51. PPPs are at their most basic a contractual arrangement between a public authority or state-owned entity and a private party. As such, they are built upon contract law. Therefore, the rule of law and the protection of property rights and contractual rights are a key requirement if a PPP is to be successful (OECD, 2012). Private-sector participants should be confident that they contract as equal parties with the state under law and are not subject to arbitrary changes in the terms of the project agreement or other contractual arrangements or the abrogation of property rights. Private-sector participants and investors will look with caution at any previous violations of such rights in the jurisdiction.
52. This is not to say that disputes will not occur. Disputes are inevitable over the life of a complex 25-30 year contract as unforeseen circumstances will almost certainly arise. This is true not only in MENA but in all jurisdictions. A good contractual relationship is characterised not by the absence of disputes but rather by the manner in which disputes are resolved. Clear, predictable and transparent rules for dispute resolution should be in place to resolve disagreements between the public and private parties (OECD, 2012). One goal of an effective dispute resolution process should be to ensure that construction or the provision of services continues despite any dispute. The dispute resolution process should run in parallel to the ongoing fulfilment of the parties' obligations under the contract.
53. A dispute resolution procedure typically consists of a series of escalating steps whereby a dispute is raised through the respective hierarchies of both the private and public sector counterparties with an objective of resolving the issue at the lowest level possible. This means that there should be managers at the public counterparty that are well-informed as to the details of the transaction and that are empowered to settle disputes. There may also be a committee of representatives nominated by both the public and private partners to consider and adjudicate disputes. If a dispute cannot be settled in this manner it may become subject to binding arbitration or the national court system. Foreign investors will take some comfort from the host jurisdiction being a signatory to the Washington Convention and associated recourse to the International Centre for the Settlement of Investment Disputes (ICSID), ultimately allowing the matter to be settled in a third-party forum, outside of a national justice system. Each of the four ISMED Focus Countries are signatories to the convention.
| Box 5. The International Centre for Settlement of Investment Disputes (ICSID) ICSID is an autonomous international arbitration institution established under the 1965 Convention on the Settlement of Investment Disputes between States and Nationals of Other States (the ICSID or the Washington Convention) with over one hundred and forty member States. It is a member of the World Bank Group and has its headquarters in Washington D.C., United States. The primary purpose of ICSID is to provide institutional and procedural support for conciliation and arbitration of international investment disputes. The Convention sought to remove impediments to the free international flow of private investment posed by non-commercial risks and the absence of specialized international methods for investment dispute settlement. ICSID was created by the Convention as an impartial international forum providing facilities for the resolution of legal disputes between eligible parties, through conciliation or arbitration procedures. Recourse to ICSID arbitration is subject to the fulfilment of several conditions1. The legal dispute must directly arise out of an investment between the Contracting State and a national from another Contracting State. In addition, consent to ICSID arbitration - which is the cornerstone of ICSID jurisdiction - must have been given in writing. Sources of this consent can be found in a contract, the national legislation (e.g. the investment law), or more commonly in bilateral investment treaties (BITs) or multilateral agreements. The State offer to recourse to ICSDI arbitration may be accepted by the investor by submitting the dispute to ICSID. Source: www.icsid.worldbank.org 1. As provided in article 25(1) of the ICSID Convention. |