Dubai enters a new phase of development

|By K Raveendran| With the new Public-Private Partnership law having come into being last month, Dubai is set to witness a new phase in its development, as private investments begin to flow into further development of the emirate’s infrastructure.

This would mean the private sector directly getting involved in projects like airport expansion, extension of the Dubai Metro and similar infrastructure projects and sharing the risks in such investment. This could not have come at a more opportune time, with the oil price crash dampening the economic outlook throughout the region.

Kuwait and Bahrain already have public-private partnership projects in operation, but doubts have been expressed whether these projects have produced the desired results.

The first project to be taken up under the Dubai public-private partnership scheme is the development of the Union Square station plaza, which envisages the construction of a number of towers above the station.

The introduction of the new law removes the need for project-specific legislation for entities and for the government to act as guarantor for projects, as has been the case with the limited private finance rules that currently cover the power and water sector. The new law is not applicable to both the sectors.

“This is an exciting development for Dubai and will play an important role in boosting investment in the local infrastructure sector,” says Wissam Moukahal, Executive Chairman at Macquarie Capital Middle East. Macquarie has been involved as financial advisor in a number of path-breaking projects, including a sewage project in Bahrain and a major project of Abu Dhabi Water and Electricity Authority.

He said utilising PPP procurement models has globally been found to improve the quality and quantity of infrastructure delivery and his firm as financial advisors with a keen interest in the sector is looking forward to the pipeline of projects adopting the new law. The move by Dubai is certainly a positive shift in the momentum in terms of accessing private sector expertise and capital by regional governments, he added.

“The New PPP Law is a positive development for Dubai and forms a good basis for PPPs in the emirate,’ prominent legal firm Ashurst said in an analysis. It demonstrates to the private sector that Dubai is ‘open for business’ in relation to PPPs.

Although some of the content requirements of project contracts will need clarification going forward, overall, the New PPP Law is clear and well thought out and a welcome new avenue for the creation of new infrastructure in Dubai, the firm pointed out.

Abdul Mohsin Younes, CEO of Strategy and Corporate Governance at Dubai’s Roads and Transport Authority (RTA), points out that risk transfer in the value for money argument is one of the key factors in favour of public-private participation. He feels that the risks are better managed by the private sector, with the result that the costs will be lower compared to the public sector.

PPPs do have their own challenges including, possible longer and more expensive procurement processes, higher cost of private funding, and a shift in the role of the public sector from execution to contract management.