US embassy cable - 04KUWAIT2816

UNCLAS SECTION 01 OF 04 KUWAIT 002816 
 
SIPDIS 
 
STATE FOR EB/IFD/OIA ABRYAN 
STATE PLEASE PASS TO USTR FOR JASON BUNTIN 
USDOC FOR 4520/ITA/MAC/OME/CLOUSTAUNAU/COBERG 
 
E.O. 12958: N/A 
TAGS: ECON, EINV, BEXP, ETRD, BTIO, KU 
SUBJECT: KUWAIT DRAFT PRIVATIZATION LAW 
 
1. Summary: On 21 August, the GOK Economic and Legal 
Ministerial Joint Committee released the draft text of a new 
privatization law.  The law calls for the formation of a 
Supreme Privatization Council, headed by the Prime Minister, 
and calls for privatization of public utilities and services. 
 The oil and gas sector remains off-limits, and involvement 
of any natural resources in any privatization project will 
require special legislation.  This new draft is an updated 
version of the original bill submitted to the Assembly in 
1992, and will still need to be approved by the Cabinet and 
the National Assembly.  Included below is an unofficial 
translation of the draft law, published in the Arab Times on 
22 August.  End Summary. 
 
----------------------- 
Draft Privatization Law 
----------------------- 
 
2.  Article (1) 
 
The equivalent of the following terms will be as follows: 
 
1) Public Sector: ministries, government public departments, 
public establishments and committees. 
2) Public Project: a project of economic nature, directly 
owned by the government or the majority of its capital is 
directly owned by the government or by its units. 
3) Privatization: to transfer the ownership of public project 
or its management (fully or partially) to the private sector. 
4) Private Sector: all normal and representative persons 
(other than the government) from inside or outside Kuwait. 
5) The Council: The Supreme Privatization Council. 
6) Golden Share: one share of a company (which was 
established through privatization of a public project) owned 
by the government, and which gives it specific voting 
privileges to protect public interests. 
 
Article (2) 
 
Ownership of (a) public project and its management (fully or 
partially) can be transferred to the private sector under the 
following terms and conditions: 
 
-- To guarantee competition in profitable activities. 
-- To protect consumers' rights concerning prices, quality of 
goods and services offered through the concerned monitoring 
authority of the government. 
-- To protect and guarantee the rights of national workers 
employed by the public project which is to be privatized, 
according to the law. 
-- To protect public funds during the process of evaluating 
the assets of public projects. The evaluation process should 
be carried out according to economic and financial standards, 
to ensure public announcing, fair and equal chances of 
competition, and to equally provide all needed data and 
information. 
-- To enlarge the base of citizens' ownership and to provide 
them with opportunities to reach this objective. 
 
Article (3) 
 
When privatization is aimed at providing the private sector 
with a license to produce items of a basic and strategic 
nature, the license must include a specified and clear 
mechanism to determine the prices of this product, which will 
be reconsidered periodically to protect consumers' interests, 
to encourage participation of the private sector and to 
heighten the standards of products and services offered to 
consumers. 
 
License must include the following conditions to be 
implemented by the private sector: 
 
1) Provide the government monitoring authority with all the 
necessary data and information to perform its role in full. 
To provide annual reports including suitable plans to promote 
products and services to go in accordance with development 
plans of the country. 2) To maintain confidentiality of data 
and information according to common laws. 
3) Protect and ensure safety of the environment. 
4) Provide modern technology. 
 
Article (4) 
 
Projects related to oil and gas production cannot be 
privatized; if privatizing includes the investment of any of 
the natural resources, then it will be done by special 
legislation with a specific law and for a limited period. The 
government is entitled to assign the management of any of its 
premises to the private sector according to rules and 
regulations set by the Council. 
 
Article (5) 
 
The Supreme Privatization Council will be chaired by the 
Prime Minister, six ministers as members, two highly 
experienced and specialized members, and two members 
representing the private sector. The First Deputy Premier can 
be deputized to perform the task of the chairman of the 
council. A decree will be issued based on the proposal of the 
Prime Minister in this regard; the duration of the council 
and its members is for 3 years, which can be renewed for a 
similar period. 
 
Article (6) 
 
The council will set its regulating panel concerning its 
decisions, committees, and its financial and administrative 
systems. 
 
Article (7) 
 
The Supreme Privatization Council (SPC) will privatize 
companies without violating the authority of the Kuwait 
Investment Authority (KIA) to own shares in the projects. It 
will be in charge of preparing general policy, programs, 
procedures for privatization and methods of implementing 
them, preparing a timetable for public projects and 
submitting them to the Cabinet for approval. 
 
Article (8) 
 
Evaluation of the assets of public projects which are to be 
privatized will be done by institutions in the public or 
private sector, which have the required expertise, selected 
by the SPC. 
 
Article (9) 
 
SPC will submit a half-yearly report on its activities in the 
past half year to the Cabinet and Audit Bureau. The Chairman 
of Audit Bureau should furnish a copy of the report, 
including the Bureau's observations on it, within a month 
from the date of receiving the report to the Parliament. 
 
Article (10) 
 
No member of the SPC - including his relatives, consultants 
and those who are working in the consultant's office - shall 
have the right to participate in the ownership of public 
projects which are privatized unless the privatization is 
done through public subscription. 
 
Article (11) 
 
Public projects cannot be privatized through direct 
contracts. Without any prejudice to existing rules, 
privatization can be done according to methods which will be 
determined by the draft law unless the Cabinet decides on 
other methods to be followed based on the suggestion of SPC. 
 
Article (12) 
 
The organization to which the ownership or management of a 
public project is to be transferred should be a shareholding 
company. All or part of the shares of these companies can be 
offered for public subscription as per the rules and 
regulations laid down by SPC during privatization. No one - 
including his wife and children - can own over five per cent 
of the total capital of the company. Similarly no one 
including his affiliated companies has the right to own over 
20 per cent of total capital of the company. The state can 
retain shares in the company not exceeding 20 percent based 
on a decision from the SPC or the Cabinet. 
 
Article (13) 
 
SPC will choose the offer for long term BOT projects through 
public tenders according to the conditions governing such 
public tenders. In the public tender, rules and procedures 
stipulated in Law No. 37/1964 will be followed. SPC will 
replace the Central Tenders Committee (CTC) in privatization. 
 
Article (14) 
 
The state will have the golden share in the ownership of 
companies which were established as a result of privatization 
of any of the public projects. SPC will decide about granting 
such golden share. This advantage will be stipulated in the 
constitution of the company. Rules related to the golden 
share cannot be amended without the approval of the SPC. 
 
Article (15) 
 
SPC can transfer the ownership or management of public 
projects to shareholding companies, whose shares are owned by 
the government for a period determined by the Council. If 
there is no legal objection, the company will be established 
and will start functioning according to Law No. 15/1960. SPC 
will be in charge of the tasks of board members of the 
company. 
 
Article (16) 
 
Exceptions to Law No. 15/1960. SPC will take the necessary 
action for privatizing a company which is established 
according to Article 15 for the first three years. This can 
be renewed for another three years by a decision of the 
Cabinet. During the privatization of the company the 
following three legal subjects will be followed: 
 
Article (17) 
 
Public subscription will be carried out according to Law No. 
15/1960 except under situations which the SPC sees are not in 
the public interest. Such exceptional situations cannot be 
over 20 percent of capital asset of the company. 
 
Article (18) 
 
Five percent of the company's shares can be allotted for 
Kuwaitis who are working in the public project with the 
approval of the SPC. Nobody (Kuwaiti) can sell his share 
within three years of privatization or until the employee 
pays the complete price of the share allotted to him. 
 
Article (19) 
 
Managing Council of the company will submit a half-yearly 
report of the privatized company to the SPC. 
 
Article (20) 
 
The State of Kuwait ensures the following rights to Kuwaiti 
employees who want to transfer to newly privatized projects. 
 
1) Agreement period with the newly privatized project shall 
not be less then five years unless the employee wishes 
otherwise. 
2) The employee will get the same salary and allowances which 
he used to get during his period in the public project. 
3) He can participate to have share in the newly privatized 
company according to Article 18. 
4) He can receive a pension for three years as if he retired 
from government service. 
5) The pension will be equal to the employee's last drawn 
salary in the public project or his average salary for the 
past five years, whichever is higher. SPC will lay down the 
rules and regulations for these advantages. Any agreement 
between the employee and newly privatized project which 
violates advantage 1 and 2 of this subject, will be illegal, 
if the agreement does not grant better advantage to the 
employee. The employee will lose these advantages if he goes 
back to any public department. 
 
Article (21) 
 
The newly privatized company shall offer training programs 
for transferred employees to improve their skills. 
 
Article (22) 
 
Employees who do not want to transfer to the newly privatized 
company will receive a pension equivalent to his lowest 
salary for the past five years. The pension will be given 
from the date of privatization of the company and those who 
retire within the five-year period will receive the normal 
pension. Young employees will get such a pension for only 
five years. 
 
Article (23) 
 
Kuwaiti employees, who do not want to be transferred to the 
newly privatized company and have not reached the age of 
retirement will be transferred to other government 
departments. They will be given training for their new 
positions. 
 
Article (24) 
 
Without prejudice to Article 9 of Law No. 19/2000, the SPC 
can limit the number of Kuwaiti employees in any company 
which is established due to privatization. Their number 
should not be less then what it was in the project which has 
been privatized. SPC will take all necessary actions and 
appointments to implement the Article. 
 
Article (25) 
 
Financial statements of expenses of the SPC will be enlisted 
in the budget of the ministries, and other governmental 
departments. They will be included in Chapter 5 of 
miscellaneous expenses and payments of the Cabinet. Income 
from privatization operations will be added to the budget of 
ministries and government departments.  Fifty percent of the 
income will be reserved for the Fund for Future Generations. 
Article (26) 
 
An executive list of this Law will be decided by the Cabinet 
and will be published in local newspapers within six months 
from the date of publication of the law. 
Article (27) 
 
The Prime Minister and all concerned ministers will execute 
this law. The entire law will be published in local 
newspapers and will become operative one year after its 
publication, except Articles 5 and 6 which will be effective 
from the date of publication. 
TUELLER