Charles Russell Speechlys advises on social and affordable housing project in Bahrain
The Charles Russell Speechlys Real Estate & Construction team in the Middle East recently advised one of their long-standing clients in relation to Bahrain’s largest social and affordable housing project.
The development agreement was entered into on 22 March 2015 under the patronage of the Deputy Prime Minister and Chairman of the Ministerial Committee for Construction and Infrastructure, His Excellency Sheikh Khalid Bin Abdulla Al Khalifa.
Charles Russell Speechlys advised Diyar Al Muharraq (Diyar), one of Bahrain’s leading private developers, on the development and construction of circa 3,100 housing units on Bahrain’s largest master planned development project (Project).
Work primarily involved drafting, advising and finalising the complex development agreement (Agreement) between Diyar and the Ministry of Housing of the Government of Bahrain (MoH) under which the MoH has essentially committed to acquire social housing units, affordable housing units and supporting infrastructure from Diyar at a cost of over USD 1 billion (Total Project Price).
In accordance with the provisions of the Agreement, Diyar will finance, design, develop and construct both the housing units and associated infrastructure (both primary and secondary) on approximately 1.2 million square metres of land. The MoH will be the off-taker of the developed housing units whereas the applicable Government authority will agree to own and operate the infrastructure following completion.
The Project will be procured on a phased basis as more specifically set out in the agreed project development programme. Subject to the provisions of the Agreement, the first housing units will be handed-over within 2 years from the date of the development agreement and the Project will be completed within 4 years.
The Project is based on a new form of PPP which has been specifically developed for this Project and reflects a move away from the previous form of PPP (substantially based on the PFI model from the UK), which had been used for other low cost housing projects in Bahrain.
The current form of PPP is based on a hybrid between a traditional procurement model but with some elements being more associated with a ‘turn-key’ solution. Critically, the Project does not impose any operational or maintenance obligations on Diyar as would usually be the case under a PPP structured on a concession arrangement.
The Agreement is also the first of its kind to include provisions relating to the new Social Housing Finance Scheme in Bahrain, which is the result of a collaboration between the MoH and certain financial institutions within Bahrain so as to provide financial support to Bahraini citizens to acquire housing units through a subsidised programme.
The Project is extremely significant for Bahrain as it represents the single largest contract in terms of both size and value for the development of social and affordable housing units in the Kingdom.
The Project therefore satisfies one of Bahrain’s most important social infrastructure objectives: to provide suitable housing for Bahraini citizens and to reduce the waiting time for such citizens to avail of housing services.
The Minister of Housing, HE Basim Al Hamer, commented:
“This is indeed a very important agreement as it is the largest agreement of its type for co-operation between the private and public sectors and will surely have far-reaching positive consequences for all citizens in the Kingdom. ”
The signing of the Agreement is the culmination of over a year of discussions and negotiations between Diyar and the MoH as well as other key stakeholders such as Eskan Bank and the Ministry of Finance.
Given the level of stakeholder engagement across the public and private sector, Charles Russell Speechlys worked very closely with the development and finance functions within Diyar to ensure that the Project was effectively and efficiently managed.
The Charles Russell Speechlys team was led by Simon Green (Partner and head of Real Estate & Construction in the Middle East). Simon was supported by other members of the regional team, including Unkar Chanian (Senior Associate), Glenn Bull (Associate) and Reem Al Mahroos (Associate). Additional support was provided by Tom Briggs (Partner and head of Corporate in the Middle East) as well as Khalid Javaid (Senior Counsel, Banking & Finance).
Simon Green commented:
“I am delighted that we have been able to assist one of our key clients in Bahrain on what is not only a major transaction for them and their master planned development project, but also a transaction of significant importance for the Kingdom of Bahrain. It also emphasises the fact that we are seen as one of the ‘go to’ law firms in Bahrain for large social infrastructure projects. ”
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