Privatisation is among the principal instruments of economic reform adopted by States to improve the efficiency of public utilities and reduce the burden on the public budget. In essence it transfers ownership or management of a public undertaking to the private sector. The process engages competing interests: the State's interest in return and efficiency, the investor's in profit, employees' in job security, and the public's in continuity of service at acceptable quality and price. The Kuwaiti legislature has therefore surrounded it with a detailed framework in Law No. 37 of 2010 on the regulation of privatisation programmes and operations, which is the subject of this article.
The Concept and Scope of Privatisation
Privatisation is a structured process transferring a State-owned activity or asset to the private sector, and the law defines its contours as follows:
- Forms: it takes several forms, from sale of assets or shares to the grant of management, operation, or usufruct rights for a defined period, without the State necessarily relinquishing ownership.
- Excluded undertakings: the law excludes certain sectors given their connection to sovereignty or national wealth, most notably oil and gas production and refining, together with education and health facilities the State provides free of charge.
- Preserving the public service character: privatisation must not disrupt the continuity of the public service or impose unjustified burdens on users.
- Continuing oversight: the regulator competent for the activity remains responsible for monitoring performance, pricing, and quality after privatisation.
The Supreme Privatisation Council
The law established an institutional body to set policy and supervise implementation, preventing ad hoc decisions and ensuring transparency:
- Setting the programme: the Council approves the privatisation programme and determines its priorities and the undertakings covered.
- Approving the offering method: it determines the method appropriate to each undertaking, whether auction, tender, or public offering, according to the nature of the activity.
- Valuation: it supervises the valuation of the assets of the privatised undertaking by specialist bodies. This is the most exacting and most contested stage of the process.
- Monitoring implementation: it monitors the investor's compliance with the agreed terms and may take necessary measures on breach.
Offering procedures must achieve publicity, competition, and equality of opportunity. Any material breach of these principles exposes the decision to challenge before the administrative courts by interested parties.
Share Allocation and Protection of Public Funds
A distinctive feature of the Kuwaiti legislation is its concern that part of the return from privatisation should accrue directly to citizens, and that capital should not become concentrated in a narrow group:
- Citizens' allocation: the law provides for a proportion of the shares of the privatised company to be offered for public subscription by citizens, broadening the ownership base.
- State retention: government entities retain a proportion of the capital, preserving a position from which to monitor performance.
- Strategic investor: a portion of the capital is offered to an investor who assumes actual management, selected through competition assessing technical experience and financial standing.
- Transfer restrictions: restrictions may be imposed on the strategic investor's disposal of its holding for a defined period, ensuring commitment and stability.
Safeguards for Employees
The position of employees is the most sensitive aspect of any privatisation, and the law provides express safeguards:
- Right of election: an employee of the privatised undertaking is given a choice between transferring to the new company or being transferred to another government body under the prescribed rules.
- No prejudice to acquired rights: privatisation may not diminish rights acquired beforehand, and prior service counts towards total service.
- Temporary job security: the law prohibits terminating transferred employees for a defined period from the date of privatisation, save for justified disciplinary reasons.
- Financial settlement: end-of-service entitlements for the prior period are settled under the rules applicable before the transfer.
Despite the clarity of these safeguards, their application generates recurring disputes over job classification and remuneration after transfer. Employees are advised to obtain written confirmation precisely defining their new position before signing any document.
Privatisation and Public-Private Partnership Distinguished
Privatisation is often confused with public-private partnership, though they differ fundamentally:
- Subject matter: privatisation generally concerns an existing State-owned undertaking, whereas partnership is directed at creating a new project with private sector funding and expertise.
- Ultimate ownership: in partnership the project reverts to the State at the end of the contract term under build-operate-transfer models, whereas privatisation may transfer ownership permanently.
- Legislative framework: each has its own statute and institutional body, and it is an error to apply the provisions of one to the other.
- Risk allocation: partnership rests on a detailed contractual allocation of risk between the parties across a long contract term.
Practical Considerations
- Study the offering documents and the model contract carefully. Long-term operating obligations often weigh more heavily than the acquisition price itself.
- Examine the legal status of assets, licences, and existing contracts before bidding, as part of full due diligence.
- Assess transferred employment liabilities precisely, as they represent a continuing cost and responsibility.
- Review the tariff and price adjustment mechanisms in the contract, which are key to long-term economic viability.
- Employees should retain a copy of the transfer decision, the employment confirmation, and evidence of prior service.
- Observe the deadlines for challenging offering and award decisions before the administrative courts, which are strict and cannot be extended.
Privatisation transactions combine administrative law, company law, and employment law in a single file and require integrated legal advice. Yamnak Law Firm advises investors through the offering, diligence, and contracting stages, and represents employees in disputes arising from their transfer to privatised companies.
