Regulating public-private partnerships for nation’s benefit

With Saudi Arabia continuing to seek ways to boost investment and expand its economic base, perhaps it is important to outline the terms and conditions, and importance, of privatization measures. This includes regulations overseeing public and private partnerships, encompassing the duration and termination of such contracts.

The regulations define public and private partnerships, or PPP, as contractual arrangements linked to develop infrastructure or a public service, resulting in a relationship between the government and a private party for five years or more. Such contracts or agreements are put in place to oversee the design, construction, management, operation, maintenance, or financing of assets, whether these assets are owned by the government, a private party, or both. An important feature of this type of contractual arrangement is to distribute the risk evenly between the two parties, to protect the common interest. Moreover, any financial agreement must ensure that the parties agree to certain performance criteria and obligations.

In addition, all PPP contracts, whether they are renewed or not, should ideally not exceed 30 years. However, a contractual term beyond 30 years can be approved by the competent authority’s executive. A PPP contract, and its subsidiary agreements, can be unilaterally terminated by the competent authority before the expiry of its terms, under certain conditions.

The criteria for the unilateral termination of a contract includes the private sector party violating its terms, or failing to meet agreed-upon levels of quality. However, final termination can only take place if remedial measures instituted to remedy any infractions are not implemented. Contracts can also be terminated if the private party is declared bankrupt, is liquidated and, of course, if the agreement no longer benefits the public.