KUWAIT: An Introduction

DOING BUSINESS IN KUWAIT THROUGH PUBLIC-PRIVATE PARTNERSHIPS

Kuwait continues to make positive progress in taking measures to attract foreign investment and ease the process of doing business in Kuwait. In the World Bank’s 2018 Doing Business report, the biggest jump in the GCC, in ease of doing business rank, was recorded by Kuwait after the country surged six places and entered the top 100 group at the 96th position. One of the key improvements noted in the report was the establishment of the one-stop shop for incorporation of a company and improved online registration for starting a business.

Given the global collapse in oil prices which has consequently placed tremendous strain on the national budgets of most of the oil-producing nations, there is a general understanding by the government of Kuwait that Kuwait needs to step up its efforts to diversify its economy in order to reduce its dependence on oil as its primary source of revenue and to provide the growing number of people in Kuwait’s labour market with productive employment opportunities. The government is therefore engaged in various efforts in an attempt to diversify Kuwait’s economy, as is the case with the other members of the Gulf Cooperation Council.

In line with the above, Kuwait recently unveiled a new plan to transform the country into a regional financial and cultural hub by 2035 through 164 strategic development programmes. The government has therefore developed the Kuwait National Development Plan, branded as "New Kuwait," which sets the nation’s long-term development priorities. The Kuwait National Development Plan's short-to-medium terms objectives include positioning Kuwait as a global hub for the petrochemical industry and increasing direct foreign investment by 300%. It also aims to attract more than KWD400 million to information technology, services and renewable energy in the short-to-medium term. It is organised around five themes, or desired outcomes, and seven pillars, or areas of focus for investment and improvement. Each pillar has a number of strategic programmes and projects that are designed to have the most impact on achieving the vision of a New Kuwait (http://www.newkuwait.gov.kw/en/plan/).

One of the strategies being applied by the government to achieve the New Kuwait is the restructuring of the role played by the state so as to allow more private sector participation. Accordingly, the government is adopting various forms of cooperation between the public and private sectors and in particular public-private partnerships (“PPP”). Kuwait has recently promulgated a number of laws concerning PPPs and has embraced the PPP concept of project delivery as evidenced by the diverse pipeline of projects that have either commenced or are actively being considered. The projects cut across various sectors including projects in the power, water, wastewater, solid waste, transportation, health and telecommunications sectors.

Kuwait initially issued Law No. 7 of 2008 Regulating Build, Operate and Transfer (BOT) and Similar Operations and which also amended certain provisions of Law No. 105 of 1980 concerning State Properties and its Executive Regulations (“BOT Law”). The BOT Law provided a structure and vehicle for the procurement of PPP projects across various industry sectors in Kuwait. The BOT Law was repealed and replaced by Law No. 116 of 2014 concerning partnerships between the public and private sectors (the “PPP Law”) and its Executive Regulations. The PPP Law was developed as an improvement on the BOT Law as the Kuwait government at this point had been engaged in the procurement of its first PPP projects and was responding to the difficulties experienced by the investors, lenders and the procuring entities in doing so under the BOT Law. This was generally viewed as a positive and proactive step by the government. The PPP Law provides for the establishment of the Kuwait Authority of Public-Private Partnership Projects (KAPP) which replaced the PTB. The PPP Law is now the general law and guideline for the procurement and implementation of public-private partnership projects on government-owned land across the sectors.

Prior to enacting the PPP Law, the government had enacted Law No. 39 of 2010 regarding the establishment of Kuwait Joint Stock Companies which would undertake the construction and implementation of electrical power and water desalination plants (the IWPP Law) as amended by Law No. 28 of 2012 and further amended by Law No. 19 of 2015. The IWPP Law specifically regulates power and water desalination PPP projects, it having been identified that power projects would require their own special law given their specific technical nature and economic and social importance to the country.

The PPP Law also repealed Law No. 40 of 2008 regarding the establishment of Kuwait Joint Stock Companies that would have undertaken the building, operation and transfer to the state of workers cities. Such projects are now to be undertaken under the (general) PPP Law. It also further amended certain provisions of Law No. 105 of 1980 concerning State Properties.

Some of the unique features of doing business in Kuwait through PPPs include the fact that foreign investors may participate in the bidding process without the need for a Kuwaiti agent or partner as the tender process is not subject to the general Public Tenders Law. Foreign investors are also permitted to incorporate companies (relevant for the project implementation) that may be 100% foreign-owned pursuant to a specific exemption provided for in the PPP Law. Additionally, while the PPP Law provides for a certain allocation of shares in the Project Company (established to execute the project), depending on the uptake of shares in the Project Company, a foreign entity may end up owning a majority of the shares in the Project Company. A foreign entity may also be able to benefit from specific incentives and benefits (including tax exemptions and customs waivers) provided specifically for the project. The Project Company may also be able to access the incentives and benefits offered under Law No. 116 of 2013 (the Foreign Direct Investment Law). Besides being able to establish its own presence without equity participation of a Kuwait party, the Foreign Direct Investment Law also provides for, among other things: protection from forfeiture or expropriation without compensation; repatriation of dividends, capital or returns; tax holidays; whole or partial exemptions from customs duties; and authorisation to use foreign manpower. The exact benefits which may be received under the Foreign Direct Investment Law are confirmed by the authorities upon finalisation of the application process and are decided on a case-by-case basis.

It is a combination of these unique and beneficial features of doing business in Kuwait by participation in PPPs that has been able to attract a good number of foreign investors to participate in the PPP projects that the Kuwaiti government has opted to proceed with. That said, to date, only one PPP project has been successfully closed (the Az-Zour North IWPP Phase 1) since the PPP programme was started in earnest. However, a number of PPP projects continue to progress through the pipeline and though progress is generally viewed as being slow, the Kuwait government is positively developing its experience and expertise in the structuring and procuring of these PPP projects and this should hopefully translate into smoother and more efficient procurement processes.