When the Board Table Doubles as a Negotiating Table

PPP governance in Saudi Arabia is becoming increasingly critical as utility companies structured under public-private partnership (PPP) SPVs operate in a fundamentally different environment. In a traditional company structure, directors represent shareholders who largely share a common goal of value creation. However, in PPP SPVs, governance is far more complex, shaped by competing commercial interests that sit together at the same board table.

PART I — THE PROBLEM

The Standard Corporate Governance Model and Its Limits

The purpose of a board of directors is clear. It exists to represent shareholder interests, provide independent oversight, and guide the organisation toward sustainable value creation.

This model works effectively when:

• There is a clear separation between ownership and management
• Shareholders have broadly aligned objectives

When conflicts arise, the solution is well-established. A conflicted director recuses themselves from the decision, allowing the rest of the board to act independently.

However, this model assumes that conflicts are occasional.

In PPP SPVs, conflict is not occasional. It is structural.

The Governance Challenge in PPP Utility SPVs

In PPP utility projects in Saudi Arabia, the shareholder structure is inherently complex.

A typical SPV may include:

• The offtaker (government authority or state utility)
• The O&M contractor responsible for operations
• The EPC contractor or technical sponsor
• Financial investors or private equity sponsors

Each of these stakeholders has an ongoing commercial relationship with the SPV.

This creates competing incentives:

• The offtaker aims to minimise tariffs and maximise service obligations
• The O&M contractor focuses on contract scope and pricing
• Sponsors prioritise returns, refinancing, or exit strategies

These interests do not occasionally conflict. They conflict on core decisions such as:

• Budget approvals
• Contract renewals
• Capital expenditure
• Tariff adjustments

Applying traditional conflict-of-interest recusal in this context can lead to situations where no effective quorum exists.

This is not a procedural issue. It is a structural governance challenge that requires a different design approach.

PART II — THE AUSTRALIAN BENCHMARK

What Mature PPP Markets Have Solved

Australia is one of the most advanced PPP markets globally, with over two decades of experience in infrastructure projects across water, energy, transport, and social sectors.

Like the GCC, Australian PPP SPVs also include:

• Contractors
• Operators
• Financial investors

However, governance practices in Australia have evolved beyond traditional frameworks.

The Australian Standard in Practice

In Australian PPP SPVs, conflict management goes beyond recusal.

While contractor-appointed directors may abstain from voting, leading financial investors often require a stricter approach:

Conflicted directors are excluded from discussions entirely

This distinction is critical.

A director who remains in the room can:

• Influence discussions
• Shape decision-making
• Frame outcomes before voting occurs

Exclusion removes this influence at the source.

Why Exclusion Matters in PPP Governance

Traditional recusal manages the appearance of conflict.

Exclusion addresses the actual impact of conflict on decision-making.

For PPP SPVs in Saudi Arabia, where multiple shareholders hold board seats with competing interests, exclusion provides a more robust governance solution.

Read more about Digital Risk Governance KSA for Business Protection

Governance Practices for PPP SPVs in Saudi Arabia

To address structural conflicts, governance frameworks must be intentionally designed.

1. Independent Directors as a Majority

Boards should include a majority, ideally a supermajority, of independent directors with no commercial ties to shareholders.

2. Exclusion Over Recusal

Conflicted directors should leave the meeting before discussions begin, not just abstain from voting.

3. Independent Approval for Related-Party Matters

All decisions involving shareholder-related contracts should require approval from independent directors only.

4. Dedicated Related-Party Transactions Committee

A standing committee should oversee all transactions between the SPV and shareholder affiliates.

5. Embedded Conflict Registers

Every board paper should clearly disclose potential conflicts, ensuring transparency and audit readiness.

6. CEO Accountability to Independent Directors

Executive oversight should sit with independent directors to prevent influence from specific shareholder groups.

Regulatory Perspective in Saudi Arabia

Regulators in both countries are increasingly focused on corporate governance in PPP projects.

Poor governance can result in:

• Unfair value extraction
• Reduced service quality
• Regulatory non-compliance

International experience shows that institutional investors, not regulators, often drive governance improvements.

As sovereign wealth funds and global infrastructure investors expand in the GCC, expectations for governance standards are rising.

PART III — CHALLENGES IN KSA AND HOW TO ADDRESS THEM

Saudi Arabia has made significant progress in PPP development through:

• The Private Sector Participation Law (2021)
• The expanding pipeline led by the National Centre for Privatisation
• Ongoing reforms by the Capital Market Authority (CMA)

However, governance frameworks for PPP SPVs remain underdeveloped.

Key Challenges and Practical Solutions

1. Limited Pool of Independent Directors

Challenge
There is a limited number of qualified independent directors with sector expertise.

Solution
Expand eligibility to include international professionals such as:

• Former regulators
• Infrastructure fund executives
• Project finance specialists

2. Regulatory Gaps for Non-Listed SPVs

Challenge
Most PPP SPVs are non-listed entities, where governance regulations are less stringent.

Solution
Embed governance requirements directly into shareholders’ agreements (SHA), including:

• Director exclusion rules
• Independent voting requirements
• Conflict management mechanisms

3. Cultural Barriers to Director Exclusion

Challenge
Excluding directors from discussions may conflict with local business norms.

Solution
Position exclusion as a protective mechanism, not a sign of distrust, and introduce it early in board processes.

4. Overlapping Government Roles

Challenge
Government entities often act as regulator, offtaker, and investor simultaneously.

Solution
Define independence clearly, including restrictions related to state-linked affiliations.

5. Governance Compromised at Financial Close

Challenge
Governance structures are often finalised under time pressure during project closing.

Solution
Introduce standardised governance frameworks led by the National Centre for Privatisation to ensure consistency across projects.

The Strategic Opportunity for Saudi Arabia

Saudi Arabia has the scale, regulatory momentum, and investment pipeline to become a regional benchmark for PPP governance.

Standardising governance frameworks now will:

• Improve long-term project outcomes
• Strengthen investor confidence
• Reduce regulatory risks
  

Read about Saudi Arabia’s Vision 2030 Here.

Conclusion

PPP SPVs are not flawed governance structures. They are complex structures that require deliberate design.

Leaders in Saudi Arabia must move beyond traditional corporate governance models and adopt frameworks suited to multi-stakeholder environments.

The key shift is clear:

From recusal to exclusion
From generic governance to purpose-built governance

The shareholders’ agreement is where this transformation begins.