By Mahmud Sawan.
For many decades, the Libyan public sector has assumed a primary responsibility to build, finance and operate public infrastructure projects and utilities, such as electricity stations, roads and bridges, airports and seaports and other vital projects. In financing such infrastructure projects, the Libyan public sector has relied almost exclusively on the public treasury, with very little involvement of the private sector if at all.
However, the poor state of public infrastructure and utilities in Libya has demonstrated that the Libyan public sector faces significant challenges in its ability to deliver best-in-class public services. Further, the decade-long conflict in Libya has cast a shadow over the Libyan economy and resulted in significant damage to the country’s infrastructure, which is expected to exacerbate the burden on the public treasury in funding the reconstruction and maintenance of any damaged infrastructure.
In light of the above, there appears to be growing consensus in support of affording greater opportunities for the private sector, both Libyan and foreign, to play a significant role in the delivery, financing and operation of public infrastructure and utilities projects and services. Various initiatives have identified Public-Private Partnerships (“PPPs”) as a viable basis to engage the private sector, with the aim of improving both the quality of public infrastructure and the standards of public services. This has resulted in a wave of new projects structured on a PPP basis, such as the Misrata Marine Terminal Project, the development project of the Port of Susah and the potential development project of Mitiga Airport in the capital, Tripoli.
A key obstacle to the widespread adoption of PPPs in Libya is the absence of a specific Libyan legislative framework regulating PPPs. Experience in other countries has shown that the enactment of a PPP legislative framework is necessary not only to attract project sponsors and finance, but also to ensure that PPP projects are implemented in a manner consistent with public interest issues, such as ensuring value for public money, combating corruption and favouritism and securing high quality built assets and services.
The Insufficiency of the Current Laws
Although Libyan law contains provisions which relate to the private sector operation of public utilities, those provisions are antiquated and do not go far enough in addressing issues relating to the structuring, bankability and service provision needed to successfully structure a PPP project. For example, Articles 667-672 of the Libyan Civil Code provide high level statutory provisions relating to public utility contracts which involve a private sector partner that contracts to operate a public utility and provide public services to the general public on behalf of a public entity. Furthermore, the Administrative Contracts Regulation (issued by Government Decree 563/2007) provides for provisions that govern the procurement of services and delivery of projects by administrative entities. However, the procurement process stipulated in this Regulation is convoluted and lacks the comprehensiveness and transparency necessary to attract investments.
As such, Libya is in need to enact a comprehensive and specific PPP legislative framework which would provide a firm legal basis to permit and encourage the private sector to participate in
the development of public infrastructure and the promotion of the efficiency of public services. Such a legislative framework must take into account international best practices and benefit from the lessons learnt in other countries in relation to PPP. This legislative framework should be drafted in a clear and concise fashion taking into account Libyan legal terminology and usage and should comply with Libyan law and reflect specific Libyan socio-economic factors and administrative and governmental mechanisms and idiosyncrasies.
A Libyan PPP legislative framework should not be overly prescriptive in respect of the type of contract structure but should allow the market freedom to choose the most appropriate contracting method. For example, Libyan PPPs could be structured on the basis of Build Operate Transfer contracts (BOT), Build, Transfer and Operate contracts (BTO), Develop, Operate and Transfer (DOT) or any other contractual arrangements that have proven successful according to international practices.
The enactment of a PPP legislative framework in Libya requires careful consideration of several issues, particularly in relation to the sectoral application and financial arrangements of PPPs.
PPPs: Sectoral and Institutional Application
A key legal issue in structuring PPPs is achieving certainty that the relevant public contracting authority is authorised to award and enter into a PPP. Further, the non-identification of the sectors in which PPPs may be implemented is also a key issue of concern which must be clarified. These issues, in addition to other general risks prevalent in the Libyan market, may have a negative impact on the private sector’s appetite to engage in Libya PPPs.
To address these issues, it is imperative that any future Libyan PPP legislative framework clearly identifies those specific public sector entities that have authority to award and enter into a PPP project, particularly given the complex myriad of Libyan public entities engaged in delivery and operation of infrastructure. Clarity should also be provided as to the bodies or persons that have the power to enter into a PPP and sign the PPP contract on behalf of the public contracting entity.
The sectoral application of PPPs in Libya should also be clearly determined. In this regard, a priority should be given to renewable energy and high-tech industries in order to kick-start Libya’s response to the global energy transition and afford services, jobs and opportunities for its young and tech savvy population. As an exception, Libya may exclude certain sectors such as the upstream oil and gas sector (due to the existence of special legal regime for this sector).
PPPs: Financial Challenges
Another major challenge facing the implementation of PPP infrastructure projects in Libya is the high financing requirements, especially in large-scale projects. Financial arrangements of a PPP project typically include an obligation on the private partner to raise and provide the funds required to deliver the concerned project. Private partners often meet this requirement by obtaining finance and credit facilities from local and/or international financial institutions. It is therefore important that any future Libyan PPP legislation does not unreasonably limit the private partner’s ability to enter into financial arrangements for the purpose of financing a bankable PPP project.
In this context, Libyan lawmakers should carefully consider the need to allow private partners to create valid, binding and enforceable security rights over assets and interests in the PPP project in favour of any lenders. This should include the ability to create mortgages over
property, pledges of moveable and immovable assets and assignment of receivables, in accordance with public interest and applicable laws.
Another significant concern for private partners is the ability to set and collect tariffs and fees for the provision or the availability of public services, in order to achieve a level of cash flow that ensures the economic viability and commercial profitability of the PPP project. A future Libyan PPP legislation must clearly provide for this unfettered right, as the absence of a legislative recognition may lead to judicial disputes challenging private partners’ ability to set and collect tariffs and fees.
It is indisputable that Libya must find ways to involve the private sector in order to overcome fiscal and technical challenges facing the development, financing and operation of infrastructure and public services projects. The Libyan public sector can no longer afford to rely on the public treasury to finance Libya’s development and reconstruction needs, particularly given the impact of the recent conflict on both public finances and the built environment. Libyans are increasingly demanding better services and utilities and a greater role in economic activity. To achieve this, the current legislative void in relation to PPPs must be filled with comprehensive legislation that affords legal certainty, fosters market confidence and promotes the development of high-quality public services and infrastructure in line with public interest and good governance standards.
Mahmud Sawan is a Libyan lawyer and Legal Consultant with a geographical focus on Libya, the Middle East and North Africa (MENA). He obtained an LLM with Distinction in International Commercial Law from the University of Reading. He has substantial experience in providing bilingual (English & Arabic) legal services on a wide range of contentious and non-contentious legal matters.
He recently co-led a team in developing a bespoke Libyan PPP legislative instrument (in light of international best practices developed by UNCITRAL and EBRD model laws and regulations).
He has been published by the Global Arbitration Review.