Kuwait boosts investor confidence with protective measures

• To simplify matters, state investment contracts usually favor the government’s rights, which has reduced investor interest, especially in lower-yield projects.
• According to the new approach, the investment contract, facilitated through the Direct Investment Promotion Authority, will be like a contract between two companies, with the target contract precisely defining the obligations of each party.
• If the state decides to withdraw the project from the investor for considerations related to it, and then withdraw the lands allocated to it, it will have to, according to the target, compensate the investor for the phases of the project implemented at a fair value for both the investor and the state.

In an effort to boost investment in the local market, the government aims to alleviate the concerns of both local and foreign investors involved in its projects. To achieve this, it plans to introduce protective provisions designed to enhance investor confidence and increase their interest in state projects.

In this regard, Al-Rai newspaper learned from responsible sources that there is an advanced government discussion about proposals to establish new legal and procedural foundations and controls for allocating the commercial vouchers designated for the Direct Investment Promotion Authority.

These sources indicate that if the targeted amendments create positive repercussions in the “local and foreign” business community, it is not unlikely that the experience of the prospective contracts will be generalized to all parts of the country. This would be applied as a unified model in a way that does not violate the laws and regulations of each party, as part of broader efforts to improve the local business environment.

The sources said, “According to the proposals under legal study, it is planned that two main variables will occur in the new investment contracts to allocate commercial vouchers designated for direct investment.

The first relates to the terms of the contract that will determine the rights of each party, namely the government and the investor, ensuring that the terms of the contract guarantee the rights of each party without prejudice.” It is proposed to create a legal mechanism that determines financial rights in the event of failure, or even cancels the project in the public interest.

Guaranteed returns

In order to simplify and avoid any complexity, the government tradition has been for investment contracts in state projects to include fixed clauses that guarantee more of the state’s rights, which has weakened investor interest in some of these projects, especially those that do not guarantee high returns.

However, according to the new approach, the investment contract, facilitated through the Direct Investment Promotion Authority, will be like a contract between two companies, with the target contract precisely defining the obligations of each party.

The additional novelty relates to the proposal to exclude the clause of terminating the contract in the interest of the state, unless there are major technical, financial, or legal reasons that require this step. If this is achieved, and considering that terminating the project is contractually within the government’s authority, it is proposed that this be accompanied by the inclusion of provisions in contracts for this type of project.

These provisions would include clauses acknowledging that the state will pay appropriate compensation to the investor, as the investor is not responsible for this step, provided that a fair value is determined in this regard that takes into account the stages of the project, the costs incurred, and other financial and technical considerations.

According to the sources, the state’s compensation to the investor will not be limited to the event of termination of the contract for the public interest. It is also proposed that the compensation include cases of default, bankruptcy, and breach.

If the state decides to withdraw the project from the investor for considerations related to it, and then withdraw the lands allocated to it, it will have to, according to the target, compensate the investor for the phases of the project implemented at a fair value for both the investor and the state, thereby preserving the rights of each party at all stages of the contract.

The sources said that in a more comprehensive sense, the targeted investment contract for the allocation of commercial vouchers designated for the Direct Investment Promotion Authority will have integrated boundaries, including the powers of the donor (the government) and the potential for possible assistance or punishment. Before reaching this step, ways to address any stumbling blocks that the state can undertake to support the project will be considered.

Additionally, it is pointed out that it is not permissible to impose a penalty clause to compensate the winning bidder in the event of cancellation of the contract under the circumstances stipulated in the executive regulations.

Banks push for bidder compensation clause in new partnership law

The principles of these proposals intersect with the recommendations recently presented by the Kuwait Banking Association to the Public-Private Partnership Authority regarding its opinion on the proposed amendments to the Partnership Law.

The banks called for the necessity of including in the law provisions for compensating the bidder to cover the costs of participation in the bid preparation process in the event that the project is canceled by the state, as is the practice in several Gulf countries.

According to the project to establish new controls for the allocation of commercial plots designated for the Direct Investment Promotion Authority, the auction may be canceled before a decision is made by a reasoned decision from the Council. This decision would be based on a recommendation submitted by the competent committee, stating the justifications and reasons for the recommendation.

This could occur in cases where the bid is accompanied by fundamental reservations, if the bid is lower than the base price with which the bidding begins, or if it is proven that there is collusion between the bidders or parties related to the bidding directly or indirectly, from inside or outside the authority, along with other fundamental reasons that justify the withdrawal decision.

New committee empowered to award bids to top investors

According to the government project proposed for consideration, it is planned to form a committee by decision of the competent minister to initiate procedures and offer commercial vouchers allocated to the Direct Investment Promotion Authority.

It is expected that the committee will include in its membership a number of qualified and specialized individuals, as well as representatives from the authority and relevant government agencies whose rank is not lower than department director. These representatives will be selected after being presented to the council based on the nomination of their employer.

Among the committee’s powers will be the authority to recommend awarding the bid to the bidder who meets the conditions and requirements, to consider violations submitted by the competent department after presenting them to the Authority’s Financial Affairs Department and the Legal Affairs Department, and to submit a recommendation regarding them after studying the reasons for exemption or reduction of fines.

The most important suggestions include:

• New contracts that clearly define the duties and rights of each party, ensuring fairness for all involved.

• Compensation for completed works in cases of default and bankruptcy, within reasonable limits.

• State compensation for investors if their projects are withdrawn due to considerations related to them.