The Governed Rules of Revenue Sharing Method

The Governed Rules of Revenue Sharing Method


Starting from issuing the governed rules of revenue-sharing method by Minister of Finance’s resolution   No. (1877) dated 24th of Dhuʻl-Hijjah 1443 H, it is worth saying that the revenue-sharing method is not a recent practice in Saudi Arabia as it has a valuable experience of practicing such method in technology’s projects based on Council of Ministers’ resolution No. (110) dated 05th of Rabiʽ al-Awwal 1425 H, where the contractual relationship between several of Ministries and the companies owns by them, gives us a good example of it.

Therefore, this article briefly presents the key concepts and provisions included in the governed rules of the revenue-sharing method and the promising opportunities that do offer.

The revenue-sharing method is built on a number of essential concepts that represent a crucial element in the revenue-sharing contract’s efficiency, in particular, when a government entity is party to it. Here we have lightened on (3) most important concepts as follow:

  • Building the contract on counter obligations and rights that defines the contract’s purpose explicitly, in a manner that erases ignorance on how to execute the contract.
  • Addressing the main risks usually associated with such contracts, e.g. data protection, that creates from providing the public services from the private sector party in the revenue-sharing contract on behalf of the government entity, also, furnishing a review mechanism for the government entity to monitors the private sector party’s execution, and to prepare plans for continuous services providing and emergencies situations, additionally, the dispute resolution, where the two parties agree on potential disputes classification, in order to not solve the simple generic disputes through a similar mechanism as the technical complicated ones.
  • Placing a formula for calculating and collecting the financial consideration, such formula shall point out what, when, and how the financial consideration will be collected.

With the aim of lifting the revenue-sharing contract’s efficiency and success, the issued rules of the revenue-sharing method set criteria for when to apply such a method. The criteria are that the revenue-sharing contract shall not exceed (5) years, to distinguish such a method from the privatization method, also, the government entity’s contribution could be tangible or intangible assets, where the private sector party can exclusively either usufruct, rent, or be licensed to benefit from such assets in accordance with the relevant laws and regulations. In addition to that, the government entity should not be the source of revenue nor a provider of any warranties or insurance support to the private sector party in such a contract.

Furthermore, the governed rules of the revenue-sharing method include the journey of applying such a method, starting from preparing a feasibility study that should be fulfilling the defined requirements, getting through the government entity’s president and Ministry of Finance approval, then to be further complemented with releasing the tender according to the Government Tenders and Procurement Law, bearing in mind that there is an additional phase, which is negotiation with the bidders regarding the revenue-sharing formula before the award phase, in which afterward,  signing service-level agreement (SLA).

In conclusion, the governed rules of the revenue-sharing method furnished what is essential and specific to the revenue-sharing method, referring the details to the Government Tenders and Procurement Law provisions and considering maturity and experience that shall be created by the practice.