A New Era For Kuwaiti PPPs?

The new Kuwait public-private partnership (PPP) law, Law No. 116 of 2014 (New PPP Law) came into full force and effect last week. This briefing discusses how the New PPP Law and its executive regulations have reformed the legal framework in order to help facilitate the procurement of PPP projects in Kuwait.

A roadmap for change

In mid-2014, Kuwait passed the New PPP Law. However, other than the introductory provisions, the New PPP Law did not come into full force and effect until the publication of the law's executive regulations (Implementing Regulations) which took place on 29 March 2015.

The legal framework under the New PPP Law is aimed at overcoming challenges faced to date in procuring PPP projects in Kuwait, clarifying the law, and bringing it better into line with international standards. The old PPP law (Law No. 7 of 2008) (Old Law), which is now repealed by virtue of article 45 of the New PPP Law, set out a framework for PPPs but was subject to a number of issues, including:

a IPO requirement for public joint stock companies, with issues related to timing of the IPO and unsubscribed shares; restrictions that limited an investor's ability to grant security to the project's lenders; and a restriction on the amendment, renewal or extension of a project. The New PPP Law seeks to address these issues and to embody the lessons learned from the recently closed Az-Zour North independent water and power project phase 1, so as to provide a roadmap for the implementation of future headline projects in Kuwait. The New PPP Law is also designed to attract more private sector investment into Kuwait.

Attracting investors

The New PPP Law places an emphasis on the principles of transparency, openness, freedom of competition and equality of opportunities, all of which will be welcomed by investors. This over-arching philosophy translates into more investor-friendly provisions in the New PPP Law, particularly in relation to attracting financing.

The Old Law inhibited the use of non-recourse or limited recourse financing in some respects: prohibiting mortgages on project company assets and limiting assignment rights; undermining the ability of lenders to take viable security packages; and restricting the use of lender direct agreements. In a significant step towards making Kuwait PPP projects more attractive to foreign investment, Article 23 of the New PPP Law affords rights for an investor to grant security over the project contracts and assets to lenders, including a share pledge within...