Rami Abu Alroz


Omar Alsulaimani


The Saudi Legal Regime for Privatization

Published on
December 13, 2022
Updated on
December 13, 2022
Read time
10 min read

Leveraging volume of contribution by private sector to the gross domestic product (GDP) of Saudi Arabia has been an imminent goal of the Kingdom. Infrastructure necessary for achievement of this goal has been implanted all over the newly adopted policies and measurements, in the recently enacted laws and regulations and in the majority of the modernization and reform initiatives recently done to several existing laws and regulations. The law reform has been effectively used as a tool towards leveraging of private sector contributions to the local GDP.

As one of the direct reflections of the Saudi targeting of increase of private sector contribution, privatization of public utilities operation burdens to be done through private sector channels is a plan that can not be missed. The tendency is not a matter of improvisation, the Saudi attitude towards more demand on private-public-partnership patters was a result of numerous studies and planning that altogether have recently materialized into a strategic end. The strategy was clearly engraved into the second part of the Saudi 2030 Vision literature ‘A Booming Economy’, with privatization has been named as one of the Vision’s achievement programmes.

Photo by Quang Nguyen Vinh

What has been previously written is not a matter of scattering words onto some sheet, but rather a fact that is witnessed in several privatization initiatives today, with many other projects are already in action, and several other projects are to be introduced in the foreseen future.  

The opportunity offered to local and foreign investors is really huge, and for those interested -whether a public or private sector player- this article is focal as it sheds light on the main law references having essential connection with the privatization regime of the Saudi Arabia.

By scanning the relevant legal framework components, laws that are relevant to privatization can be generally categorized into two groups of inherent characteristics. Matters listed under the first group are the laws that deal with the idea of ‘privatization in an abstract sense, without regard to nature, inherent sector and scope of the involved projects, while the second group focuses on the particular merits of nature, sector and scope of each privatization initiative.

First Category: The Legal Framework Regulating Privatization Generally Without Regard to Factors of Scope, Related Sector and Nature of The Privatization Projects

Laws under this category address privatization generally without regard to the specific characteristics of each individual project. The main purpose of these laws is to control privatization projects -whether in form of a ‘private public partnership’ model or ‘transfer of publicly owned assets’ model- from a substantive and procedural point of view. It is noteworthy to mention that the term ‘laws’ and ‘framework’ do not solely refer to the first tier class of laws only as they also include sub-laws of second tier class (regulations and bylaws).

The prominent general laws under this category are the following:

The Privatization Law issued by Royal Decree No. M/63 of 05/08/1442H

The Privatization Law (PL) is the general law for privatization in the Kingdom. The PL is complicated and comprises of several aspects of substantive and procedural nature and function such as, inter alia, aspects having the function of giving, stating or illustrating the following:

  • The general course to be followed for filing proposals for certain privatization opportunities and seeking the official approvals required from the competent reference(s), along with the required accompanying information and studies.  
  • The mandate given to the Council of Ministers with respect to issuance of the ‘Privatization Rules’ (PR) stipulating the public bodies referred to in the PL as ‘Competent Authorities’ and those referred to as ‘Executive Authorities’. The PR shall also determine the controls having relevance to practicing by the Competent Authorities and the Executive Authorities of their duties and tasks. The PR would also name the other official bodies and committees having connection with studying, approving and or executing privatization projects, their scope of jurisdiction and their exact functions.    
  • The Kingdom’s ultimate (strategic) objectives from the privatization programme.
  • The mandate given to the National Privatization Centre (NCP) with respect to issuance of the ‘Privatization Bylaw’ (PB) and determining the topics covered thereby, such as topics of: outlining the different methods for privatization applicable to the PPP model of contracts and contracts that are built after transfer of publicly owned assets model, along with their conditions and controls; determining the manner according to which privatization projects are being publicly offered, along with the offering related controls, requirements, procedures, timelines and the applicable penalties in case of default in respect of any; determining the substantive rules having relevance to the privatization projects vehicles; determining the legal impacts of acts of amending or freezing PPP agreements; setting out controls and standards for administering and supervising performance of signed contracts; and outlining impacts of hardship events over the underlying tenders, performance of projects, and the privatization projects contracts as such. A Bill for the PB has been publicly announced by NCP for consultations on 16/06/2021; the PB has not been officially in force as of yet.
  • Tasks and actions to be carried out by the Executive Authorities.
  • Duties and powers of the Ministry of Finance.
  • The competencies vested into the Executive Authority and the legal principles related to the same.
  • The competencies vested into the Competent Authority and the legal principles related to the same.
  • The legal principles to be applied to encounter the situation where the project companies suffer losses beyond the limits determined in the general company law, with a view of ensuring comfort to projects and activities performed by such companies in a way that fit with the nature and needs of privatization projects.
  • Specifying the proper course of action to be taken in case issuance of the permits and licenses necessary for the project have been hindered for any reason.
  • The signing party of the PPP shall be the Saudi Government as such.
  • The default obligations of the private partners under the signed PPP contracts.
  • The controls and rules applicable to acts of assignment of PPP contracts and or subcontracting of their performance, and the impacts of such transactions over the original parties of the contract.
  • The legal rules having relevance to privatization contracts and the privatization related contracts, and the promissory terms that may be incorporated in the same.
  • The legal principles having the purpose of ensuring continuation of supply of services and products anticipated from the privatization projects, in the manner, quantities and quality so agreed in the relevant PPP contracts.
  • The causes and incidents that admit early termination of PPP contracts and the other contracts collateral thereto.
  • The principle of treating foreign investors equally with the local investors in regards to the standards, requirements and controls having relevance to tendering and competition for projects, in addition to the principle of national treatment of foreign investors in relation to any procedure, condition, right, obligation stemming from the PL, the privatization contracts or any of the project’s related contracts, all without breach of the provisions of the relevant laws and the international conventions to which the Kingdom is a member.
  • The governing rules of the ad hoc committee having jurisdiction on hearing and settling challenges submitted by interested parties against processes taken in course of tendering and awarding privatization projects contracts.
The Privatization Rules issued pursuant to the Council of Minister’s Resolution No. (114) of 14/02/1443H

The Privatization Rules give details on the various competencies and powers generally highlighted by the PL. The details include a subtle determination for the competences that have been generally addressed in the PL by specifying -following a clear-cut criterion- the official bodies having jurisdiction over the various duties assigned by the PL to the ‘Competent Authority’ and the ‘Executive Authority’ in respect of each privatization situation. The PR are therefore highly connected with the provisions of the PL in an integrative sense, and both should therefore be read together for a better understanding of the entire picture. The following is a practical example for the PL – PR inherent integrative relation.

Article 24 of the PL reads as follows: "The Private partner may -subject to attaining approval of the Competent Authority- be granted rights as to:

  1. Collecting for its own account the due service fee directly from the recipients, per the terms of the PPP contract and the controls set forth in the contract for such respect.
  2. Collection of the public revenues -including the official fees and taxes- having connection with the PPP contract on behalf of, and for the account of, the State’s public budget, in accordance with the controls to be established by the relevant [PPP] contract and the mechanism which the contract stipulates for handing over the collected sums to the public budget’s accounts.
  3. Collection of the public revenues, or part of them, for its own account, in accordance with the contract stipulations for such respect."

Hence, the PL’s Article 24 stipulates the substantive principle in clear terms, but the authority competent with the power to admitting such transactions remains missing and unmentioned. The PR fills up the gap left behind by the PL as it explicitly addresses this matter in Article 8 thereof by giving competence in this respect to the Ministry of Finance. The intersection between PL and PR is proactively noticeable and covers almost all the jurisdictional matters not explicitly indicated in the PL.

Photo by Alex Yasser

Second Category: The Ad Hoc Legal Framework Regulating Privatization with Regard to Factors of Scope, Related Sector and Nature of Privatization Projects

This category includes laws that are applicable to certain privatization projects of specific purpose or character; laws under this category do not a priori apply to all privatization projects but only to those falling within their radius. Factors of application are variable but normally include merits such as the nature of the related sector of the project, nature of the project itself, the public aims attached with the project, in addition to other merits of jurisdiction-attraction stipulated in each of these ad hoc laws.

For instance, in a privatization project for operating an inland public transport utility, the following ad hoc laws may be relevant and applicable:

  1. The Public Transport on Roads Law issued by the Royal Decree No. M/25 of 21/06/1397H, and the Inland Public Transportation Regulations issued by the Ministry of Transportation Resolution No. (3) of 05/01/1412H, for matters related to the public inland transport concessions, demarcation of concession lines and the futuristic changes thereto, concession requirements, concession duration, concession fee and consideration, early termination, and compensation.  
  2. The General Authority for Transportation Law issued by the Council of Ministers Resolution No. (323) of 14/09/1434H, for matters related to regulation of the inland transportation market, transport fare determination, etc.
  3. The various bylaws issued by the General Authority for Transportation in regulation of certain forms of activities within the public transportation sector, such as the special-purpose transportation rules, the BRT transportation rules, etc.
  4. The Policy as to Determination of the Riding Fee in the Public Transport Sector issued pursuant to the Ministry of Transportation Resolution No. (10/41/1) of 27/01/1441H.

Additional ad ho laws may fall under the ambit of this category pursuant to factors other than the factors of the project’s nature and inherent sector. Accordingly, the laws having relevance to expropriation of privately owned lands, duties and powers of municipalities, and constructions within territories of special regime (such as Mecca and Madinah Cities) may apply depending on the geographical location of the projects and nature of their land needs.  Likewise, the laws of protection and relocation of public utility infrastructure would also be considered to encounter relocation of utility installations/fixations hindering development works on the project’s site.

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