with through public or limited competition procedures;
    • the limited competition process failed to produce a successful agreement with any bidder or no Statements of Qualification (SOQs) or proposals were received and it is likely that no SOQs or proposals would be received if the project was re-tendered;
    • there is only one qualified person that possesses the technology or technical capacity necessary to implement the project; or
    • the project requires the use of intellectual property rights (such as patents) owned by a single party, and there are no alternatives for such intellectual property rights.
  • Value thresholds: The Implementing Regulations set minimum value thresholds for a project related to infrastructure or public services to be subject to the PSP Law. For a divestment project, the minimum value of the project shall be 50 million (50,000,000) riyals (13,330,500 USD), calculated on the basis of the Contracting Authority's estimated value of the asset. The value threshold of a PPP project shall be 200 million (200,000,000) riyals (53,322,300.00 USD). The value of the project is calculated based on the projected total nominal value for the term of the PPP project as estimated by the Contracting Authority, which can be satisfied by any one of three independently calculated thresholds.
  • PSP project prioritisation: Based on a number of factors, potential projects are defined as either Key PSP Projects, Main PSP Projects or Supportive PSP Projects, in descending order of priority.
  • NCP Board of Directors and Ministry of Finance involvement: Both the NCP Board of Directors and the Ministry of Finance play a key role in approving and facilitating the success of the PSP project prepared by the relevant Contracting Authority. The Implementing Regulations outline the steps required to receive such approvals. There is also the option to request pre-approvals if necessary to expedite the implementation of a PSP project.
  • Business case documents: The Work Team responsible for the PSP project (reporting to a Steering Committee and a Supervisory Committee) must produce a detailed study of the PSP project containing an analysis of affordability, value for money and contracting options. It shall consider: the project's objectives and their fit within the sector's objectives; the current state of the asset or service; the risks of the project; alternatives to the project; costs; the financial impact; the potential for a public offering on the Saudi Capital Market; and possible local content requirements.
  • Implementation plan: Subject to the approval of the business case documents, a detailed implementation plan shall be prepared, which shall include a procedural work plan and a Tendering Plan. The latter shall include a summary of the PSP project containing why it is required, its objectives, technical elements, details of risk allocation and the contracting model. It shall also include: the expected market for the project; necessary preparations, mechanisms, methodologies and a timeline for tendering; the evaluation.
  • Tendering phases: Tendering of PSP projects through a public competition shall occur in three phases – the Expression of Interest ("EoI") phase, the Pre-qualification Phase, and the Request for Proposals ("RFP") phase. These phases can be merged if there is a suitable case for doing so, but there are minimum lengths of time for all phases, depending on whether they are merged or not.
  • EoI phase: The requests for EoIs shall contain a summary of the PSP project and its expected schedule, information on how and when the EoI must be submitted, and a statement that the Request for Qualifications ("RFQs") shall only be sent to those who have expressed an interest. The EoI phase shall last at least 14 days, in most cases.
  • Pre-qualification phase: The RFQ shall be issued 10 working days after the publishing of the list of those who expressed an interest. It shall contain various pieces of information, including: the RFQ timetable and the preliminary project timetable; the deadline for the submission of the Statements of Qualification, which in any event shall not be less that 28 days following the first working day after the issuance of the RFQ; requirements to be contained within the SOQ; the pre-SOQ inquiries process; a description of the PSP project; and the evaluation criteria and methodology.
  • RFP phase: The RFP shall be issued 10 working days after the announcement of the qualified bidders. It shall include, amongst other things: a description of the role of the RFP in the bidding process; a timeframe for implementing the PSP project; an overview of the PSP project including its objectives, financial assumptions, expectations, due diligence process and (where applicable) its contracting model; the clarifications process; the requests for extensions process; submission details; the deadlines for submission; the evaluation criteria and methodology; the validity period of proposals (which must be at least 180 days); and a draft PSP Contract and any other documents. The Contracting Authority may also issue the RFP in two stages – either to receive feedback on the former before issuing another RFP, or to receive non-binding preliminary proposal followed by a final proposal.
  • Evaluation of proposals: The Implementing Regulations contain a comprehensive list of elements that must be considered within the evaluation criteria when evaluating the technical and financial proposals of the bidders. The technical proposals shall be evaluated first. The financial proposals of the parties whose technical proposals are preferred will then be evaluated. A report of the recommendations shall be prepared.
  • Award, commercial and financial close: The preferred bidder and reserve bidders will receive notification of their status. The Contracting Authority will request approval for awarding and signing the contract. The contract may be signed before the creation of the Project Company and its effectiveness will be dependent on the achievement of financial and commercial close.
  • Marketing of PSP projects: The Contracting Authority may launch a marketing campaign for the PSP project before initiating the tendering process both inside and outside Saudi Arabia.
  • Unsolicited proposals: the Government will allow unsolicited proposals to assist them with achieving their aims. The Implementing Regulations explicitly state that the Government believe allowing unsolicited proposals will allow them to find innovative solutions, encourage private sector-led initiatives and increase the number of projects that can be studied, tendered and implemented.

Unsolicited Proposals under the Implementing Regulations

  • Section 7 of the Implementing Regulations sets out the regulations in relation to Unsolicited Proposals.
  • To submit an Unsolicited Proposal, the following conditions must be met:
    • the Unsolicited Proposal must be in a sector that has a PSP Plan;
    • the Unsolicited Proposals must not be based on the request, participation, supervision or guidance of a governmental entity;
    • Unsolicited Proposals must include innovative solutions;
    • Unsolicited Proposals must achieve value for money, if applicable; and
    • The unsolicited bidder submitting an Unsolicited Proposal must not be a government entity or government employee, or an Advisor appointed for the purpose of providing advisory services in relation to infrastructure or public service projects.
  • An Unsolicited Proposal must include a detailed study; information on the innovative solutions, intellectual property rights, the unsolicited bidder, the impact on the Government and their expected contribution, and the costs of preparing the proposal; and a justification on why the Unsolicited Proposal should be studied, amongst other things.
  • The Contracting Authority is under no obligation to study and consider any Unsolicited Proposals. Within 30 working days from receiving the Unsolicited Proposal, the Contracting Authority may decide to study it or return it unopened with an explanatory written statement.
  • The review of an Unsolicited Proposal will be completed within 90 days. The Contracting Authority may request a reasonable fee to study the Unsolicited Proposal.
  • Unsolicited Proposals must:
    • be in line with the Implementing Regulations and the relevant sector's PSP Plan;
    • be affordable and value for money;
    • reflect standard market parameters and risk allocations; and
    • not contain any technical, financial, legal or regulatory or environmental, social issues which are not resolvable.
  • If the Unsolicited Proposal is approved for tender, the project will be put to tender.
  • The unsolicited bidder will not receive any advantages in the tendering processes except for being granted qualified status without having to provide an SOQ.
  • If the unsolicited bidder is not awarded the contract after the tendering process, they may be compensated for their direct and reasonable costs of preparing and submitting the initial Unsolicited Proposal. The Contracting Authority has the discretion to request the preferred bidder pay such compensation to the unsolicited bidder.
  • Local content: The relevant authorities will liaise to identify local content requirements and assess the potential for such requirements to negatively affect investors' interest, to cause an unsuccessful tender or to increase the risks on the government. Only after such an assessment will a decision on local content requirements be made.
  • Fair competition and the limitation of monopolies: The Implementing Regulations set out clear assessment criteria to ensure there is fair competition and monopolies are avoided as a result of the implementation of a PSP project.
  • Project company: The Contracting Authority may, in its discretion, mandate that the preferred bidder set up a project company in the Kingdom of Saudi Arabia to implement the PSP project.

Analysis and Conclusion

The Implementing Regulations provide significant detail into the processes to implement and procure PSP projects under the PSP Law. They clearly outline the comprehensive procedures required to assess, identify and implement PSP projects, giving the private sector comfort that projects that come to market have been specifically chosen based on a meticulous selection process featuring legal, regulatory, technical and financial analyses. This should help build an attractive environment for investors and provide sufficient comfort to the private sector when bidding for such projects.

The existence of multiple avenues for procurement depending on the nature of the project, including unsolicited proposals, the clarity surrounding the tendering, evaluation and awarding processes and the possible flexibility with local content requirements and the location of establishment of the project company all suggest the Saudi Government is keen to attract substantial private investment. This appears to align with various other strategies designed to turn the Kingdom into a main destination in the region for foreign investment.

Together, the Implementing Regulations and the PSP Law represent Saudi Arabia's commitment to fostering a productive environment for PPP and divestment projects in the Kingdom, built on proper due diligence at every stage of the project lifetime, transparency, flexibility and rigorous selection processes. By producing such a comprehensive framework, 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.

This article was authored alongside Al Ghazzawi Professional Association, our strategic partner law firm in Saudi Arabia.