NCP PPP Journey Guidelines

National Center for Privatization & PPP (NCP)
PPP Journey Guidelines for

Private Sector Participation
October 2023
FIRST EDITION
DISCLAIMER
These guidelines are for guidance purposes only and do not
constitute an official document, neither legally nor informally.
The contents of these guidelines are meant to provide guidance
for the private sector and do not supersede the Implementing
Regulations of the Private Sector Participation Law, the Private
Sector Participation Law, the Private Sector Participation
Governing Rules or any other legislative or regulatory document
issued by the Government of the Kingdom of Saudi Arabia. It
also does not constitute legal advice and cannot be relied upon
or acted upon without reference to the relevant legal provisions.
2 | PPP Journey Guidelines for Private Sector Participation 3

TABLE OF CONTENTS
Disclaimer 1
Table of contents 2
Glossary 3
1. INTRODUCTION TO PUBLIC PRIVATE PARTNERSHIPS (PPPs) 7

1.1 About the guidelines 9
1.2 What is a Public Private Partnership (PPP) project? 9
1.3 How are PPPs different from traditional Government Procurement? 11
1.3.1 Long-term contracts and lifecycle approach 13
1.3.2 Single point of responsibility 13
1.3.3 Sharing of risks 13
1.3.4 Alternative funding mechanism 14
1.3.5 Private party remuneration in PPPs 14
1.3.6 Greater need for advisors 15
1.3.7 Long-term outlook and strategy 15
1.4 PPP models 15
1.5 Why should you engage in PPPs? 17
1.5.1 Long-term revenue opportunities 17
1.5.2 Entry into new markets 17
1.5.3 Sustainable partnerships 17
1.5.4 Predictable operating environment 17
1.5.5 Risk sharing 18
1.5.6 Expertise and innovation 18
1.5.7 Brand visibility and reputation 18
2. PRIVATE SECTOR PARTICIPATION GUIDE TO THE PPP PROJECT LIFECYCLE 19

2.1 Project pipeline review 23
2.2 Project assessment 23
2.3 Procurement 25
2.4 Special Purpose Vehicle (SPV) 30
2.5 Construction & contract management 32
2.6 Expiry & hand-back 35
Appendix 1 - Private sector participation in PPP projects 36
Appendix 2 – Typical PPP models 68
Appendix 3 – PPP financing options 71

GLOSSARY
Advisor A company or person providing professional or advisory services related to a Consortium The contractual relationship between consortium members. It sets out
PPP project. agreement in detail how responsibilities, risks, and rewards will be shared and/or
allocated among the members.
Ancillary contract A contract linked to a PPP contract, which is required for the execution of
the PPP project, entered into on behalf of the government with the private Contract The PSP/PPP contract including any ancillary contracts related to it.
party or any third party.
Contracting The entity/entities responsible for studying and preparing the PPP projects,
Approving authority The entity/entities authorized to issue the necessary approvals for PPP authority (CA) perform activities linked to tendering and awarding PPP projects, enter into
projects, including the approval to tender and award projects, enter into contracts, or exercise any other powers or functions in accordance with the
contracts, or exercise any other powers or functions in accordance with the PSP Law.
PSP Law.
Director-Head The Director-Head shall be the supervisory committee where the

Bankability The ability of a project to raise the necessary funding through long-term supervisory committee is also the contracting authority. If not, then the
loans. Director-Head shall be the minister, someone at an equivalent level, or the
board of directors of the concerned entity where the concerned entity has
Bid bond Written guarantee issued by a third-party guarantor (usually bank) provided such a board.
to the contracting authority and intended to demonstrate the bidder’s
commitment and seriousness in the bidding process. Divestment A contractual arrangement related to infrastructure or public services that
results in transferring ownership of an asset from a government entity to a
Bidder The company or consortium of companies that submits a bid in response private party.
to an RFP.
Equity Share capital provided by the private party.
Business case The documents of the PPP project that include the detailed study
documents developed for the PPP project before tendering, including the technical, A tender document issued by the contracting authority to the market to
Expression of
financial, legal, and regulatory aspects of the project and other project- interest (EOI) identify the size of the targeted market and interest in the proposed PPP
related aspects. project.
Capital expenditure Initial construction costs plus any expenditure on the constructed PPP Financing agreement Set of documents under which a loan is provided for development of the
(Capex) assets that is not for operation. asset. Includes “loan documents/agreement”, “finance agreement”, and
“debt agreements.”
Commissioning On completion of construction, the process of testing to ensure the private
party has met all preconditions necessary to commence operations. Key performance Indicators (financial or non-financial) to measure progress or success of the
indicators (KPI) private party’s performance during the operating term. These will normally
Competition The competition commission is formed by the Director-Head to oversee vary depending on the contracted services and other attributes of the
commission and manage processes related to tendering, evaluating, and awarding. project and are often included in the contractual arrangement as they may
serve as the basis for payments to the private party.
Concerned entity Ministries, government entities, public bodies, public authorities, bodies
with an independent public juristic personality, or bodies concerned with Letter of intent Document (may or may not be binding) between different stakeholders in
a PPP project subject to the provisions of the PSP Law. This shall include a consortium expressing their interest to be an equity shareholder in the
public sector companies whose contracts are subject to the law. upcoming project and bid as a consortium.
Consortium A group of companies bidding together for a project. In a PPP, this enables Net present value Discounted value of an investment’s cash inflows minus the discounted
(NPV) value of its cash outflows. An investment should have an NPV greater than
companies to bring together all capabilities required for the project
(construction, operation, and financing). zero to be adequately profitable.

Operating Quality management System to integrate various processes enabling the organization to identify,
expenditure (Opex) The PSP/PPP contract including any ancillary contracts related to it.
system (QMS) measure, control, and improve core business processes.
Payment Contractual arrangements through which the private party is compensated Request for Proposals Tender document issued to bidders by the contracting authority to request
mechanism in a PPP project. This mechanism outlines the timing, amount, and (RFP) proposals in relation to the PPP project.
conditions under which payments will be made.
Request for A tender document issued by the contracting authority to potential bidders
Written guarantee issued by a third-party guarantor (usually a bank) qualification (RFQ) to evaluate their qualifications and/or capabilities to be qualified to submit
Performance
bond provided to the contracting authority. Intended to ensure the private party proposals for the PPP project.
will perform all contractual obligations.
Risk allocation Allocation responsibility for the consequences of risks to one of the parties
in the contract.
PPP A contractual arrangement related to infrastructure or public service which
results in a relationship between the government and the private party
containing the following elements: Risk premium An additional return that investors require above the risk-free rate to
compensate them for more risky investments.
• Duration of the contractual arrangement shall be for a period of (5) years or
more.
Shareholders The document that the Special Purpose Vehicle (SPV) equity providers
• Private party, pursuant to the contractual arrangement, undertakes works agreement enter into, setting out how they will work together to manage it.
including two or more of the following: design, construction, management,
operation, maintenance, or finance of the assets, whether these assets are
government-owned, or owned by the private party, or both. Special Purpose A legal entity (company) created by one or more shareholders with no
Vehicle (SPV) purposes other than undertaking the PPP project. The SPV will be the
• Qualitative and quantitative allocation of risks between the government and
the private party. private party signatory to the PPP contract.
• Payments owed by or to the private party under this contractual arrangement
are primarily based on the performance of its obligations. Stakeholders Parties with a direct or indirect interest or involvement in the project
or that may otherwise be affected by it. These may include public and
private sector organizations, as well as private individuals, community
Private sector A Public Private Partnership (PPP) project, a divestment project, or both,
participation (PSP) representatives or non-profit bodies.
project depending on the context
Statement of A written statement submitted to a contracting authority in response to a

Private party A person with a private legal personality and is a party to a PPP contract qualification (SOQ) request for qualifications for a PPP project.
with the government.
Tender documents The tender documents comprise the request for EOI, RFQ, RFP and draft
PPP contract.
Proposal documents Documents submitted to the contracting authority in response to an RFP
for a PPP Project.
Tendering plan It includes the technical components of the PPP project, its tendering
procedures and management, the applicable evaluation procedures and
PSP governing rules The private sector participation governing rules issued pursuant to the PSP criteria, the tender documents, and appendices thereto which shall be
Law. aligned with the needs of the PPP project and achieving its objectives.
PSP implementing Value for money Benefits relative to the costs of procuring a project using a PPP compared
The implementing regulations of the law.
regulations (VfM) to other procurement options. VfM analysis considers whether PPP
provides better value to the public sector than traditional procurement.
PSP Law The Private Sector Participation Law, enacted in 2021.
Please note that relevant definitions used within the glossary have been taken directly from the Private Sector
Participation Law, Implementing Regulations of the Private Sector Participation Law, and The Private Sector
Participation Governing Rules.

INTRODUCTION TO
PUBLIC PRIVATE
PARTNERSHIPS
(PPPs)
01

1. The duration of the contractual
1.1 | About the guidelines arrangement shall be for a period of (5)
3. There is a qualitative and quantitative
allocation of risks between the
years or more. government and the private party.
These guidelines have been prepared by the National Center for Privatization
& PPP (NCP) to serve as a reference guide for private sector entities 2. The private party, pursuant to the 4. The payments owed by or to the private
(including contractors, developers and investors), which may be considering contractual arrangement, undertakes party under this contractual arrangement
participating in Public Private Partnership (PPP) initiatives in the Kingdom of works including two or more of are primarily based on the performance
Saudi Arabia but does not have prior experience in PPP projects. It sets out to the following: design, construction, of its obligations. 2”
management, operation, maintenance,
define for the private sector what a PPP is, key characteristics, common forms
or finance of the assets, whether these
of PPP that may be used, the PPP project lifecycle, motivations, and reasons assets are government-owned, or
for engaging in PPPs, and PPP financing. Furthermore, these guidelines owned by the private party, or both.
set out how private sector entities might expect to engage with PPP and
PPP contracting authorities, and the processes and relevant legal and policy PPP allows the public sector to utilize the skills, experience, capacity, and general resources
frameworks. of the private party to deliver and operate public infrastructure and related services.
Moreover, it allows for project risks to be divided between the public and the private party,
1.2 | What is a Public Private Partnership with responsibility for specific risks being assigned to the party best suited to manage them.
(PPP) project? 2
https://www.ncp.gov.sa/en/Pages/Private_Sector_Participation_Law.aspx
While there is no universally accepted definition for PPPs, the World Bank
defines a PPP as a long-term contract between the public and the private
party to develop and/or manage public assets or services, where the private
party bears significant risk and management responsibility throughout the
contract’s term, and remuneration is mainly linked to the performance of the
private party and/or the demand of the asset or service. Specifically, PPP is a
method for public sector entities to procure public assets and services. Most
PPP projects involve investment in physical assets. This can either be new
infrastructure, or significant upgrades and renewals of existing infrastructure.
The PSP Law, Article 1, defines a PPP as a “contractual arrangement

related to infrastructure or public service which results in a relationship
between the government and the private party, containing the
following elements:
1
In these Guidelines, the term "private party" is used to describe both individual
companies and consortia of companies that may deliver PPP projects.

1.3 | How are PPPs different from traditional government Table 2 - PPP vs Traditional Models
procurement?
Type of Asset Who is Extent
Models Description Duration
Public works and infrastructure are traditionally procured and financed through the procurement owner responsible of PSP
government’s budget. The government body or contracting authority uses its budget to pay EPC & other The contracting authority CA CA Low 0-3 years
for works and assumes full responsibility of the asset once constructed. The contractor will construction (CA) pays for design and
have a responsibility to fix any defects that arise, and may provide security for its liability, contracts construction through its
however, this is only for a limited warranty period following completion. PPPs, on the other budget, takes ownership
and responsibility of the
hand, offer governments another way to procure public works and infrastructure which could
asset upon construction
provide financial and efficiency motivations to the contracting authority and the private
completion. Contractor
party. Table 1 below summarizes the main differences between traditional procurement and is responsible for fixing
PPPs: defects during a limited
warranty period only.
Table 1 - PPP vs Traditional Procurements Traditional Service & CA retains asset CA CA Low 1-5 years
management ownership and funds
contracts capital expenditure,
management while the private party
Traditional procurement PPPs contracts manages operations
and maintenance for 3-5
years, receiving a fixed
fee unlinked to tariff
Separate contracts for construction and O&M One contract for detailed design, construction,
collection and bearing
(if applicable, contracting authority may opt to commissioning, and O&M
minimal risk for asset
do O&M internally)
condition.
PPP PPP service & Also known as CA Shared High 5-10 years
management performance-
contracts oriented service and
Project management & integration risk is Project management and integration risk is management contracts.
usually with the public sector normally with the private party Involves operators
assuming added risks
like asset condition
and minor component
replacement, qualifying
EPC contractor has no liability beyond PPP contractor has performance risk for the
as PPPs as they become
warranty period full contract period
longer term and more
reliant on payment and
penalty structures to
incentivize satisfactory
Public sector specifies outputs outcome. Therefore, they
Public sector specifies inputs require significant private
Private party determines inputs
investment.
PPP Infrastructure Long term contracts Typically, Shared High 10-30 years
PPP where the private party private party
constructs/replaces, (Depending
Capital funding from the public sector Capital funding usually from the private party
finances, operates and/
on the PPP
or maintains a new
asset (greenfield) or an mode)
existing one (brownfield)
The following table summarizes the general contracting forms under the traditional and PPP with revenues derived
procurement types. Ultimately, the PPP contract sets out the responsibilities for each of the from fees paid by the
CA or directly by users.
parties and allocates the risks between them.
Eventually, the asset
returns to the ownership
of the CA after a specified
period*.
14 | PPP Journey Guidelines for Private Sector Participation *Refer to Appendix 2 which provides further detail on the different PPP contract models 15
The following sections provide further detail on the key characteristics of PPPs:
1.3.1 | Long-term contracts and lifecycle approach

The duration of a PPP contract typically aligns with the useful economic life of the asset or
its lifecycle. Due to the significant capital cost and long payback schedules involved, PPP
projects generally involve long-term contracts, with the private party being responsible for
not only construction, but also for operation and/or maintenance (depending on the PPP
contract). This means that since the private party’s remuneration is based on the quality
and continuity of the output and services delivered over the life of the contract, there is an
incentive to look beyond capital costs to ensure smooth operations and to minimize costs
to the private party. In other words, there is an incentive for the private party to minimize
lifecycle costs by ensuring an efficient design that takes into account the long-term
maintenance and operation and installing quality equipment, which lives longer and is easier 1.3.4 | Alternative funding mechanism
to maintain.
PPPs offer an alternative funding mechanism to infrastructure projects, and do not
necessarily depend on government budgets. In a PPP, financing is typically provided by
the private party through several alternative financing instruments as opposed to the
1.3.2 | Single point of responsibility
government providing the funds for the project through its budget (for more info on
Given the range of capabilities needed from design and construction to the operation financing instruments, see Appendix 3). Note that commercial financing is not necessary
and maintenance, it is common for multi-disciplinary teams and firms to come together for a project to qualify as a PPP; structures such as DBOM, DBO and DBM can also be used,
at different stages to deliver infrastructure projects and assets. The procurement of where the public sector finances the assets. Since commercial borrowing is more expensive
infrastructure through a PPP joins all project phases into a single contract, with the than government borrowing, this can provide better value for money (VFM) in some
advantage from a procurement management perspective of a single point of responsibility, circumstances.
even if the private party may have separate subcontracts for construction and O&M.
1.3.5 | Private party remuneration in PPPs

1.3.3 | Sharing of risks
Although in some scenarios, the private party is remunerated through a combination of
Given the range of capabilities needed from design and construction to the operation income streams, there are two main ways in which the private party is compensated in a PPP:
and maintenance, it is common for multi-disciplinary teams and firms to come together either ‘user-pays’ or ‘government-pays’. In a government-pays model, the payment structure
at different stages to deliver infrastructure projects and assets. The procurement of consists of periodic availability-based payments from the public sector to the private party
infrastructure through a PPP joins all project phases into a single contract, with the during the operations period. These payments are tied to agreed KPIs which incentivizes the
advantage from a procurement management perspective of a single point of responsibility, private party to perform. Payments are expected to cover the expected capital expenditure,
even if the private party may have separate subcontracts for construction and O&M. operating costs, and returns to debt and equity holders.
While, in a user-pays model, the private party will collect payments from the users directly
under a tariff or charge, which would have been set out in the contract. These charges are
used to repay the private investor’s investment and profit. Therefore, there is an incentive for
Private Sector Participation Law - Article 1: the private party to drive improvements and efficiency to increase usage as this will translate
to higher levels of profit and a return on investment.
…a qualitative and quantitative risk allocation between the government and the
In both models, the operator also has the responsibility of operating and managing the asset,
private party is one element that determines a Public Private Partnership hence is able to prioritize and innovate in the ways that they deem to be most effective. The
very long-term nature of these contracts allows the private party to operate for a sufficient
period to recover any capital that has been invested in the asset.

1.3.6 | Greater need for advisors
Implementing Regulations of the Private Sector Participation Law -
Due to the complexities of procuring a PPP, it is likely that both the public and the private
Article 54:
sector parties interested parties will need to engage advisors. The type of support required
varies and may include any, or all, of the following – legal, design, engineering or financial,
and there may be some advisors who offer broader multidisciplinary services. For the private
01 02 03
party, it may be important to engage an external advisor who brings not only experience of
similar projects and transactions, but also capacity and objective thinking as well, in order to
help:
Build-Operate-Transfer Build-Own-Operate Build-Own-Operate-
Develop long-term investment strategies that align with national policies. (BOT) (BOO) Transfer (BOOT)
Secure finance commitments from lenders and co-investors.

Ensure that the project agreements are bankable and acceptable to lenders
and investors.
Prepare a financial model for submission with the bid. 04 05 06
1.3.7 | Long-term outlook and strategy Build-Transfer-Operate Design-Build-Maintain Design-Build-Operate

PPPs inherently encourage the private party to adopt a long-term perspective because the (BTO) (DBM) (DBO)
structure of these partnerships necessitates a focus on sustainability, and the fulfilment of
contractual obligations over extended periods. Therefore, the private party is incentivized
to formulate a long-term investment strategy that considers the contracting authorities’
pipeline of projects and alignment between the goals and objectives of the private party and
the various national strategies. National strategies are important to identify the sectors and/ 07 08 09
or regions that are up for development, which the private party can capitalize on by targeting
the right growing markets and emerging opportunities.
It’s important to note that while PPPs offer numerous benefits to the private party, they also Design-Build-Finance- Design-Build-Finance- Design-Build-Finance-
come with challenges and risks that need to be carefully assessed and managed throughout Maintain (DBFM) Operate-Maintain (DBFOM) Operate (DBFO)
the project’s lifecycle.
1.4 | PPP models

There are numerous PPP model variants (or contract forms) that can be used, with varying 10 11 12
levels of responsibility and risk assumed by the private party. Some of the most common,
particularly those cited in the PSP implementing regulations, are detailed in this section.
Appendix 2 provides further detail on the different PPP contract models.
Design-Construct-Manage- Rehabilitate-Own- Any other contracting
Finance (DCMF) Operate (ROO) model to which the PPP
concept applies that is
approved by the approving
authority that approved the
Business Case Documents3.
3
https://www.ncp.gov.sa/en/Pages/ImplementingPSPlaw.aspx

1.5 | Why should you engage in PPPs? 1.5.5 | Risk sharing
PPPs offer several benefits to the private party, making them an In PPPs, risks are often shared between the
attractive option for collaboration. Some of the key advantages include: public and private party. By collaborating
with the government, the private party can
offload some of the risks associated with
1.5.1 | Long-term revenue opportunities large-scale infrastructure projects which the
government is better placed to manage.
PPPs create revenue streams for the private party through user charges,
fees, or other income-generating mechanisms. These revenue sources
can offer stable, long-term cash flow and predictable income for the
private party for a prolonged period once the project is de-risked as a 1.5.6 | Expertise and innovation
result of completing construction and commencing operations. Having The private party brings specialized expertise,
designed and constructed the asset, the private party will be best technology, and innovative solutions to
placed to manage it. the project. This can lead to more efficient
project implementation, improved service
delivery, and enhanced infrastructure quality.
1.5.2 | Entry into new markets Moreover, working with the public sector
allows the private party to gain valuable
Engaging in PPP projects allows the private party to enter new markets
experience and understanding of public
or sectors that were previously reserved to the public sector. This
sector operations, regulations, and decision-
can lead to business expansion and diversification of the company’s
making processes. Furthermore, the long-
portfolio.
term nature of PPPs allows the private party
to build its own capabilities and capacity
as it transfers knowledge from senior staff
1.5.3 | Sustainable partnerships to more junior ones throughout the project
Successful PPPs can lead to long-term partnerships with the duration.
contracting authorities, opening doors for future collaborative ventures
and ensuring a pipeline of future projects. Moreover, as the private
partners work together to deliver PPPs, there is a great opportunity for 1.5.7 | Brand visibility and
them to learn from each other and access sectors they had no previous reputation
experience in.
Successfully delivering high-profile PPP
projects can enhance the private party’s
reputation and visibility in the market. This
1.5.4 | Predictable operating environment can attract further business opportunities
Having long PPP contract durations provides the private party with a and strengthen the company’s brand image.
stable and predictable operating environment over an extended period.
This long-term commitment can, in return, support the company’s
strategic planning and investments.

PRIVATE SECTOR
PARTICIPATION
GUIDE TO THE
PPP PROJECT
02
LIFECYCLE

PPP projects have a defined life cycle. From the contracting authority’s point of view, this
begins with the initial identification and justification of the project, through its analysis as a
potential PPP, into the procurement process, then the construction and operation stages,
ending with expiry of the contract and, in most cases, hand-back of the assets. Potential
private parties will not participate fully in the earliest stages of this process, but their own
path will run alongside that of the public sector. 2.1
This section of the guidelines presents the PPP lifecycle from the perspective of the private Projects Pipeline
party. While the lifecycle and related processes may differ from PPP project to project, they Review
can be divided into six phases, ranging from project pipeline review to procurement and
bidding, all the way through to expiry and hand-back.
The aim of this section is to guide potential private parties on how they can identify and
assess upcoming projects and participate in the opportunities they wish to pursue. Tender 2.2
documents and communications relating to the procurement of each project once released
Project
will set out the details of projects and a precise procurement process.
Assessment
For ease of use, this section summarizes the key tasks and milestones. For more detailed
information refer to Appendix 1- Private Sector Participation in PPP Projects.
2.3
Procurement
2.4
Special Purpose
Vehicle (SPV)
2.5
Construction
and Contract
Management
2.6
Expiry and
Hand-back

2.1 | Project pipeline review ▶ When assessing PPP opportunities, the private party
should consider factors such as alignment with its
capabilities and experience, future projects within the
contracting authority’s portfolio that may provide scale
▶ The pipeline of approved PPP projects is published by NCP and/or synergies, and the extent to which it could find
at: partners to collaborate with.
▶ The QR code provides a list of potential projects and ▶ Furthermore, the private party is advised to understand the
Identify potential
summaries of the key features of each project, its current risks involved, the financial consequences if materialized
2.1.1 projects of interest
stage of implementation, and an indicative timetable for Capabilities and how it may best manage and allocate these risks
2.2.2
the tender. assessment between its partners and its supply chain. To do so, a
preliminary risk assessment can be carried out based on
▶ Potential private parties should review the PPP pipeline to the PPP structure suggested by the contracting authority
identify projects of interest. and taking into account their own risk appetite. The aim
of the assessment is to assess risks against the private
party’s risk appetite to help guide their decision both
around whether to bid and/or whom to partner with. Risk
management policies that the private party may have as
▶ Register with the relevant bidding platform. a corporate entity should guide them on the corporate’s
appetite to risk in relation to a project.
▶ Interested parties can also register on NCP’s investor portal.
This is important as NCP will notify registered companies
Register with ▶ In general, PPP projects require expertise across finance,
when the status of the project changes and will refer to
relevant bidding legal, technical, construction, operation, maintenance, and
2.1.2 the list when organizing any market sounding and pre-EOI
platform other areas, making it unlikely one private party will be
conference.
able to fulfil all of these. As a result, the most common way
to bid for a PPP project is for the private party to join with
▶ By registering as an investor on NCP’s investor portal, the
others in a consortium.
private party will be able to contact NCP, request meetings
and find additional project details.
▶ The private party should decide how they wish to
participate and may consider various roles and associated
strategies in forming and/or joining a bidding consortium.
This may include:
2.2 | Project assessment
o Pro-active, lead role: seeking out potential partners, and
driving the process of participation.
▶ The contracting authority may undertake a market
sounding to solicit feedback from potential investors, o Pro-active, consortium member: Identifying entities and
financiers and other private parties on the proposed PPP companies that are likely to lead consortia and reach out
project, structure, and its procurement. 2.2.3 Partnerships to them as a potential partner.
▶ Potential private parties that have registered their interest o Passive: Ensuring interest and presence is known in the
through the NCP investor portal may be invited to market and awaiting consortium leaders to reach out.
participate in market sounding exercises.
▶ The private parties can connect with one another through
▶ It is important to note that the market sounding is part various channels. The Ministry of Investment and the
2.2.1 Market sounding of the structuring of the project, not the official tender Chamber of Commerce offer opportunities to link potential
process. The participation does not place any obligation consortium partners or sub-contractors. Furthermore,
on the contracting authority or on the potential private registering with the Ministry of Investment allows access
parties in any future tender and should not be interpreted to training and project insights. International conferences
as providing any advantage or special treatment in the hosted by PPP organizations, chambers of commerce, and
tender itself. Similarly, not participating in the market diplomatic missions also offer networking opportunities.
sounding will not disadvantage any private entity. However, These events attract a range of companies, from those
participation in the market sounding gives interested experienced in PPPs in the Kingdom to those entering
parties the opportunity to interact with contract authorities from other regions or new to the PPP market. Interested
and gain more insights into the project as well as give parties may also look at who may have submitted
feedback to them. expressions of interest for similar previous tenders.

▶ Under a PPP structure, it is usually the responsibility of the
private party to raise finance for the project by identifying
investors, finding lenders, and developing the overall
finance structure. Financing refers to the upfront source
of funds necessary to cover the expenses of infrastructure 1 2 3 4
construction. Issue list of
Issuance Investors Response interested
of EOI conference to EOI bidders
▶ The private party will usually finance PPP projects through
Assessment of a combination of equity and debt. Typical instruments to
2.2.4
financing options raise debt may include corporate finance, non-recourse
project finance, project finance with corporate guarantees, ▶ EOI Documents shall be published on the websites of the
Islamic Finance and Export Credit Agency (ECA) financing/ contracting authority and NCP.
guarantees. For more information, please refer to
Appendix 1 and Appendix 3. ▶ From the EOI, the private party should understand why the
project is being tendered and what it involves, the essential
Note: At this stage, the private party is only required to develop public needs it will fill, the chosen delivery model, and
a financing strategy, not secure the actual financing, which is scope of services. There will also be a timeline within the
undertaken after the project has been won. EOI so it is clear when the next stages of the tender can be
expected.
▶ If the contracting authority decides to organize an

investors’ conference before the deadline for expressing
interest, potential bidders will have the chance to attend
and ask questions to gain better understanding of the
▶ Once the private party has analyzed its capabilities, found Expression of project.
the right partners, and identified risks and financing 2.3.1
Interest (EOI)
sources, they are advised to review all the information ▶ Private party submits an Expression of Interest to the
collected to preliminary assess commercial viability and contracting authority. Note: It is not necessary to finalize
determine the project’s attractiveness. and name all partners or present a fully formed consortium
Project at this stage.
▶ The private party should be mindful of the costs associated
2.2.5 commercial
with bidding and should assess these costs against the ▶ Once bidders have expressed an interest in responding to
viability
financial and investment returns the project may generate. the EOI, a list of interested bidders will be published on the
website related to the contracting authority in addition to
▶ If it chooses to proceed, the private party will usually form NCP’s investor portal.
bidding consortia and sign non-disclosure agreements
(NDA) between the consortium members in preparation Note: Only potential bidders who expressed interest can
for bidding. proceed to the next stage. Therefore, it is advisable for
potential bidders to respond to the EOI even if they are unsure
of participation. Generally, bidders will have at least 14 days
to respond. However, in special circumstances that may
be changed. The RFQ documents will provide specific and
additional information.
2.3 | Procurement Potential bidders will be required to sign a non-disclosure

agreement (NDA). This may be part of their EOI submission or
Please note the below indicates the most common tender and procurement process. subsequently before the prequalification stage.
However, this may vary from project to project. The tender process will be set out in the
project’s tender documents, specifically the Request for Proposal (RFP), which bidders are
advised to refer to.

1 2 3 4 o Technical: A technical bid in a separate sealed envelope
Issue list of with the name of the bidder and the term “technical
Issuance Investors Submit prequalified
of RFQ conference SOQ bidders bid”. From a technical perspective the bid submission
requirements may comprise, amongst other things, an
assessment of costs, technologies, outline designs and
▶ Potential bidders can then choose to participate and operating methods.
respond in the form of submitting a statement of o Legal: At this stage, the consortium is formalized
qualification (SOQ), which allows the contracting authority through signing a letter of intent or a memorandum of
to assess whether the bidder is sufficiently qualified to understanding which sets out the consortium members’
participate in procurement. The specific requirements for intention to bid for the project together.
the content of the SOQ will be included in the RFQ.
o Financial: A financial bid, in a separate sealed envelope,
▶ If the contracting authority decides to organize an investor will typically need to include the financial proposal,
conference at this stage, bidders will have a chance to financing requirements, strategy, structure (including
2.3.2 Prequalification attend and ask questions to gain a deeper understanding debt and equity proportions) and the financial model
of the project and the documents provided. Nevertheless, (if applicable). They are encouraged to secure letters
bidders will have the chance to submit clarification of commitment from their Lenders as part of their
questions as per the mechanism explained in the RFQ. submission. However, the conclusion of finance raising
▶ The private party (or consortium) submits a SOQ response will only be finalized after the preferred bidder is
before the set deadline seeking prequalification. This will awarded. Interest rate hedging strategies (if any) may
typically be to evidence the applicant’s ability to raise also need to be included.
finance and demonstrate technical competence and
experience satisfying minimum competency and eligibility ▶ Moreover, a letter will be required as part of the bid
requirements. submission containing:
▶ Once SOQs have been submitted, the contracting o An undertaking that they will comply with the RFP
authority will review submissions and publish a list of process and an undertaking that no comments or
prequalified bidders on their website in addition to suggestions will be expressed except under the
contacting them directly and naming them on NCP’s procedure set out in the RFP.
investor portal.
o Undertakings and representations that the bid
documents are correct and valid and relevant
authorizations for the person(s) signing the proposal
1 2 3 4 5
Technical Issue list of from the consortium members.
Issue RFP Investors & financial Best and shortlisted
conference proposal
submission
Final Offer bidders o Confirmation of any timebound validity of the bid.
o An acknowledgement that the government and the

contracting authority shall not bear the cost incurred
▶ RFP documents will detail the project and define
by the bidder in preparation and submission of the
requirements. It shall also set out proposal submission
proposal.
requirements, timelines, and submission guidelines. It may
additionally address things that are prohibited, as well as o An undertaking that the bidder and its affiliates have
matters relating to transparency and fairness. never been involved in collusion, conflict of interest,
▶ The RFP will also detail the pre-bid clarification questions bribery, conspiracy, fraud, or misrepresentations and that
Request for no penalties or restrictions have been imposed on them.
2.3.3 process. The contracting authority will endeavour to
Proposal (RFP)
respond to any clarification questions bidders may have o A bid bond (if requested by the contracting authority).
and will generally upload CQs and their responses to The amount, conditions and validity of the bond will be
the portal so that all bidders have access to the same set out in the RFP documents.
information. The contracting authorities may also choose
to organize a bidders’ conference to present the project o Template will be provided in the RFP.
and answer questions directly.
▶ Once bids have been submitted the competition
▶ In response to the RFP, the private party will need to
committee will commence the evaluation process.
submit a detailed proposal which meets the requirements
outlined. To help guide bidders and facilitate bid Note: Bidders will be given at least 60 working days, to submit
evaluation, the RFP sets out the technical, legal, and proposals after the RFP is issued. The submission date will be
financial requirements specified in the RFP.

2.4 | Special Purpose Vehicle (SPV)
▶ If permitted in the RFP, the competition committee
Best and Final may choose to initiate a final round of bidding (BAFO) to ▶ A SPV is a legal entity/company created by the private
2.3.4
Offer (BAFO) determine the preferred bidder. In this case, bidders are party/shareholders for the purposes of undertaking the
invited to consider improving their offer. PPP project. The SPV will be the private party signatory
to the PPP contract. The SPV shareholders are usually
the consortium members. However, not all consortium
members may opt to be SPV shareholders. For instance,
▶ After the tender process and BAFO stage concludes, the a construction contractor might prefer to participate as a
preferred bidder and up to two reserve bidders will be nominee contractor, concentrating solely on construction
selected. What is a Special tasks rather than taking on the comprehensive
2.4.1 Purpose Vehicle involvement expected of SPV members in PPP project
▶ The contracting authority may enter negotiations with the (SPV) implementation.
preferred bidder to clarify their proposal and finalize the
contract. The objective of this stage of negotiations will be ▶ Typically, the contracting authority will award the contract
to conclude the project agreement on terms which meet to a company or a group of companies, which form a
the contracting authority’s objectives. consortium. As part of the commercial close process, the
consortium members will form a new Special Purpose
Negotiations with
2.3.5 ▶ Preferred and reserve bidders may be requested to Vehicle (SPV) or project company, which the contracting
preferred bidder
extend the validity of their bid bonds to allow for this if the authority will sign a PPP agreement/contract with to
timeline stipulated in the RFP documents is found to be deliver on its responsibilities.
insufficient.
The complex, long-term nature of PPP projects means that the
▶ Once negotiations have been concluded, the preferred
two contracting parties are not the only stakeholders of the
bidder will, subject to approvals, be sent a negotiation log
SPV. Instead, PPPs often involve a complex web of relationships
to sign within 10 days followed by the letter of award and
which includes:
commercial close will take place with the signing of project
agreements. ▶ Government department or contracting authority:
Procures the PPP and manages the contract from the
public sector’s point of view, which usually includes
monitoring and regulating the performance of the private
party.
▶ If external finance is used, negotiations between the
preferred bidder and their proposed lenders will take ▶ Private party: Provide equity as part of the finance structure
place to secure committed finance. The CA would not and can include project developers, engineering or
normally participate in these negotiations but may provide construction companies, infrastructure management
additional information or clarification to support the companies, and private equity funds. They are also
process. responsible for delivery of the PPP and hold contracts
directly with other partners as required.
▶ The contracting authority may get involved if a direct Understanding the
agreement between the contracting authority and the 2.42 ▶ Lenders: Provide loans as part of the financial structure of
SPV stakeholders
lenders covering, amongst other things, step-in rights for the PPP and may include commercial banks, multilateral
lenders, and the consequences of any early termination. and bilateral development banks and financial institutions,
2.3.6 Financial Close and institutional investors such as pension funds or
It is usually in the interests of both the lender and
contracting authority to enter into a direct agreement as insurance companies.
it allows the lender to step in and replace the private party
▶ Construction or EPC contractors: Contracted by the private
if, for example, the private party were to become insolvent
party to deliver the construction phase of the PPP project.
allowing the project to continue and for the lender to
This is often a subsidiary of one of the equity investors.
potentially recover funds owed to it.
▶ Operations & Maintenance (O&M) contractors:
▶ Furthermore, the contracting authority will review any Contracted by the private party to operate and maintain
financing agreements to ensure alignment with the project the asset once construction is completed. This is almost
agreements and consider any changes necessary to align always a subsidiary of one of the equity investors.
with final financing terms.
▶ Users: People who will use the infrastructure and/
or consume the services once constructed and
commissioned.

The diagram below illustrates the standard contractual interfaces and financial flows in a
▶ Once the preferred bidder is awarded the contract, they
typical private-financed PPP project structure.
will be required to form the Special Purpose Vehicle (SPV).
Ideally the SPV should be formed after the contract is
awarded, but before the final contract is signed. However,
in practice, successful bidders have been signing the
Government
contract with a condition that all contractual rights and
/Contracting
obligations will be transferred to the SPV once established. Authority
▶ The preferred bidder consortium will need to submit the

Payment and/or
Providing proof of necessary documentation showing that they are a legally right to charge PPP Contract
2.4.3
SPV registration incorporated and recognised business organization before
they can enter into agreements with the contracting Article of Association/
authority. Shareholder Agreement
Loan Agreement
Private Sector Equity Investors
Lenders Debt Financing Dividends
The incorporation process would follow the Ministry of Partner (SPV)
Debt Service Equity
Commerce’s standard procedure for registration, licensing, and
set-up. It is advisable for entities with no recent experience of
establishing a commercial enterprise in Saudi Arabia to seek
Construction O&M
the assistance of legal or other professional services that can Contract Contract
guide and advise on the requirements of establishing an entity.
Payments Payments
▶ Once the PPP contract is signed, known as commercial
close, the SPV will execute financial agreements, known
as Financial Close. The SPV holds ultimate contractual Operation and
responsibility, however it may ‘pass through’ the rights and Construction/ EPC User charges
(If Applicable) Maintenance
obligations of the contract to its appropriate downstream Contractor
Contractor
partners (refer to figure 5 below). Some of the elements
that will be passed through are the responsibilities and
obligations, risks, and cash flows, which will all be enabled
through various agreements including: Users
o Shareholder agreements
o Financial or debt agreements
o Construction or EPC contracts (single contractor or Figure 1 - PPP Project Structure Example
group acting as a joint venture)
SPV delivery and o Operations and maintenance contracts

2.4.4 management of o Insurance contract and guarantees (where applicable)
2.5 | Construction & contract management
PPPs
▶ Risk transfer is an important aspect of PPPs and therefore ▶ The private party will be expected to agree EPC and O&M
partial or total transfer of the construction and O&M contracts after signing with the contracting authority.
performance risks are passed down to the construction
contractor and O&M operator. It is common for one or ▶ Moreover, the private party will ultimately be responsible for
both of the contractor’s providing construction or O&M monitoring and managing its own SPV performance under its
to also be shareholders in the SPV or subsidiaries of the contract, as well as with any downstream contracts and supply
shareholders. Other shareholders may include financial chain.
investors. Supply chain
2.5.1 ▶ To effectively manage contracts downstream, the private party
management
▶ Part of the financing structure under a private-financed advised to hire a contract management team to ensure open
PPP model is the use of commercial borrowing to fund the and transparent communication as well as accountability
initial investment, alongside the equity capital provided within the SPV structure at all levels.
by the private party. The terms will be defined in advance
As previously mentioned, it is common for one or both the
through the financing agreements between the SPV and
contractors who provide construction or O&M, to also be
commercial lenders.
shareholders in the SPV or subsidiaries of the shareholders.

▶ While responsibility for monitoring and management of
the SPV contract will lie primarily with the contracting
authority, some monitoring and reporting responsibilities
▶ Once necessary permits and approval have been attained,
will lie with the private party and will be set out clearly in
the EPC contractor will mobilise its workforce onsite to
the PPP contract. Depending on the specific needs of the
commence construction.
project, this may include among other things:
o Information to be collected Mobilization and ▶ The role of the EPC contractor is mainly to purchase the
2.5.5
o Frequency & content of reports construction materials, services and equipment required to construct
o KPIs the facility/asset, to perform, co-ordinate and manage the
construction works, to commission and test the facilities
▶ The private party will also need to regularly interface and to manage warranty issues.
Performance & risk
2.5.2 with and provide stipulated performance indicators to
reporting
the contracting authority to enable monitoring of service
delivery, allowing parties to take actions to correct any
underperformance.
▶ Moreover, the private party will be required to report ▶ Once the construction activities have been completed,
updates on risks and mitigation plans to the contracting the EPC contractor will carry out all the activities related to
authority regularly. mechanical completion (including related tests) to make
sure that the facility is ready for commissioning.
Note: In addition to deductions, non-compliance with KPIs
could warrant other responses such as the issuing of warnings, ▶ The private party/SPV would usually review test records
formal notifications, step-in clauses or contract default and and instruct the EPC contractor to develop snag lists and
termination. operation and maintenance manual.
2.5.6 Commissioning
▶ Once EPC contract is signed, the EPC contractor will review ▶ Once the manuals are approved by the private party/
concept designs and tailor them to develop detailed SPV, representatives from the SPV may conduct run-ins
designs. and operational testing as per the commissioning plan to
identify any defects.
2.5.3 Detailed design ▶ The output of the detailed design process is a set of
drawings, specifications, standards, procedures, and ▶ Once all defects are addressed, the EPC contractor will
material requisitions that can be used to procure the acquire the remaining statutory approvals and completion
materials, equipment and services required to commence certificates from the related statutory body.
execution.
▶ Statutory approvals are used to describe the different types

of consents that may be required for the project. These ▶ Once the construction and commissioning are completed,
vary depending on the location of the site and planning the O&M contractor will commence their work.
policies that may be enforced by the statutory body.
▶ The main role of the O&M contractors is to ensure that the
▶ The main statutory approvals are planning permission asset/facility is running smoothly and that any defects or
and building regulation approval. These statutory maintenance needs are addressed in a timely manner.
Statutory approvals approvals may become required at different stages of the
2.5.4 2.5.7 Operations
& permits project. Some of them may have to be applied at an early ▶ At this stage, the private party/SPV can start charging users
design stage and others may become required during for the use of the asset under a ‘user-pays’ agreement. If
construction. the agreement is a ‘government pays’, then the process
works slightly differently in that the SPV will invoice the
▶ It is the responsibility of the EPC contractor to ensure that contracting authority. The frequency of invoicing would
all necessary regulations, approvals, and permits have been have been established in the PPP contract according to
met or attained to avoid issues through the construction the agreed payment mechanism.
phase.

2.6 | Expiry & hand-back Appendix 1 - Private sector participation in
PPP projects
Projects pipeline review

The final stage in contract management involves handing over For the private party to be able to assess and view information about PPP projects in the
the asset to the contracting authority at the end of the contract pipeline, NCP has created a platform that features each approved project. This platform is
period, depending on the PPP model and contract terms. called the Investor Portal and its aim is to outline the completed, live, and upcoming PPP
projects in the Kingdom to local and international investors across different sectors. It also
▶ The private party may either need to invest in the asset allows private parties to submit an Expression of Interest and communicate with NCP:
for hand-back requirements or dismantle it. This will be
specified in the PPP contract. For each project in the pipeline, NCP has created a summary which provides some
key information, including project owner, location, type of contract and duration:
▶ Moreover, at this stage, both the contracting authority and
the private party will also consider their post-expiry options
(extend, retender or takeover).
▶ Therefore, hand-back preparation should begin in the

years prior to contract expiry.
▶ The specific hand-back process shall be set out in the

contract, and will allow the private party to:
o Determine expected asset condition and other

Asset condition
requirements against the contract.
assessment
2.6.1
and hand-back
o Make an informed decision based on what is required,
preparation
and any capital investment needed ahead of handover.
▶ If on assessment it is evident that the asset does not meet

requirements, then a remedial plan to bring it up to the
necessary standard or condition will need to be set out and
funds invested.
▶ As well as the transfer of the physical asset on expiry of

the contract, associated intellectual property rights that
belong to the contracting authority will also need to be
transferred back.
▶ If the contracting authority re-tenders the project (or just

the O&M), the private party will be required to co-operate
to ensure a smooth hand-over to any new contractor.
▶ The above provisions would also apply in the event of early

contract termination.
Figure 2 - Example project from pipeline

By registering on NCP’s Investor Portal, the private party will be able to contact NCP, request Project assessment
meetings and find additional project details. The intention is to help the private party
understand what opportunities are upcoming and decide whether they can participate in Market sounding
the bidding process. To register on the portal, please scan the following QR code: Once the private party has registered with the portal, they can participate in market sounding
exercises. Market sounding refers to the process of engaging with potential private parties
and other stakeholders in the market before formally launching a PPP procurement process.
Participating in market sounding offers several benefits to the private party including:
Access to information: Market sounding allows the private party to gain insights into
upcoming PPP opportunities and projects in the pipeline. They can obtain relevant
information about the project’s scope, requirements, and timelines, which can help them
make informed decisions about whether to pursue the opportunity or not.
Understanding government objectives: Through market sounding, the private party can
understand the government’s objectives and priorities for the project. This insight helps
align the private party’s proposal and strategy with the government’s goals, increasing the
chances of a successful bid.
Opportunity to influence project design: Engaging in market sounding gives the private
party an opportunity to provide feedback and suggestions on the project’s design,
structure, and risk allocation. By voicing their input, the private party can potentially
influence the final project terms and make the project more attractive and feasible from
their perspective.
Early risk assessment: Market sounding allows the private party to identify and assess
potential risks associated with the project at an early stage. This enables them to develop
risk mitigation strategies and ensure that the project remains financially viable and
attractive to investors.
Building relationships with contracting authorities: Market sounding facilitates direct

interactions with the contracting authorities and key stakeholders involved in the PPP
project. Building relationships at this early stage can be beneficial during the procurement
process, as it enhances trust and communication between the private party and the
Figure 3 - Portal registration contracting authority.
Furthermore, registering on the portal allows the interested private party to signal their Early project assessment: The private party can gauge the feasibility and competitiveness
interest in the project to NCP and, in addition to receiving communications in relation to the of the project early, which helps the private party focus their efforts on projects that align
project, potentially be invited to participate in market sounding exercises. with their capabilities and objectives.
Please refer to Section 2 “PSP Plan & the Implementation Prioritization” of the Implementing Competitive advantage: Engaging in market sounding allows the private party to gain
Regulations of the Private Sector Participation Law for more information. a competitive advantage over potential competitors. They can tailor their proposal and
strategy based on the insights gained during market sounding, which improves their
chances of submitting a compelling bid.
Market intelligence: Market sounding provides valuable market intelligence, allowing the
private party to understand the competitive landscape and the interests of other potential
bidders. This information can help them position themselves effectively during the
procurement process.

Capabilities assessment
Information attained from the portal
and gained through market sounding
exercises offers the private party valuable
insights, and opportunities that could help
them prepare for and pursue PPP projects more
strategically, increasing their chances of securing
successful partnerships with the government.
When assessing PPP opportunities, the private party should consider factors
such as alignment with its capabilities and experience, future projects within
the contracting authority’s portfolio that may provide scale and/or synergies,
and the extent to which it could find partners to collaborate with. This would
help the private party identify any capability gaps to make informed decisions
both around whether to bid and/or partner.
Moreover, a key characteristic of PPP projects is the sharing of risks such that they are
managed and mitigated by the party with the most appropriate knowledge and resource.
Therefore, the private party is encouraged to understand the risks involved, the financial
consequences if materialized, and how it may manage risks. To do so, a preliminary risk
assessment can be completed, based on the PPP structure suggested by the contracting
authority.
The aim of the assessment is to assess risks against the private party’s risk appetite to
help guide their decision both around whether to bid and/or whom to partner with. Risk
management policies that the private party may have as a corporate entity should guide
them on the corporate’s appetite to risk in relation to a project.
Partnerships
In general, PPP projects require expertise across finance, legal, technical, construction, There are several ways for
operation, maintenance, and other areas, making it unlikely one private party will be able to companies to connect with one
fulfil all of these. As a result, the most common way to bid for a PPP project is for private party another to partner and form a strong
to join with others in a consortium. consortium of expertise. Within the Kingdom,
the Ministry of Investment (MISA) and the Chamber
The private party should decide how they wish to participate and may consider various roles
of Commerce can be useful to connect potential consortium
and associated strategies in forming and/or joining a bidding consortium. This may include:
partners or sub-contractors. The private party can register with the
MISA to receive access to training sessions and insights into delivering
Pro-active, lead role: Seeking out potential partners, and driving the process of projects. Moreover, conferences organized by international PPP bodies,
participation. chambers of commerce, embassies and consulates can also be a great way to
Pro-active, consortium member: Identifying companies that are likely to lead network with international players. A variety of companies are likely to utilize such events
from those who have experience of delivering PPPs in the Kingdom, to those who are looking
consortia and reach out to them as a potential partner.
to enter the market having delivered PPPs in other jurisdictions, and those who are looking
Passive: Ensuring interest and presence is known in the market and awaiting to enter the PPP market for the first time. Interested parties may also look at who may have
consortium leaders to reach out. submitted expressions of interest for similar previous tenders.

Assessment of financing options While helpful for raising finance for large, highly leveraged investments, project finance
comes at a cost. Interest rates for project-finance debt are more expensive than traditional
Under a PPP structure, it is the responsibility of the private party to raise finance for
corporate finance, which is secured on existing company assets. The transaction cost
the project by identifying investors, finding lenders, and developing the overall finance
(including setting up the contractual structure and carrying out adequate due diligence)
structure. Financing refers to the upfront source of funds necessary to cover the expenses
can make it unattractive for smaller deals. For this reason, smaller PPP projects may use
of infrastructure construction. The responsibility of the private party to raise finance for
corporate guarantees and/or shareholder loans to reduce financing costs. The extent
the project is a major difference between PPPs and traditional government procurement
to which this may be available will depend on the individual shareholder’s appetite for
approaches where funding comes from government budgets. The only exception is when
including the associated liability on their balance sheet.
the PPP project is under a co-finance scheme where the government provides part of the
finance. Generally, the choice of financing for PPP projects is influenced by the project type and
the potential investors involved. Different sources of financing can potentially impact the
The private party will usually finance PPP projects through a combination of equity and debt.
terms of the PPP agreement. Some projects may opt for on-balance-sheet financing, where
Typical instruments to raise debt may include:
investors directly fund the project without using a separate SPV structure, while others may
choose limited recourse debt through the SPV. Furthermore, the private party might rely
on a number of sources of financing due to the large funding requirements of a particular
Debt Source Description
project. Having access to a range of sources may improve financing terms and potentially
increase deliverability of the funding solution for a project.
Non-recourse project finance ensures that lenders are solely repaid from
the project company’s revenues, without any claim on the equity investors. It’s good to note that once the project is operating, debt servicing obligations take
This creates a clear separation of obligations between the project precedence over equity, with equity holders taking any first losses. Dividends are only paid
company and equity investors, with debt secured based on the project’s out once scheduled costs for O&M, taxes and any debt obligations are paid. Therefore,
cash flows. For equity investors, this strategy minimizes risk exposure and shareholders accept a higher level of risk than lenders, in return for a higher potential
Non-recourse allows for the realization of more substantial projects. Lenders, in turn,
return if the project is successful, Furthermore, shareholders will typically seek to achieve an
project finance conduct rigorous due diligence, emphasizing the project’s cash flow and
optimal leverage arrangement to increase their return on equity. Moreover, having equity in
contractual structure as key determinants of financial viability.
the project provides the lenders with a level of confidence that the shareholders have “skin in
Project finance has been the most common source for KSA PPPs to the game” and is in their interest to ensure the success of the project.
date. Most KSA PPPs have been financed by a combination of local and
international banks. Based on the above, the private party must assess the different sources of financing available
and develop a clear financing strategy, based on the probability of realizing the funds, to
be submitted within their bid. The financing strategy will ultimately help the private party
Finance is raised at the corporate level and passed through to the project
Shareholder loans determine the total funding requirement, the sources of funding and the financing options
as equity, combining equity shares and subordinated sponsor loans.
available.
Project finance For avoidance of doubt, it must be noted that at this stage, the private party is only required
Lenders provide loans to the project company which are partially or fully
with corporate
guaranteed by the equity investors (consortium partners). to develop a financing strategy not secure the actual financing, which is done after the
guarantees
project has been won.
Islamic finance offers an alternative avenue for financing PPPs, as Islamic
financial institutions have substantial liquidity and prefer quality, medium Project commercial viability
to long-term investment opportunities. Additionally, the asset-backed
Islamic finance Once the private party has analyzed its capabilities, found the right partners, and identified
nature and risk-sharing principles of Islamic finance align well with
PPPs. There have been several KSA PPPs that have used Islamic finance,
risks and financing sources, they are encouraged to review all available information to
although Project Finance remains the most common. assess commercial viability and determine project attractiveness. In some instances, project
screening may require further physical due diligence like a geotechnical survey which could
Many countries have established ECAs to provide financial facilities to be costly. Therefore, the private party should be mindful of the costs associated with bidding
foreign buyers in export contracts. However, they also play a role in project and should assess these costs against potential returns.
Export credit agency finance structures, including PPPs. Some ECAs provide finance to the
(ECA) financing/ project (direct lending to support the purchase of equipment) but most If the result of the project screening exercise is deemed successful, the private party will
guarantees provide guarantees to the lenders of the project (to facilitate financing) form a bidding consortium and a non-disclosure agreement (NDA) is signed between the
and in some cases to other equity investors. For more info on what consortium members in preparation for bidding.
support an ECA can provide, please visit their website.
* Refer to Appendix 3 for more information on PPP Financing Options

Procurement Expression of Interest
Once the private party decides that the project is investable, the bidder should remain This is the first pre-tender phase of the bid process where the contracting authority informs
committed to the process. While the contracting authority may combine two or more the private party that the project will be put out to tender. Announcements for the project
phases, the procurement and bidding process typically comprises 4 major phases*: The including method of documents collection will be made on:
private party will usually finance PPP projects through a combination of equity and debt.
Typical instruments to raise debt may include: Websites of the contracting authority and NCP
Local and international media outlets
01 02 03 04 Social media accounts of NCP and contracting authority
An Expression of Interest (EOI) document will be prepared and published to attract interest
from interested parties. In general, the EOI stage follows the following process:
Expression of Pre-qualification Financial and Award

Expression of Expression Pre-qualification
of Expression
Pre-qualification
of Expression
RFP Phase
Pre-qualification
of RFP Pre-qualification
Phase
Issurance RFP Phase
IssuranceInvestors
RFP Phase
Issurance
Investors
Response
Issurance
to
Investors
Response Issue
to
Investors
list Response
of Issue
to listResponse
of Issue
to list of Issue list of
Interest
EOI (EOI) EOI
Pre-qualificationPre-qualification
EOI EOI
Pre-qualification
Financial % Technical
Pre-qualification
Financial %Award Financial
Award Bids
% Interest
Financial
phase%Award
Interest phaseAward
phase
Interest phase phase
Interest phase phase of
phase
EOI of EOIconference of EOI
conference EOI
of EOIconferenceEOI
interesred
conference
bidders
interesred
EOI bidders
EOI
interesred bidders
interesred bidders
SignTechnical
a nondisclosure
Bids Technical Bids Technical Bids Technical Bids Conduct final
The first step in agreement (NDA) Once prequalified, negotiations and
the procurement and submit a submit your receive award
process is to express pre-qualification technical and letter
your interest to application financail bids Issurance of Investors Response to Issue list of
participate. as per theEOI
RFP Pre-qualification
EOI Pre-qualification
EOI
Financial
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EOI Pre-qualification Financial % Award% Financial %
Interest phase
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phase Interest phase Interest phase
phaseof EOI phase of EOI
conference conference
of EOI
EOI conference
of EOIEOI bidders
interesred conference
interesred
EOI bidders interesred
EOI bidders interesred bidders
requirements Technical Bids Technical Bids Technical Bids Technical Bids bidders
* The procurement process and approach may vary but will be set out in the RFP phase.
Once the EOI is published, bidders should read the requirements carefully and start
The Implementing Regulations of the Private Sector Participation Law - preparing a response accordingly. The EOI documents will contain:
Article 70:
Summary of the project and expected schedule
PSP Project shall be tendered through public competition at the following phases:
Information on the EOI and how it should be submitted
Deadline to receive responses
From the EOI, the bidder should understand why the project is being tendered and what it
involves, the essential public needs it will fill, the chosen delivery model and scope of services,
Expression of Expression of
Pre-qualification Pre-qualification
Expression
RFPof Phase RFPIssurance
Phase
Pre-qualification Issurance
RFP Phase
Investors Investors
Issurance
Response to Response to
Issue list of Issue list
Investors of
Response proposed
to risk
Issue allocation, and any background information on policies, laws or regulations
list of
Pre-qualification
EOI % Financial %
Pre-qualification Award
Financial % Award
Interest phase phase of EOI conference EOI interesred bidders
EOI associated
ancial Award
Technical Bids
Interest phase phase Interest phase phase
of EOI conference of EOI
EOI conference
interesred bidders with
interesred the project. There should also be an indicative timeline within the EOI to give
bidders
nical Bids
01
Technical Bids
02 03 potential bidders an idea as to what to expect in terms of the next stages of completing the
tender process. The EOI request will not set out full details of the project as that will follow in
Expression of Pre-qualification RFP Phase the subsequent RFQ and RFP stages, but bidders will know enough to determine whether
Interest Phase Phase they want to participate to the next stage and are able to drop out at any time before bid
submission.
Potential bidders will be required to sign a non-disclosure agreement (NDA). This may be part
of their EOI submission or subsequently before the prequalification stage.
The activities involved in the EOI, pre-qualification and RFP stages of the procurement are
If the contracting authority decides to organize an investors conference, potential bidders
described in greater detail in the following sections.
will have the chance to attend and ask questions to gain better understanding of the project.
Thereafter, bidders must prepare their response and submit it within the timeline stipulate in
the EOI. A list of interested bidders will be published on the contracting authority’s website in
addition to the NCP’s investor portal.

The qualification procedures outlining how bidders’ will be evaluated, along with
The Implementing Regulations of the Private Sector Participation Law - the evaluation criteria and methodology.
Article 71: The PPP method and details including any commercial or contractual specifics
related to the SOQ.
The Expression of Interest phase shall last at least for fourteen (14) days starting from the
working day following the publication and announcement set forth in Paragraph (2) of The process for requesting an extension to the SOQ submission deadline.
this Article. Such period may be reduced to less than (14) days, provided that it shall not
be reduced to less than (7) days, and the Tendering Plan shall contain the same If the contracting authority decides to organize a second investors conference, bidders will
have another chance to attend and ask questions to gain a deeper understanding of the
project and the documents provided. Nevertheless, bidders will have the chance to submit
It must be noted that RFQ documents will only be sent to the published list of interested clarification questions as per the mechanism explained in the RFQ. Thereafter, bidders
bidders. Those that fail to express interest in their own name may still join a consortium with should submit their completed SOQ as per the requirements stipulated in the RFQ and
someone that has, however, only potential bidders who have expressed interest can proceed before the set deadline.
to the next stage as a lead bidder. Therefore, it is advisable for potential bidders to respond
to the EOI even if they are unsure of participation. The RFQ documents could provide them As per the Implementing Regulations of the Private Sector Participation Law -
with additional information to make an informed decision. Article 75, the SOQ, shall as a minimum, include:
Prequalification ▶ General information on the bidder and its consortium members, if applicable.
Potential bidders can then choose to participate and respond in the form of submitting a ▶ Administrative and legal structure and the certificates of incorporation of the
statement of qualification (SOQ), which allows the contracting authority to assess whether bidder and its consortium members, including:
the bidder is sufficiently qualified to participate in procurement. The prequalification process
is summarized below: o Full description of the individuals and bodies of which a bidder is composed.
o Roles and responsibilities performed by every member of the consortium.
o The persons or bodies that will provide SOQ.
o Property rights of the members of the consortium.
o Controls or conditions on changes in equity.
Issurance of Investors Submit Issue list of o Employees who are appointed for the PSP project.
RFQ conference SOQ prequalified
bidders ▶ Evidence of meeting the following by the bidder:
o Experience related to the PSP project, the sector or similar projects.
The RFQ will mainly cover the following: o The ability to execute the PSP project.
RFQ Timeline and preliminary project timetable. o Solvency and the ability to fund the project.
o Experience with comparable projects that included the essential elements
SOQ submission instructions including what the SOQ should contain, minimum
of PSP such as financing, design, construction, ownership, operation and
requirements, required format, and where to submit it. Also specifies the
maintenance.
deadline, beyond which submissions won’t be accepted.
o The ability to fulfil requirements of shares and financing, if any.
Point of contact for bidder inquiries and clarifications.
o Previous experience in the development of projects, including success and
Description of pre-SOQ inquires process including the schedule for receiving and
innovation, and addressing their social and environmental impacts.
addressing bidders’ inquiries.
o Experience in human capital development, transfer of technology and capacity
Explanation as to how bidders’ data, documents, and intellectual property rights will be
and promotion of local content.
managed.
o Understanding of public sector services and PSP project needs and the ability to
A description of the PPP project including contracting authority’s expectations, interact and work with public sector entities.
project site and other relevant information.
o Ability to manage risks throughout the PSP project and maintain quality of
services and infrastructure.
* Certificates of incorporations can be substituted with commercial registration certificates

In some projects, specific requirements might be required in addition to what has been Issue RFP documents
stipulated in Article 75 above, but that will be clearly mentioned in the RFQ. Moreover,
alongside the SOQ, bidders will be expected to submit a letter which contains: The RFP documents issued by the contracting authority intend to signal the seriousness of
An undertaking that the qualified bidders will comply with the procedures for the government to embark on the project. It sets out details such as the RFP›s role, overview
RFQ and RFP. of the project, evaluation process, project timeframe, objectives, financing assumptions,
contracting model, due diligence process, and data availability. It also covers aspects like
A statement that the SOQ is correct and accurate. alternative technical concepts submission, pre-bid clarifications, extension requests, legal
An acknowledgement that the cost incurred by bidders in preparation and references, proposal requirements, submission guidelines and deadlines. The consortium
submission of SOQ shall not be borne by the government. rules, eligibility limitations, conflict of interest disclosure, evaluation criteria, proposal validity
period, and bid bond requirements are also defined. Lastly, a draft PPP contract aligned with
A confirmation to avoid collusion, conflict of interest, bribery, and other
business case documents and other pertinent materials are included with the RFP among
corruptive behaviours.
other essential components. If necessary, the contracting authority will establish a secure
data room containing the necessary documents related to the project. This data room is
intended to facilitate bidders' access to essential information for the project.
Implementing Regulations of the Private Sector Participation Law -
Article 73: Even though major project sponsors may have in-house resources for preparing the
consortium's RFP response, it is advisable to hire transaction advisors at this stage to assist
The period between the publication of RFQ and the deadline for submitting the SOQ prequalified bidders to develop a well-considered and compliant bid. External advisors
shall not be less than twenty-eight (28) days starting from the working day following the assist consortium members in reviewing the contracting authority›s project and its
issuance of the RFQ. documentation. They offer expertise in technical, legal, and financial aspects, aiding in the
timely preparation of tender documents. Some advisors might also provide additional bid
planning and management services. The consortium's external advisors provide guidance
Once SOQs have been submitted, the contracting authority will review submissions and collectively, while individual sponsors may also opt to have their own independent advisors.
publish a list of prequalified bidders on their website in addition to NCP’s investor portal. It must be noted that sometimes transaction advisors are hired at the EOI stage to support
with the whole procurement process (including submitting the SOQ). Transaction advisors
Request for Proposal (RFP) may include financial, legal, and technical experts.
In this stage, the prequalified bidder will be issued the RFP documents. The aim of the
contracting authority at this stage is to shortlist bidders who meet the project delivery
criteria and offer the best value for money. The typical overall RFP process is summarized Clarification question (CQ) process and investors conference
below:
It is essential for the bidders to dedicate significant time and resources to review the RFP
documents and note down any clarification questions they may have. Some contracting
authorities might opt to organize an investors conference to present the project and answer
questions directly. Nevertheless, the RFP document will have detailed information on the
pre-bid clarification questions process including how the questions will be addressed.
Technical &
Issue Investors
financial bids Moreover, a timeline, a point of contact and any other pertinent legal and procedural
RFP conference
submission matters will also be provided. The contracting authority will endeavour to respond to any CQ
bidders may have and will generally upload CQs and their responses to the portal so that all
bidders could access the same set of information.
Best and Award

Final Offer successful
bidder

Technical and financial bids submission Technical:
It is advisable to formalize the consortium prior to preparing and submitting the bid From a technical perspective, the bid submission requirements may comprise,
response to help ensure the consortium operates effectively and members understand amongst other things, an assessment of costs, technologies, outline designs and
operating methods.
the structure and individual responsibilities. At this stage, the consortium is formalized
through signing a letter of intent or a memorandum of understanding which sets out Within the technical information provided, there will be information about any
the consortium members’ intention to bid for the project together. These agreements specifications, standards, or requirements that the contracting authority
may not be binding; however, the contracting authority may request the consortium requires bidders to adhere to and respond to. The RFP will clearly outline all
members to sign a more binding agreement at this stage called “consortium agreement”. the technical information that is required to be submitted, enabling the bidder
to undertake a thorough technical evaluation of the project.
It is also recommended that bidding consortia implement a clear governance structure
It is important that the technical bids have been endorsed by any downstream
including naming the lead. Setting up a steering committee as a mechanism for decision
contractors who will be undertaking the construction of the asset and operating
making during the bid-preparation process may help ensure decisions are made with the and maintaining it once commissioned. They will be the ones responsible for
consideration for all partners. A clear governance structure also helps in the resolution of delivery and so need to agree to what has been put into the bid response.
any conflicts or disputes that may arise between partners who potentially have different
interests and/or priorities.
The consortium should also develop and agree the structure of the project vehicle for
implementation should the contract be awarded to them at the end of the bidding
process. This should include the development of a matrix of contracts which outlines the
obligations of the different parties, the level of risk they will assume and manage, and
remuneration they will receive.
Moreover, preparation and submission of bids will result in costs being incurred by
members of the consortium. Therefore, prior to bid preparation getting underway, it is
also important that an agreement is reached on how bid related costs will be shared
between consortium members. Contracting authorities will not compensate successful
or unsuccessful bidders for their bid related costs. Moreover, as per article 13 of the PSP
law, if the contracting authority cancels the tender process, no bidder will be entitled
to any compensation unless NCP’s board of directors decides otherwise based on the
contracting authority’s recommendation.
Once RFP documents and responses to CQs have been reviewed, bidders should
start carrying out their due diligence and preparing their responses with the help of
transaction advisors. This may include participating in site/project visits that may be
offered and detailed by the contracting authority in the RFP package.
To help guide bidders prepare a compelling response, the RFP documents outline the
required technical, legal, and financial requirements:

Legal:
Bidders will have to submit proof of legal existence, proof of authorized
signatories, details of their corporate documents, and consortium agreements.
Legal consultants will also start reviewing project agreements in case the
contracting authorities allow for comments or mark-ups.
It must be noted that the legal information provided will also outline the required
approvals that the preferred bidder will be responsible for; including consents,
permits, licenses and minimum environmental standards as outlined by the relevant
municipalities.
Financial:
In the financial section of the bid, project cost estimates, financing requirements
and the financial model (if applicable) will have to be provided.
Bidders will be required to outline the general financing structure including the
debt and equity proportions. They may be required to secure letters of
commitment from their lenders as part of their submission, known as “comfort
letters”. Moreover, interest rate hedging strategies may also be required.
Although bidders may begin the process of finance raising during bid
preparation, the conclusion of finance raising will only happen once the contract
is awarded to the consortium. Before they provide the project with financing,
lenders will want to ensure that the project risk set-up is robust, to ensure
that they will be protected against the adverse effects which may arise if project
risks materialize. This usually means that Financial Close can only take place after
commercial close.
Finally, bidders maybe required to prepare and submit a financial model for the
project. This will be detailed in the RFP documents. If a financial model is
required, a series of assumptions (financial and economic) will have to be made.
Within the bid documents, there should be a standardised form where inputs
can be recorded to be submitted alongside the model. Moreover, there are
general requirements that the model should meet including consideration for
any relevant regulations, recording notes when complex formulas are involved,
and specific outputs that the model needs to produce such as financial
projections. Finally, the model should contain some sensitivities which should
have been run and need to be identified, for example inflation.
As mentioned previously, a bid bond may be requested by the contracting authority.

This is a written guarantee issued by a third-party guarantor (usually a bank) provided to
the contracting authority and intended to demonstrate the bidder’s commitment and
seriousness in the bidding process. The amount and validity of the bond will be set in the
RFP documents.

A full list of the documentation that should be included in the Proposal To ensure strict adherence to guidelines, bidders will be required to prepare a detailed
Document as outlined in Article 82 of The Implementing Regulations of the response which meets the requirements outlined in the RFP including submission of
completed form sheets and data forms, providing all the information required by the
Private Sector Participation Law is shown below:
contracting authority. To avoid confusion, form sheets are standard format sheets which
bidders may have to fill to ensure consistency when it comes to evaluating responses.
▶ A technical proposal in a separate sealed envelope and the name of the bidder
and the term “technical proposal” shall be displayed thereon unless these Bidders will be given sufficient time, no less than 60 working days, to submit proposals
regulations require otherwise.
after the issuance of the RFP.
▶ A financial proposal in a separate sealed envelope and the name of the bidder and Once bids are submitted, the competition and evaluation committees will commence the
the term “financial proposal” shall be displayed thereon. evaluation process in a specific order as follows:
▶ An acknowledgement that evaluation of proposals may be affected by:
o Total or partial non-compliance with the RFP.
o Listing reservations, conditions, comments or other qualifications in their Technical bid Financial bid
proposals or the RFP. evaluation evaluation
▶ The evaluation ▶ The evaluation
▶ An acknowledgement that the representations provided by the bidder in response committee will committee will
Bid opening inspect the financial
to the RFP including any documents submitted with its proposal to the work inspect the technical
bids to ensure bids to ensure
team, may be considered part of the contractual obligations in the PSP project. A special committee
formed by the completeness of completeness of
contracting authority will submissions submissions
▶ An acknowledgement that no change has been made to the composition of the open the submitted bids ▶ Thereafter, technical ▶ Thereafter, financial
bidder, its organizational structure, and the proposed activity of the bidder and bids will be evaluated
bids will be evaluated
that it is still a qualified bidder. If such a change is made, information and details based on the bid based on the bid
of such a change shall be clarified and the documents containing such a change evaluation criteria evaluation criteria
shall be submitted. explained in the RFP explained in the RFP
documents documents
▶ Evidence that the bidder and its affiliates have a proper legal status in the country
of incorporation.
▶ A letter attached to the bidder’s proposal containing:

Article 89 of The Implementing Regulations of the Private Sector
o An undertaking that they will comply with the RFP process and an undertaking
Participation Law clarifies the elements that are taken into consideration
that no comments or suggestions will be expressed except under the during the evaluation of technical bids:
procedure set out in the RFP.
Technical proposals shall be evaluated according to the evaluation criteria contained
o Undertakings and representations that the proposal documents are correct in the approved Tendering Plan, provided that the following elements shall be taken
into consideration during evaluation, where applicable:
and valid.
o An acknowledgement that the cost incurred by the bidder in the 1. The ability of a bidder to implement the PSP project.
preparation and submission of proposals is in accordance with the RFP.
o An acknowledgement that the government and the contracting 2. The amendments to the draft contracts suggested by a bidder.
authority shall not bear the cost incurred by the bidder in preparation
and submission of the proposal. 3. The following elements shall be considered in PPP projects:
o An undertaking that the bidder and its affiliates have never been
involved in collusion, conflict of interest, bribery, conspiracy, fraud, or
misrepresentations and that no penalties or restrictions have been
imposed on them.
▶ Any further undertakings or documents that are required under the RFP.

▶ Project management approach: Article 92 of The Implementing Regulations of the Private Sector
o Project implementation schedule.
Participation Law clarifies the elements that are taken into consideration
during the evaluation of financial bids:
o Management plan for each implementation phase.
The financial proposals shall be evaluated according to the evaluation criteria
o Systems for cost control, quality, and performance management. contained in the approved tender plan, provided the following elements shall be
considered in the evaluation for PPP projects:
o Risk management and mitigation procedures.
▶ The financial capacity to implement the project.
o Strategic plan to source human resources, equipment, and materials.
▶ Details of the financial consideration or details of the percentage of revenues.
o Public relations and communication procedures and a plan for reporting.
▶ Pricing sheets and cost details.
o System for complying with statutory requirements.
▶ The financing model, the underlying assumptions, the sensitivity of the
▶ Design and construction approach: assumptions and the results of the sensitivity analysis.
o Descriptions, drawings, and other schematics showing the project and site.
▶ Feasibility of the financing plan, including cash flow and debt service coverage
o Determining the materials to be used in the project and their sources of supply. ratio analysis.
o Proposed technological solutions, innovation and/or integration with existing ▶ Bill of quantities.
systems.
▶ Net present value and value for money.
o The value of the alternative technical concepts, if any.
o The sequence of construction, staging, testing, and commissioning, and the ▶ Schedule for contract signing and financial closure.
critical path. ▶ Financial risk management plan.
o Approach to mitigating construction impact (e.g., traffic, stakeholder
▶ Adequacy of guarantees and related information.
engagement, environmental).
o The human resources plan, management plan, skills, and training. ▶ Details of the proposal and sufficiency of the performance bond.
▶ Financing term sheets.

▶ Operations approach:
o The procedures for quality management, efficiency, and compliance with ▶ Details of insurance and its variables.
operational requirements. ▶ Bank support details including a commitment letter, structure, and hedging
o Procedures for managing operational issues. strategy.
o Security, safety, and emergency systems.
o Employees’ and sub-contractors’ recruitment and contracting mechanisms.

It must be noted that if the lead private party or another member of the consortium wishes
▶ Maintenance approach: to drop out of the process they should refer to and follow the tender rules set out in the RFP.
o Planned maintenance regime and life cycle approach. If this eventuality is not addressed in the RFP, bidders should seek clarification on either the
withdrawal or changing of consortium members through the clarification question process.
o Provision of maintenance materials and supplies.
o Short and long-term sustainability measures.

Post-proposal
After the competition committee receives the evaluation reports from the evaluation
o Plan for the renewal and replacement of capital assets.
committees, they will ensure the completeness of bids and rank the technical and financial
o System for mitigating interruptions to operations. bids as per the approved tendering plan presented in the RFP. Rankings will be submitted
for review by the Director-Head of the concerned department who will then identify the
o Handover plan.
preferred bidder.

Best and Final Offer (BAFO) The CA would not normally participate in these negotiations but may provide additional
information or clarification to support the process. The contracting authority may get
If permitted in the RFP, the competition committee may choose to initiate a final round of involved if a direct agreement between the contracting authority and the lenders
bidding (BAFO) to determine the preferred bidder. Each invited bidder is encouraged to covering, among other things, step-in rights for lenders, and the consequences of any early
consider improving their offer. Bidders who fail to submit a BAFO may be eliminated as per termination. It is usually in the interests of both the lender and contracting authority to enter
the rules stipulated in the RFP. into a direct agreement as it allows the lender to step in and replace the private party if, for
example, the private party were to become insolvent allowing the project to continue and for
Negotiations with preferred bidder the lender to potentially recover funds owed to it.
After the tender process and BAFO stage concludes, the competition committee will provide Furthermore, the contracting authority will review any financing agreements to ensure
its recommendations to the Director-Head. These recommendations will identify a single alignment with the project agreements and consider any changes necessary to align with
bidder whose bid is considered the preferred choice and may also suggest up to two reserve final financing terms. Moreover, as the successful bidder will take on responsibilities for
bidders. Whilst not a mandatory stage for all procurements, the objective of this stage of managing some of the risks on the project, the contracting authority may require evidence of
negotiations will be to conclude the project agreement on terms which meet the contracting the required insurances requested in the RFP documents and contract.
authority’s objectives.
Preferred and reserve bidders may be requested to extend the validity of their bid bonds; if
the timeline stipulated in the RFP documents was found insufficient. Thereafter, the preferred Private Sector Participation Law – Article 18:
bidder will be contacted to discuss the negotiation requirements including the time and “After obtaining written approval from the contracting authority, a private party may:
place of negotiations. Once negotiations have been concluded and parties are willing to
proceed, the preferred bidder will be sent a negotiation log to sign within 10 days followed ▶ Enter into financing agreements for the works and services linked to the PSP
by the letter of award. In the meantime, contract and relevant ancillary agreements will be project with banks or financing entities, provided that the private party shall solely
finalized by the contracting authority. bear the responsibility for all obligations and disputes arising therefrom, unless
It must be noted that although business case documents are approved by the Council of otherwise agreed upon by the contracting authority and the private party after the
Ministers prior to the bidding stage, award is conditional on obtaining necessary approvals if approval of MOF.
updates to the business case documents resulting from negotiations are deemed necessary.
▶ Pledge an asset owned by it in the PSP project for obtaining finance for the works
Moreover, approvals will have to be sought from the Ministry of Finance if certain rights have
and services linked to the project. In all cases, the private party may not sell or
to be given to the preferred bidder such as:
pledge any state-owned asset.
▶ Allowing the private party to directly collect charges from the beneficiaries as outlined in
the PPP contract, for its own benefit. The contracting authority or MOF, with the approval of the approving authority, may
enter into direct agreements with any other party related to the PSP project or make
▶ Allowing the private party to collect public revenues, such as fees and taxes related to the commitments thereto, which specify the rights and obligations of such parties 15”
PPP contract, on behalf of the State’s Treasury.
▶ Allowing the private party to directly collect public revenues, either entirely or partially,
as specified in the contract, and retain them for its own benefit as agreed upon in the Special Purpose Vehicle (SPV)
contract.
When the preferred bidder is ultimately awarded the contract, they will usually be required
to form a Special Purpose Vehicle (SPV) to formalize the partnership arrangements with its
Financial Close
consortium members, and to contract with the contracting authority to deliver the project.
If external finance is used, there will be a separate process for financial closure to be
completed. Whilst this will consist mainly of negotiations between the preferred bidder and What is a SPV?
their proposed lenders, the contracting authority may become involved too. For instance,
A SPV is a legal entity/company created by the private party/shareholders for the purposes of
there may be a direct agreement between the contracting authority and the lenders covering,
undertaking the PPP project. The SPV will be the private party signatory to the PPP contract.
among other things, the consequences of early termination of the contract.
The SPV shareholders are usually the consortium members. However, not all consortium
members may opt to be SPV shareholders. For instance, a construction contractor might
prefer to participate as a nominee contractor, concentrating solely on construction tasks
rather than taking on the comprehensive involvement expected of SPV members in PPP
project implementation.

Understanding the SPV stakeholders The incorporation process of the SPV would follow the standard Ministry of Commerce (MC)
procedure for registration, licensing, and set-up. This includes notarizing the company’s
The complex, long-term nature of PPP projects means that the two contracting parties are not
articles of association, registering a local address (Wasel), and the opening of a local bank
the only stakeholders of the SPV. Instead, PPPs often involve a complex web of relationships which
account in Saudi Arabia, registering with the Ministry of Human Resources and Social
includes:
Development (HRSD) and generally complying with government or sector wide regulations.
The provisions outlined in the consortium agreement will be mirrored in the SPV’s
Private party constitution and the project contracts. The arrangements within the consortium agreement,
Government department or Provide equity as part of the finance including working procedures, sponsor rights and duties, and risk and reward distribution
contracting authority structure and can include project developers, for the PPP project, will be addressed in the establishment documents of the SPV and other
Procures the PPP and manages the contract engineering or construction companies, contracts related to the PPP project.
from the public sector’s point of view, which infrastructure management companies,
usually includes monitoring and regulating and private equity funds. They are also Modifications to the legal structure, capital reduction, share sales, amendments in
the performance of the private party. responsible for delivery of the PPP and hold shareholder proportions, mergers, splits, acquisitions, addition of new shareholders, or
contracts directly with other partners as ownership transfers of the SPV are not allowed unless specifically authorized by the contract.
required.
In any case, shares of the SPV cannot be transferred until construction or development is
finalized and project operation begins, except with the contracting authority’s approval.
Lenders
Construction or EPC contractors Provide loans as part of the financial structure
Contracted by the private party to deliver of the PPP and may include commercial
the construction phase of the PPP project. banks, multilateral and bilateral development
This is often a subsidiary of one of the equity banks and financial institutions, and
investors. institutional investors such as pension funds
or insurance companies.
Operations & Maintenance (O&M)

contractors Users
Contracted by the private party to operate People who will use the infrastructure and/or
and maintain the asset once construction is consume the services once constructed and
completed. This is almost always a subsidiary commissioned.
of one of the equity investors.
Provide proof of SPV registration

Ideally the SPV should be formed after the contract is awarded, but before the final contract is
signed. However, in practice, successful bidders have been signing the contract with a condition
that all contractual rights and obligations will be transferred to the SPV once established. This is
permissible as per Article 103 of the Implementing Regulations of the PSP Law.

SPV delivery and management of PPPs Part of the financing structure under a private-financed PPP model is the use of commercial
borrowing to fund the initial investment, alongside the equity capital provided by the private
Once the PPP contract is signed, known as commercial close, the SPV will execute financial
party . The terms will be defined in advance through the financing agreements between the
agreements, known as Financial Close. The SPV holds ultimate contractual responsibility,
SPV and commercial lenders.
however it may ‘pass through’ the rights and obligations of the contract to its appropriate
downstream partners. Some of the elements that will be passed through are the
responsibilities and obligations, risks, and cash flows, which will all be enabled through
Conditions precedent
various agreements including: In addition to reaching Financial Close and establishing an SPV, there may be other pre-
conditions relating to matters such as performance bonds, permitting and authorization that
▶ Shareholder agreements
must be met. Such conditions precedent will be set out in the RFP.
▶ Financial or debt agreements
▶ Construction or EPC contracts (single contractor or group acting as a joint venture) Construction & contract management
▶ Operations and maintenance contracts EPC and O&M contracts are signed as soon as the SPV is formed, and construction and
contract management will commence thereafter. Responsibility for monitoring and
▶ Insurance contract and guarantees (where applicable)
management of the primary contract will lie primarily with the contracting authority,
The diagram below illustrates the standard contractual interfaces and financial flows in a ensuring contract requirements set out are monitored and enforced.
typical private-financed PPP project structure.
Article 127 of The Implementing Regulations of the Private Sector

Government Participation Law states that the concerned entity will be responsible for
/Contracting managing the contract including:
Authority
▶ Communicating with the parties to the contract and conduct correspondence and
Payment and/or
PPP Contract notifications to assist in the implementation and oversight of the contract.
right to charge
▶ Follow up on the requirements of the contract implementation, including – as
Article of Association/
applicable – its establishment, processing, provision of services and others in
Shareholder Agreement
Loan Agreement
Private Sector accordance with the provisions of the contract and any other procedures related to
Lenders Equity Investors
Debt Financing
Partner (SPV)
Dividends planning for the termination of the contract.
Debt Service Equity
▶ Verify the compliance of the private party and any other related parties with their
contractual obligations including achieving the quality levels specified in the
Construction O&M contract and specific implementation schedules.
Contract Contract
▶ Ensure that the private party and any other related parties implement any decisions
issued by the approving and contracting authorities throughout the contract term,
Payments Payments
in accordance with the powers stipulated in the law, the governing rules, and these
regulations.
Operation and ▶ Ensure that the private party provides all information, documents and reports that
Construction/ EPC User charges
(If Applicable) Maintenance
Contractor allow the supervisory authorities to exercise their control over the implementation
Contractor
of the contract and enable these authorities to conduct any inspection tours during
the stages of contract implementation, and their commitment to all regulations,
instructions, and decisions in force in the Kingdom.
Users
Please note that the contracting authority may decide to assign the function of monitoring
the private party’s implementation of the PPP project to a third party in accordance with the
Risk transfer is an important aspect of PPPs and therefore partial or total transfer of the
provisions of the contract.
construction and O&M performance risks are passed down to the construction contractor and
O&M operator. It is common for one or both of the contractors providing construction or O&M
To support the contracting authority to manage and monitor the contract effectively, specific
to also be shareholders in the SPV or subsidiaries of the shareholders. Other shareholders
responsibilities must be outlined for the private party within the contract.
may include financial investors.

Supply chain management Performance & risk reporting
Generally, the private party will be responsible for monitoring and managing the contracts they Throughout the project, the contracting authority will have to prepare a semi-annual progress
have as a consortium, as well as with any downstream contracts and their supply chain. Ensuring report, which would include any challenges or risks and recommendations to address them
that all contracts ultimately are achieving the objectives set out by the primary contract agreed and submit the report to the approving authority.
with the contracting authority for delivery of the entire project. To effectively manage contracts The approving authority being the entity authorized to issue necessary approvals as defined
downstream, the private party is advised to hire a contract management team to ensure by the PSP governing rules. To aid the contracting authority, the private party will be required
open and transparent communication as well as accountability within the SPV structure at all to report progress, any updates to risks involved and provide any information, documents
levels. The aim is to ensure all objectives are met as specified within the primary PPP contract. and reports deemed necessary to the contracting authority to exercise their control over the
implementation of the contract. Moreover, the private party should facilitate inspections during
To ensure successful management and monitoring, the private party should have: implementation stages and enforce strict adherence to the Kingdom’s regulations, instructions,
and decisions.
▶ Sufficient management capacity with the skills required to deliver. This requires having
skilled resource internally or hiring advisors. It’s crucial that the private party ’s reporting system aligns with the contracting authority’s
▶ Clear leadership of the project with clear decisions made at the appropriate time. requirements. Therefore, the contracting authority will have set clear policies and procedures
in the contract with regards to the level of detail, format, and deadlines of the data to be
▶ Strong governance and independence where necessary.
produced by the private party . This enables the private party to establish a suitable reporting
▶ Clearly defined and implemented quality control mechanisms. process and ensures sufficient time for information management systems to meet the
contracting authority’s needs.
▶ Stakeholders identified early and kept regularly informed and updated on progress.
▶ Effective communication and engagement within the project team and with all external For the avoidance of doubt, it is the responsibility of the private party to provide the contracting
stakeholders (government, supply chain, public, etc.) authority with the right information.
Risks should be monitored closely throughout the construction and operation of the project to
It is natural for changes to occur over the life of the contract given that the length can be as
ensure that they do not materialize and impact the overall delivery of the project. This includes
much as 30 years. These changes could be proposed by the contracting authority, suggested
ensuring allocated risk responsibilities are put into practice during the implementation phase
by the private party or be required because of unpredicted external factors. It is essential to
of the contract.
review and understand the contract to ensure that the process for accepting or rejecting these
changes is carefully managed and documented by contract managers on both sides. The private party will be required to report updates on risks and mitigation plans to the
contracting authority regularly. It may also find that effective monitoring and management of
Please note that when changes are proposed, it is advisable that they be clearly documented service performance is crucial to help ensure contractual compliance. Output specifications,
based on evidence and data collected. The contract manager should be able to clearly performance measurement systems, and deduction methods for inadequate performance
demonstrate to decision-makers the impact on the project if the change is made, as well as outlined in the payment mechanism determine how payments to the private party are
any consequences or risks that may materialize if the change is not implemented as described. calculated and how deductions are applied.
Having sufficient data to back-up the rationale for making the change is essential and the
private party should endeavour to have good information management practices to allow this The contracting authority will develop and maintain a contract management plan measuring
to be drawn out as necessary. performance against key performance indicators (KPIs). Accordingly, the private party will need
to regularly provide stipulated performance indicators to enable monitoring of service
delivery, allowing parties to take actions to correct any decline in service delivery.
Please note that in addition to deductions, non-compliance with KPIs could warrant other
responses such as the issuing of warnings, formal notifications, step-in clauses or contract
default and termination.

Mobilization and construction
As outlined in Article 128 of The Implementing Regulations of the Private Once the necessary permits and approvals have been attained, the EPC contractor will
Sector Participation Law, the Concerned Entity shall develop a contract
mobilize its workforce onsite to commence construction. The role of the EPC contractor is
management and monitoring plan including at minimum:
mainly to purchase the materials, services and equipment required to construct the facility/
▶ An overview of the contract and its main contractual provisions, its implementation asset, to perform, co-ordinate and manage the construction works, to commission and test
timetable, the obligations and responsibilities of the parties to the contract. the facilities and to manage warranty issues.
▶ Contract management and monitoring mechanism, and performance evaluation Commissioning

indicators.
Once the construction activities have been completed, the EPC contractor will carry out
▶ Identification of the parties related to PSP project implementation, control and
all the activities related to mechanical completion (including related tests) to make sure
management in the concerned entity and relevant government entities, and the
that the facility/asset is ready for commissioning. The private party/SPV would usually
mechanism of communication and coordination amongst them.
review test records and instruct the EPC contractor to develop snag lists and an operation
▶ A schedule for the progress of the procedures for implementing the signed and maintenance manual. Once the manuals are approved by the private party/SPV,
contract and governance procedures. representatives from the SPV may conduct run-ins and operational testing as per the
▶ Mechanisms for addressing the difficulties and problems in the implementation of commissioning plan to identify any defects. Finally, to commence operations, the EPC
the PSP project. contractor will acquire the remaining statutory approvals and completion certificates from
the related statutory body as soon as all defects have been addressed.
▶ Procedures and requirements for reviewing, preparing reports and notices.
Operations
▶ Any other procedures and requirements that the concerned entity deems
Once the construction and commissioning are completed, the O&M contractor will
appropriate.
commence their work. The main role of the O&M contractors is to ensure that the asset/
facility is running smoothly and that any defects or maintenance needs are addressed in a
timely manner.
Detailed design At this stage, the private party/SPV can start charging users for use of the asset under a
Once the EPC contract is signed, the EPC contractor will review concept designs and tailor ‘user-pays’ agreement. If the agreement is a ‘government pays’, then the process works
them to develop detailed designs. The output of the detailed design process is a set of slightly differently in that the SPV will invoice the contracting authority. The frequency of
drawings, specifications, standards, procedures, and material requisitions that can be used to invoicing would have been established in the PPP contract according to the agreed payment
procure the materials, equipment and services required to commence execution. mechanism.
Statutory approvals & permits Expiry & hand-back

Statutory approvals can be used to describe the different types of consents that may be The final stage in the management of the contract is the handover of the asset to the
required for the project. These vary depending on the location of the site and planning contracting authority at the end of the contract period (if applicable depending on the PPP
policies that may be enforced by the statutory body. The main statutory approvals are model and contract conditions). Depending on the PPP model, the private party/SPV may
planning permission and building regulation approval. These statutory approvals may be required to make some investments to ensure the asset meets hand-back requirements.
become required at different stages of the project. Some of them may have to be applied for As a result, PPP contracts typically include provisions to ensure that the private party /SPV
at an early design stage and others may become required during construction. Nonetheless, sets aside sufficient resources to cover the cost of such investment. If the project assets have
it is the responsibility of the EPC contractor to ensure that all necessary regulations, approvals, reached the end of their useful life, the private party may be required to dismantle them
and permits have been met or attained to avoid issues throughout the construction phase. and clear the site, although any such obligation would need to be included in the PPP
contract from the outset.

At this stage, the contracting authority must choose how they wish to proceed, including
extending the current contract, re-tendering the project, or taking over direct management of
the asset. At the same time, the private party would also be considering what the options may
be for them at the end of the contract. Therefore, preparation for hand back should begin in
the years prior to contract expiry. The contract management team will need to begin to assess
the quality of the asset in its entirety, making themselves aware of the expected asset condition
required to meet contract expiry conditions.
The state of the asset during hand-back is really determined by its maintenance and operation
during its life cycle. While private party usually create capital replacement plans for assets,
systems, and equipment during the life of the asset, if on assessment it is evident that the asset
does not meet the hand-back requirements, then the private party must set up a remedial plan
to bring it up to the necessary quality to avoid any dispute with the contracting authority. The
plan could include:
▶ Program for remediation
▶ Costs of such remediation
▶ Inspection plans post remediation to ensure work has been completed properly
To handle financial risks, PPP contracts might demand a hand-back reserve account. This
account accumulates funds equal to a percentage of the yearly revenues/payments, which
could be used to cover any unexpected repairs or necessary investment to meet the hand-back
conditions obligation before or just after handing back the facility to the contracting authority.
If the contracting authority re-tenders the project (or just the O&M), the private party will be
required to co-operate to ensure a smooth handover to any new contractor.
As well as the transfer of the physical asset on expiry of the contract, associated data and
intellectual property rights that belong to the contracting authority will also need to be
transferred back.
APPENDIX 2 –
TYPICAL PPP MODELS
Presented below are a range of typical models the private party may engage in PPPs
through. There are multiple variants and naming conventions used in different jurisdictions
and interchangeably (e.g., DBFO and BOT). Please refer to the RFP and other tender
documents in relation to the project which shall set out the roles, and responsibilities of the
private party.
Build–operate–transfer (BOT)
In the build-operate-transfer (BOT) model, the private party finances and constructs the
infrastructure asset and then transfers ownership of the asset to the public entity after
a defined period of operation. Over the period of operation, the private party recoups its
investment in the asset and then transfers the asset to the public sector.

Build–Own–Operate (BOO) Design–Build–Finance-Maintain (DBFM)
The build-own-operate (BOO) contracts are where the private party finances, designs, Similar to BOOT, the design-build-finance-maintain (DBFM) and its variations (DBFOM and
constructs, and operates an infrastructure asset for a defined period and retains ownership of DBFO) are more used in the UK for PFI (private finance initiative) projects. The private party
the asset indefinitely. BOO projects are typically driven by the profit motive, with the private designs, builds, finances, maintains the asset, then leases it back to the government, typically
party earning revenue from user fees, payments from the public sector or other sources and over a 25 – 30-year period.
seeking to maximize returns on investment. The main difference between DBFM/DBFOM and the DBM model is the financing aspect.
The private party is responsible for the project is also responsible for providing the financing
Build–Own–Operate–Transfer (BOOT) needed to carry out the project. Financing can be provided through a variety of mechanisms,
The build-own-operate-transfer (BOOT) contracts work in the same way as BOO where the such as loans, bonds, or equity financing.
private party will finance, design, construct, operate, and maintain the asset for the term of
the contract. Where they differ is at the end of the contract where under a BOOT model the Design–Build–Finance-Operate-Maintain (DBFOM)
ownership of the asset will be transferred to the public entity.
The design-build-finance-operate-maintain (DBFOM) is similar to the DBFM model. However,
Build–Transfer–Operate (BTO) the private party also assumes responsibility for operation of the asset alongside the
maintenance responsibility.
In the Build-transfer-operate (BTO) model, the private party finances and constructs the
infrastructure asset and then transfers ownership of the asset to the public entity upon Adding operation ensures that the private party responsible for the project has a strong
completion. Following construction completion, the public entity, and the private party incentive to deliver a high-quality asset that meets specific performance standards over the
must enter into a separate agreement whereby the contractor operates and maintains the long term to achieve optimum efficiency and generate revenue.
constructed asset for a defined period.
Overall, the key difference between BTO and BOT contracts is the time at which the asset Design–Build–Finance-Operate (DBFO)
ownership is transferred to the public entity. Under the BTO model transfer is completed on The design-build-finance-operate (DBFO) model is very similar to the DBFOM model. Under
completion of construction, meaning that during operation the private party is equivalent to both DBFO and DBFOM, a single entity is responsible for designing, building, financing, and
that of an O&M contractor. However, the private party retains their economic ownership of operating the infrastructure asset. However, In DBFOM, the private party is also responsible
the asset over a defined period of operation. for maintaining the asset which can incentivize the private party to prioritize the quality and
longevity of the asset, as well as to manage costs effectively over the long term. This is why
Design–Build–Maintain (DBM) DBFO is not as widely used as DBFOM.
The design-build-maintain (DBM) is a model where the private party is responsible for the
design, construction, and maintenance of the infrastructure asset whilst the public sector Design–Construct-Manage–Finance (DCMF)
is responsible for its funding and financing. Once construction is completed, the public The design-construct-manage-finance (DCMF) contracts are just alternative terminology for
entity will be responsible for operating the asset while the private party will perform routine DBFOM. The private party would usually construct the asset based on specifications from the
maintenance and/or repairs for the duration of the contract; ensuring the asset meets the public entity and leases it back to them.
availability or project usability requirements as stipulated in the contract. DBM projects
are designed to provide a streamlined approach to project delivery, with a single entity Rehabilitate-Own-Operate (ROO)
responsible for the design, construction, and maintenance of the infrastructure asset. The rehabilitate-own-operate (ROO) contracts involve an already existing asset within
the government’s portfolio. The private party will rehabilitate and improve the existing
Design–Build–Operate (DBO) infrastructure asset, such as a road or a bridge, and then operate it. The contracting authority
The design-build-operate (DBO) involves a single entity responsible for the design, will transfer the ownership of the asset to the private party which will own it in perpetuity
construction, and operation of an infrastructure asset. In some instances, operate means both (unlike ROOT where it will own the asset for a defined period; typically, 15 to 25 years). Aspects
operate and maintain. As a result, DBO is very similar to the DBM model. The main difference of terms under this contract type are similar to build-own-operate (BOO) contracts.
between DBO and DBM is that the private party in a DBO model assume responsibility of
operations and thus generating revenues from user fees.

APPENDIX 3 – Alternatives to non-recourse project finance
PPP FINANCING OPTIONS While project finance is helpful for large projects and is generally considered a secure form
of lending for banks when properly structured and managed, it can be considered risky
Non-recourse project finance (typical PPP financing approach) especially for complex projects in emerging markets or those with uncertain cash flows. This
The typical finance structure used for PPPs is based on non-recourse project finance where means that interest rates for project finance debt could be more expensive in comparison
lenders can only be paid from the revenues made by the asset or the SPV. This means in to government borrowing and borrowing by an already established company. Moreover, the
the case of a default; lenders are unable to claim against the shareholders of the company. transaction cost involved can make it an expensive form of lending for smaller PPP projects.
In other words, lenders have limited recourse to the project company’s assets in the event Therefore, options that has lower financing costs exists.
of default or failure to repay the debt. Moreover, the obligations of the project company are
Large infrastructure companies can finance their projects through traditional full recourse
ring-fenced from the obligations of equity investors, and debt is secured on the cash flows of
corporate finance or limited recourse project finance. In corporate finance, lenders provide
the project. As a result, the proportion of PPP finance that is made up through debt is high,
unsecured loans to the parent company based on the strength of its credit rating and
typically it can range between 70% and 95%.
backed by its balance sheet. While in limited recourse project finance, a SPV is created to
Non-recourse Corporate Project Structure hold project assets, and lenders provide loans to the SPV secured by project assets.
Full-recourse Corporate Project Structure

Project SPV Loan
Lenders
(Borrower) Principle & Interest Shareholder
(Prviate Company)
Cash Flows
Equity
Project SPV Loan

Lenders
(Borrower) Principle & Interest
Cash Flows
PPP Other
Project Assets PPP
Project
Different parties within the finance structure will have different perspectives on the use of Generally, investors prefer limited recourse project finance as it limits their risk, but they
non-recourse project finance. For equity investors, it allows for the effective management of should ensure that debt/equity ratio is not too high as it may cause misalignment between
project risks and limits their exposure, whilst also enabling them to undertake projects which investor and public sector interests. While project finance induces lenders to focus on project
are larger than what they could have undertaken under alternative financing structures. assets, implement better due diligence and provides an additional layer of protection to
Lenders will need to ensure they have undertaken a rigorous due diligence on the project, the public interest through step-in rights, lenders often require more credit support from
focusing particularly on the cash flows and contractual structures. Additional forms of security shareholders or third parties. Before the 2008 financial crisis, monoline insurance companies
or guarantees from project sponsors or governments could be required to mitigate their risk. were commonly used for this purpose. In some cases, lenders will ask for step-in rights if
there is a default.

Islamic finance Export Credit Agency (ECA) financing/guarantees
Islamic finance is increasingly being considered well-suited to PPP financing. It promotes An export credit agency (ECA) is a quasi-governmental entity that acts as an intermediary
social and economic development through the creation of real assets, making PPPs an between governments and exports to facilitate export financing. Most countries have
appropriate fit. However, it remains a relatively untapped market for financing, even though ECAs that offer support through government-backed loans and/or loan guarantees. The
institutions are looking for high quality investment opportunities for the medium to long main purpose of ECAs is to support the domestic economy and employment by helping
term. companies find overseas markets for their products. They play a crucial role in facilitating
international trade by mitigating risks associated with cross-border transactions.
Financial institutions and structures which are Sharia compliant have features that include
While their primary focus is on promoting exports, ECAs are increasingly becoming involved
asset-backed financing and risk-sharing principles which align well with the principles
of PPP. Also, Islamic financing of PPPs work well due to adaptability of the financing in supporting infrastructure projects and PPPs. ECAs provide five primary types of assistance:
instruments. Some of the key instruments used in PPP projects are as follows. ▶ Direct lending: ECA provides loans linked to the purchase of goods or services from
businesses in the ECA's country.
▶ Istisna is an agreement which involves the Islamic lender and the SPV agreeing to procure
the construction of a PPP asset by directly engaging with the construction contractor. ▶ Loan guarantees: The ECA provides a guarantee to lenders who fund export purchases,
After the asset is constructed, the SPV delivers it to the lender at a previously agreed price. assuring lenders repayment of their loans under specific conditions. This assurance
reduces transaction risk and enables lenders to engage in financing deals that might
▶ Ijara is an agreement during the operational phase where the project asset is leased by otherwise be unfeasible due to credit or jurisdictional concerns. Alternatively, the ECA
the lender to SPV, typically with a promise by the Islamic lender to transfer ownership of can also provide a loan guarantee to exporters to facilitate their export activities.
the leased asset to the lessee. This can happen at the end of the lease period, or in phases
▶ Financial intermediary loans: ECA lends to financial intermediaries (like banks), which
during the lease. An example of this type of arrangement is the Queen Alia International
then lend to the importing entity.
Airport, a 25-year concession in Jordan.
▶ Interest rate equalization: Commercial lenders provide loans at below-market rates to the
▶ Sukuk is an important pillar of Islamic finance but is not widely used in PPPs. These are importing entity. The ECA compensates the lender for the rate difference.
bond-like structures that represent an undivided ownership share in an underlying asset
or interest held by the issuer. ▶ Export promotion: If exporting goods or services are involved, ECAs can support export-
related activities by providing insurance against non-payment by foreign buyers. This
Although according to ijara there should be a transfer of ownership of the tangible assets it ensures that the private party receives payment even if the foreign government or buyer
is important to note that this may not always be possible. In the event ownership cannot be defaults.
transferred then beneficial rights can be assigned to the Islamic lender through the project
agreement. For more info on what support a particular ECA can provide, please visit their website.
There has been success in the use of Islamic finance within PPPs which has motivated project Hedging arrangements
sponsors (equity investors) to continue to seek both Islamic finance and conventional finance. Fluctuations in interest rates can impact expenses, potentially leading to higher investment
costs due to increased interest during the construction phase, or elevated ongoing costs
Government support during amortization. To manage the unpredictability of interest rates, the private party can
In certain instances, the government may be willing to provide non-contractual letters enter into interest-rate hedging arrangements by utilizing financial instruments like interest
of comfort in support of the private party securing the required financing of the project. rate swaps.
Moreover, there are several national development funds such as the real estate development Swap rates in PPP refer to the rates at which parties exchange or "swap" cash flows based
and national infrastructure funds which aim to support certain sectors in the Kingdom by on different types of interest rates. In a PPP project, there can be various types of financing
providing innovative financing programs and enhance private sector participation in projects. involved, including fixed-rate and variable-rate debt. Interest rate swaps are financial
Please refer to the websites of these funds to understand what level of support can be contracts that allow one party to exchange the interest cash flows of a fixed-rate loan with
provided for PPP projects. the interest cash flows of a variable-rate loan, or vice versa. This is done to manage interest
rate risk exposure and potentially reduce financing costs.

Contact US
+966118352354
info@ncp.gov.sa @NCPSaudi | @NCPSaudi_en
www.ncp.gov.sa National Center for Privatization & PPP

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PPP Journey Guidelines for

2 | PPP Journey Guidelines for Private Sector Participation 3

1. INTRODUCTION TO PUBLIC PRIVATE PARTNERSHIPS (PPPs) 7

2. PRIVATE SECTOR PARTICIPATION GUIDE TO THE PPP PROJECT LIFECYCLE 19

Appendix 1 - Private sector participation in PPP projects 36

Appendix 2 – Typical PPP models 68

Appendix 3 – PPP financing options 71

4 | PPP Journey Guidelines for Private Sector Participation 5

Director-Head The Director-Head shall be the supervisory committee where the

6 | PPP Journey Guidelines for Private Sector Participation 7

Statement of A written statement submitted to a contracting authority in response to a

8 | PPP Journey Guidelines for Private Sector Participation 9

10 | PPP Journey Guidelines for Private Sector Participation 11

The PSP Law, Article 1, defines a PPP as a “contractual arrangement

12 | PPP Journey Guidelines for Private Sector Participation 13

1.3.1 | Long-term contracts and lifecycle approach

1.3.5 | Private party remuneration in PPPs

16 | PPP Journey Guidelines for Private Sector Participation 17

Secure finance commitments from lenders and co-investors.

1.3.7 | Long-term outlook and strategy Build-Transfer-Operate Design-Build-Maintain Design-Build-Operate

1.4 | PPP models

18 | PPP Journey Guidelines for Private Sector Participation 19

20 | PPP Journey Guidelines for Private Sector Participation 21

22 | PPP Journey Guidelines for Private Sector Participation 23

24 | PPP Journey Guidelines for Private Sector Participation 25

26 | PPP Journey Guidelines for Private Sector Participation 27

▶ If the contracting authority decides to organize an

2.3 | Procurement Potential bidders will be required to sign a non-disclosure

28 | PPP Journey Guidelines for Private Sector Participation 29

o An acknowledgement that the government and the

30 | PPP Journey Guidelines for Private Sector Participation 31

32 | PPP Journey Guidelines for Private Sector Participation 33

▶ The preferred bidder consortium will need to submit the

SPV delivery and o Operations and maintenance contracts

34 | PPP Journey Guidelines for Private Sector Participation 35

▶ Statutory approvals are used to describe the different types

36 | PPP Journey Guidelines for Private Sector Participation 37

Projects pipeline review

▶ Therefore, hand-back preparation should begin in the

▶ The specific hand-back process shall be set out in the

o Determine expected asset condition and other

▶ If on assessment it is evident that the asset does not meet

▶ As well as the transfer of the physical asset on expiry of

▶ If the contracting authority re-tenders the project (or just

▶ The above provisions would also apply in the event of early

Figure 2 - Example project from pipeline

38 | PPP Journey Guidelines for Private Sector Participation 39

Building relationships with contracting authorities: Market sounding facilitates direct

40 | PPP Journey Guidelines for Private Sector Participation 41

42 | PPP Journey Guidelines for Private Sector Participation 43

* Refer to Appendix 3 for more information on PPP Financing Options

44 | PPP Journey Guidelines for Private Sector Participation 45

Local and international media outlets

01 02 03 04 Social media accounts of NCP and contracting authority

Expression of Pre-qualification Financial and Award

Deadline to receive responses