Public-Private Partnership (PPP)

If public-private partnership emerged as an inevitable result of most countries of the world shifting toward the application of the capitalist system and abandoning the socialist system, and if every State strives diligently to develop its infrastructure and improve the quality of essential services it provides, such as education, health, transportation, communications, and sanitation, then it has become necessary to resort to public-private partnership contracts, known as “P.P.P”, which is an abbreviation for the English term “Partnership Private Public”, and which linguistically indicates the participation of both the public sector and the private sector in carrying out projects related to the public interest (1).

The idea of partnership contracts dates back to the 1960s, when it developed thanks to the efforts of the federal government in the United States of America, which used it as a tool to encourage the private sector to invest in the development of the U.S. infrastructure.

Others consider that the United Kingdom was the first State to adopt this approach during the Conservative Government through what is called the “Private Finance Initiative”, under which the private sector was invited to finance the establishment of large public projects that require long-term and substantial financial resources that exceed the capacity of the State budget. This drove the State to resort to the private sector to finance and execute such projects promptly. Thereafter, these contracts quickly spread to many countries around the world in Europe, Latin America, and the Arab States (2).

In light of the above, the Kingdom has been keen to promote partnership between the public sector and the private sector as a means of attracting more private investment into the economic sectors of the Kingdom that previously relied on government funding. It also ensures the continued provision of high levels of service without the government bearing enormous expenses, as it provides a strategic model aimed at implementing national projects efficiently and promoting innovation across various economic sectors. The Kingdom works to enable these partnerships by providing an attractive investment environment, facilitating regulatory procedures, and stimulating the growth of the private sector to become a key contributor to the achievement of Saudi Vision 2030.

Meaning of Partnership between the Public and Private Sectors

Article One of the Privatization Law (3) defines public-private partnership as: “A contractual arrangement relating to infrastructure or a public service, resulting in a relationship between the government and the private party, which includes the following elements:

1. The duration shall be (five) years or more.
2. The private party shall, under the arrangement, perform works including two or more of the following: designing assets, constructing them, managing them, operating them, maintaining them, or financing them, whether the assets are owned by the government, the private party, or by both.
3. A qualitative and quantitative allocation of risks shall exist between the government and the private party.
4. The financial consideration due to the private party or to which it becomes obligated under this contractual arrangement shall be based primarily on the level of its performance in executing the obligations assigned to it.”

The same Article defines the private party as: “A person enjoying private legal personality that is a party to a privatization contract with the government.”

From the above, it appears that the Saudi regulator used the expression “contractual arrangement” rather than stating explicitly that the partnership is a contract, based on the certainty that the matter is not limited to offer and acceptance only, but requires the existence of pre-contractual procedures that must be fulfilled; including the necessity of conducting a preliminary assessment or feasibility study showing the objectives of the contemplated partnership, the total costs involved, the risks associated with it, and the extent to which the partnership meets the requirements of sustainable development (4).

The regulator listed exhaustively, not by way of example, the activities included within the partnership, and established qualitative and quantitative risk allocation between the sectors, because it is difficult, if not impossible, for the private party in partnership contracts to bear all risks alone; otherwise investors would refrain from entering into partnerships in infrastructure, services, and facilities projects. The regulator also excluded natural persons from such partnership due to the magnitude of the tasks involved.

Objectives of Partnership between the Public and Private Sectors

Public-private partnership achieves the following objectives:

1. Assisting in the achievement of the strategic objectives of government entities, rationalizing public expenditure, increasing State revenues, raising the efficiency of the national economy, and enhancing its capacity to compete in facing the regional and international challenges related to privatization projects.
2. Raising the inclusiveness and quality of services and providing them at the appropriate time and cost, increasing the efficiency of assets related to privatization projects, improving their management, and working on preparing or restructuring the sectors, agencies, assets, and public services intended for privatization.
3. Stimulating local and foreign private sector investment and effective participation in the national economy through projects that achieve developmental returns for the government and economic returns for both the public and private sectors, and increasing the private sector’s share of the gross domestic product in a manner that achieves growth in the national economy.
4. Working on expanding citizen participation in the ownership of government assets, increasing job opportunities, and achieving optimal employment of the national workforce (5).

If public-private partnership adheres to its intended objectives, it will become a tool for achieving sustainable development.

Duration and Extension of the PPP Contract

Article (20) of the Privatization Law provides that:

“The duration of the public-private partnership contract shall be in accordance with what is agreed upon by its parties, provided that its duration — original or after renewal or extension — shall not exceed (thirty) years from the date of signing or the agreed effective date if later than the contract signing date.

The competent authority, upon the recommendation of the implementing authority, may approve the following:

1. That the original duration of the public-private partnership contract exceed (thirty) years.
2. That the public-private partnership contract be extended or renewed such that its total duration becomes more than (thirty) years.”

If the duration of the PPP contract expires and the PPP project is re-tendered in a new bidding process and awarded to the same private party whose contract expired, this shall not be considered an extension or renewal for the purposes of calculating the duration of the PPP contract as stated in paragraph (1) of this Article.

From the above, it appears that the regulator allowed the contracting parties to agree on the duration of the contract, but restricted this by setting a maximum limit that must not be exceeded; the original duration — or after renewal or extension — shall be (thirty) years from the date of signing or the agreed effective date if later. However, the regulator permitted the competent authority, based on a recommendation from the implementing authority, to approve a duration exceeding (thirty) years.

The regulator also allowed the competent authority, based on a recommendation from the implementing authority, to approve the extension or renewal of the contract such that its total duration becomes more than (thirty) years.

Article (22) of the Privatization Law clarified the cases in which the competent authority may extend or renew the contract:

1. Delay in completing the privatization project or interruption of its operation due to circumstances beyond the parties’ control.
2. Suspension of the privatization project.
3. Allowing the private party to recover additional costs arising from additional requirements that are not expected to be recovered during the original duration of the contract.
4. Amending some specifications of the contract, or the ancillary contract, in accordance with the dictates of the public interest, after obtaining the necessary approvals for such amendment pursuant to the law.

The regulator did not consider the expiry of the PPP contract and the re-tendering of the project in a new bidding process and awarding it to the same private party whose contract expired as an extension or renewal for the purposes of calculating the duration of the public-private partnership contract (6).

Termination of the PPP Contract

Article (28/1) of the Privatization Law provides that:

“Subject to the relevant contractual provisions, the implementing authority — after obtaining the approval of the competent authority — may unilaterally terminate the public-private partnership contract and the ancillary contract or either of them before the expiry of its duration in any of the following cases:

1. The private party’s breach of the performance of its material contractual obligations, or failure to achieve the agreed level of quality, after being notified in writing of such breach and failing to rectify its situation within the period specified in the notice. The contract shall determine the material obligations of the private party.
2. Bankruptcy of the private party or its liquidation.
3. If the public interest requires.
4. Any other cases specified in the contract.”

From the above, it is clear that the regulator listed the termination cases by way of example rather than by way of limitation. The regulator also insisted that in the first case — termination due to the private party’s material breach of its contractual obligations or failure to achieve the agreed level of quality — termination shall only occur after notifying the private party in writing and allowing the specified period to lapse without corrective action.

With respect to the case of termination due to bankruptcy of the private party, the private party is deemed bankrupt when it is a debtor whose debts have consumed all its assets (7). As for liquidation of the private party, it occurs when the creditors’ claims are recorded, the assets of the bankruptcy estate are sold, and the proceeds are distributed to the creditors under the supervision of the liquidator (8).

As for the remaining cases, such as “if the public interest requires”, it is a broad and open-ended expression that cannot be limited or specifically defined, and likewise for the expression “any other cases specified in the contract” which refers to what is determined by the contracting parties in the contract.

What is the linguistic meaning of the term “Public-Private Partnership” (P.P.P)?

Linguistically, the term “Public-Private Partnership” (P.P.P) — which is an abbreviation of the English term “Partnership Private Public”—indicates the participation of both the public and private sectors in executing projects that are related to the public interest

How does Article One of the Privatization Law specifically define a public-private partnership?

According to Article One of the Privatization Law, a public-private partnership (PPP) is defined as a “contractual arrangement” related to infrastructure or a public service that establishes a relationship between the government and a private party. For an arrangement to be classified as a PPP, it must specifically include the following four elements:

Duration:  The arrangement must last for five years or more.

Scope of Work:  The private party must perform at least two of the following activities: designing, constructing, managing, operating, maintaining, or financing assets. These assets can be owned by the government, the private party, or both.

Risk Allocation:  There must be a qualitative and quantitative allocation of risks between the government and the private party.

Performance-Based Consideration:  The financial payment to or from the private party must be based primarily on its level of performance in executing its assigned obligations.

Furthermore, Article One defines the “private party” as a person with private legal personality who enters into a privatization contract with the government, which effectively excludes natural persons from these partnerships.

The use of the term “contractual arrangement” instead of just “contract” highlights that these partnerships require significant pre-contractual procedures, such as feasibility studies and preliminary assessments, rather than simple offer and acceptance

Why does the Saudi regulator use the term “contractual arrangement” instead of simply calling it a “contract”?

The Saudi regulator uses the term “contractual arrangement” rather than “contract” to emphasize that a public-private partnership is more complex than a simple legal agreement formed by mere offer and acceptance.

This specific terminology reflects the necessity of extensive pre-contractual procedures that must be completed before the partnership is finalized. These essential procedures include:

• Preliminary Assessments and Feasibility Studies: These are required to clearly define the partnership’s objectives and the total costs involved.
• Risk Evaluation: The arrangement must identify the specific risks associated with the project and establish a qualitative and quantitative allocation of those risks between the government and the private party,.
• Sustainability Requirements: The process must demonstrate the extent to which the contemplated partnership meets the requirements of sustainable development.

By using “contractual arrangement,” the law acknowledges that the relationship is built upon a foundation of detailed evaluation and strategic planning that goes beyond the scope of a standard contract.

Overview of the Public-Private Partnership (PPP)

Public-private partnerships, often abbreviated as PPP, represent a sophisticated contractual arrangement where the government collaborates with private entities to fund, design, and manage essential infrastructure and public services. Historically rooted in the development strategies of the United States and the United Kingdom, these models allow states to execute large-scale projects without exhausting their national budgets. Within the framework of Saudi Vision 2030, the Saudi Privatization Law provides a structured legal basis for these partnerships, mandating durations of at least five years and establishing a clear distribution of risks between parties. These initiatives aim to boost economic growth, enhance service quality, and encourage private investment while maintaining high standards of performance and accountability. The legal guidelines also specify strict conditions for contract extensions and the potential for unilateral termination in cases of material breach, bankruptcy, or the demands of the public interest. Ultimately, these partnerships serve as a strategic tool for achieving sustainable development by combining government oversight with private sector innovation and efficiency.

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Sources:

1. Dr. Mohamed Ibrahim El-Shafei – Public-Private Partnership as a Means of Financing Infrastructure Projects in Egypt – Published in the Journal of Legal and Economic Sciences – Issue 2 – Year 53 – 7/2011 – p. 14.
2. Nutavoot, Pongsiri (2001), “Regulation and Public Private Partnerships”, Centre on Regulation and Competition, Working Paper Series, WP n. 12, October, p. 5, cited in Dr. Mohamed Ibrahim El-Shafei – Public-Private Partnership as a Means of Financing Infrastructure Projects in Egypt – previous reference, footnote p. 16.
3. Privatization Law issued pursuant to Royal Decree No. M/63 dated 5/8/1442H.
4. Dr. Mohamed Abdullah Abdulrahman Al-Shammari – The PPP Contract within the Framework of the Saudi Privatization Law – Analytical Comparative Study – Published in The Legal Journal (Peer-Reviewed Journal) – PPP Contract within the Privatization System.pdf – accessed 3/9/2025 at 1:17 PM, p. 558.
5. Article (3) of the Privatization Law issued pursuant to Royal Decree No. M/63 dated 5/8/1442H.
6. Article (20/2) of the same Law.
7. Article One of the Bankruptcy Law issued pursuant to Royal Decree No. (M/50) dated 28/5/1439H.
8. Article One of the same Law.