The new PPP law

A turning point for infrastructure investments in Lebanon?

Previous experience in a number of countries has proven that public-private partnerships (PPP) are an efficient method for developing long-term infrastructure projects. Under a PPP model, the government remains focused on its primary regulatory role, while the private sector injects funds and expertise into developing projects for the benefit of the government and, ultimately, the public. One of the main factors of a successful PPP is the existence of a legal regime based on the principles of transparency, competitiveness, and accountability.

After a decade of delays, the enactment of Law No. 48 on  September 7, 2017 will undoubtedly create new prospects for the implementation of PPPs in Lebanon for both existing and future projects. The enactment of the law cannot be dissociated from the upcoming international donors conference, Cédre, which is scheduled for April 6 in Paris for the purpose of supporting the Lebanese economy, and in particular for the financing of infrastructure projects in Lebanon—expected at around $16 billion over a period of 10 years.

The law introduced a new legal regime for PPP projects in Lebanon, replacing the traditional procurement processes, which suffered from weak transparency, competitiveness, and accountability standards. The PPP law renames the “High Council for Privatization,” a ministerial committee, to the “High Council for Privatization and PPP,” and grants the council the power to assess and evaluate potential PPP projects. Once a PPP project is identified by the council, a PPP project committee will be established to study the technical, economic, legal, and financial aspects of the project, and to determine the criteria for qualifying the private partner. The PPP law stipulates the main mandatory provisions that must be included in the PPP agreement governing the contractual relationship between the public and private parties, and defines the procedures that should be applied by each party and their obligations. Therefore, the private partner is provided with sufficient clarity and visibility on the implementation of the project.

In addition, the PPP law provides that the private partners must submit both a technical and financial proposal, and that at least three offers will have to qualify, or the project will be reopened for another round of bidding, ensuring equality among the bidders and creating fair competition. Moreover, it is worth nothing that the appointment of experts and consultants to support a PPP tender may be based either on the provisions of the Lebanese Public Accounting Law or, if available, the relevant internal regulations of the High Council for Privatization and PPP, or the relevant state authority that is involved in the tender. This possibility provides for additional flexibility in terms of developing the necessary tender resources.

Private sector knowhow

The PPP law is expected to create a favorable environment for the private sector to invest in infrastructure projects in Lebanon. The private sector will be keener to enter into partnerships with the Lebanese government and to provide much-needed funding when the partnership is governed by a strong legal framework that protects their interests. In this respect, the country will benefit from the private sector’s knowhow and managerial skills, contributing to the efficient development of infrastructure projects in Lebanon. In addition, the adoption of the PPP law will play an important role in attracting foreign investments and international funding opportunities. And most importantly, PPP projects are expected to create job opportunities in various sectors in Lebanon, and hence ultimately increase revenues and stimulate economic growth.

Nevertheless, the PPP law includes certain gaps that must be bridged. For example, the law does not provide for a specific time frame between a PPP project proposal and the signature of a PPP agreement between the parties, which may discourage the private sector if the process is unreasonably lengthy. In addition, the law does not deal with PPP financing, although this is a crucial element in large-scale and long-term projects. Moreover, there is no local content requirement, like a provision requiring PPP projects to employ a minimum percentage of Lebanese nationals. In addition, the law does not stipulate that the PPP agreement should include stabilization clauses that consist of contractual clauses to protect the private party from any future changes in legislation after the execution of the contract with the public party, which are considered an important protection mechanism for the private partner against the discriminatory power of the government. Foreign investors will certainly request the insertion of such clauses to protect their investments from unexpected changes in applicable laws after they inject large capital and invest skills and intellectual property in the development of a PPP project. 

There is a substantial need for the development of infrastructure projects in Lebanon in various fields: water, electricity, waste management, healthcare, and many others. The new law is largely compliant with international standards and provides the private sector with a basic framework to enter into PPPs, and hence, increase private investments in infrastructure projects. However, the gaps highlighted above should be urgently addressed by the Council of Ministers through regulatory decrees, which will, along with the law, constitute a comprehensive legal framework for PPPs in Lebanon.

Malek Takkieddine is a Lebanese lawyer working with international energy companies in the MENA. He lectures on oil and gas law at the Lebanese American University.

Maryline Kalaydjian is a Lebanese lawyer who works on corporate and banking matters as well as M&A transactions in Lebanon and the GCC. She assisted international oil and gas companies in the first offshore licensing round in Lebanon.

2 Comments

  1. Fuad Jawad said:

    However, the article did not address the following:
    – The Role of the State in any given PPP project(s)?
    – The responsibility on the cost of FEED?
    – The inclusion of the State in the Fund(s) necessary to the commissioning of the project(s)?
    – How can we apply the new PPP law to the Upstream sector of Lebanon’s Oil & Gas project(s)?
    – How do we preserve the PPP law from being infected by the special-interest group(s) in Lebanon?
    – To be continued…

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