Prime Minister Issues Guidelines fo

On 31 March 2019, the Prime Minister issued guiding principles for the allocation and pricing of state-owned industrial land for investment (the “Guidelines”).[1] The Guidelines address government entities and is meant to facilitate investors’ access to industrial land through devising a unified system for land allocation that meets market demands, limits red tape, and offers a more standardized pricing mechanism. The Guidelines state that the Industrial Development Agency (“IDA”) will, before the end of 2019, publish an industrial land map for every request for proposal that it issued involving land allocation. Starting 2020, IDA will publish an annually updated map of all industrial land. The Guidelines provide for the formation of a new committee by IDA that is tasked with assessing land allocation applications and applicant credentials (the “Assessment Committee”). The Committee is comprised of representatives from the IDA, the Industrial Control Authority (ICA), and private sector experts and consultants. The Guidelines distinguish in applicant requirements between land that is requested for the expansion of an existing project, and land that is required for a new project. In addition to the above, the Guidelines contain standards on lease options; project implementation timeframes; rules for the elimination of applicants and the cancellation of land allocation; governance and challenging of decisions; industrial land electronic website and investor portal; down payment and fees; and a section on the administration of industrial zones. A company that is eligible to apply for industrial land must be a joint stock company with a valid commercial register and tax card obtained prior to the date of the offering of the land. Individuals and companies under establishment are thus excluded from applications for expansion, so are partnerships, limited liability companies, and sole proprietorships save for sole proprietorships that already have a valid industrial license or registration. Only the legal representative of the company is allowed to sign the application, and proxies will not be accepted. A company that has, within the five years preceding this offer, sold industrial land prior to the completion of construction and the obtainment of an operating/industrial license is automatically excluded from application. Applicants have 10 days from the date of the publishing of an assessment of their application to challenge that decision before an IDA petitions committee.

• Existing Projects

An application for the expansion of a project located in an existing industrial zone must be submitted by an owner of an industrial plot of land in the same industrial zone/complex in which they request the expansion. Other requirements include submitting a detailed report on the project and the manner for use of the desired land, project documents for the past three years including data on the number of employees, exports, production levels, audited financial statements, operating licenses, and tax information.  The financial statements must be for the preceding three years, and could be complemented by bank statements for the plant or an owned company for the previous year as registered with I-Score.

• New Projects

These include new industrial companies, or existing companies that wish to invest in a new industry. Entrepreneurs wishing to apply for special plots in existing or new cities must have sufficient experience (of at least three years) and educational requirements with respect to the sector in question. New investors with specializations outside the industrial sector in question must appoint a qualified expert who must pass an interview with the Assessment Committee. Investors must have sufficient financial resources to cover the price of the land and the cost of implementing the project. Entrepreneurs must have bank statements recorded at I-Score for the previous year. Non-specialized investors must show I-Score banks statements for themselves or a company they own.

• Competing Land Requests

In the event that there are requests that exceed the available land plots, a weighted point-based system is applied. This system must have been included in the original terms offered by IDA. The point-based system depends on factors such as the estimated labour force in comparison to square meter, export size or potential for exportation, the use of technology in production and whether is saves energy and raw materials, preferred industries, and for expansion the location of the desired land compared to current project land.

• Pricing

The main message with respect to pricing is that prices will be pre-determined and valuated for every area according to factors including market price, cost of infrastructure plus a margin that is based on comparable market conditions. The aim is to exclude the use of brokers through an objective and transparent assessment process. In addition to mechanisms for the pricing of new and existing projects, the Guidelines also contain a mechanism for the valuation of special units and plots of land in new industrial zones or cities and which have a high occupancy rate (of 90% or more). In addition, there is a stipulation for the method of valuation of land that is required for commercial use and other complementary activities, such as for the operation of banks, food courts and service areas.

• Leasing Options

The Guidelines also contain standards for leasing options including long-term land leases for 25-50 years with the option to buy, and the lease of already constructed plants.

• Implementation Timeframes

Investors are required to submit an application for a construction permit within four months from the date of possession, and the permit must be issued within six months. The Guidelines state that the procedures will be simplified to ensure that there are no obstacles that prevent the issuance of the permit within that timeframe. Construction must be commenced within the first year, and 50% of construction must be completed within 18 months. Implementation of the project, commencement of operations and production (including obtaining the operating license) must not be later than 36 months after possession of the land.

• Exclusion and Cancellation of Allocation

Reasons for the elimination of applications and cancellation of allocation of land include non-compliance with the implementation timeframes, failure to make timely payment of two consecutive instalments, subletting the allocated land, changing the project’s activity prior to obtaining the operating license and without IDA approval, and changing the shareholding structure prior to the completion of at least one production cycle. The Guidelines also contain the rules for reimbursement of paid sums in this case, including treatment in the event of return of the land after commencement of constructions.

• Access to Information

The government is to establish an electronic portal through which it makes available information encompassing all state-owned industrial land, including detailed maps of all industrial clusters and zones that contain records of every industrial plot of land indicating its size, dimensions, geographical characteristics, the entity with jurisdiction over the land, and the availability of infrastructure. In addition, the government is to establish a sub-portal for the allocation of land with personalized access for investors that allows the submission of an application and making payment online.

Conclusion

The Guidelines refer to the government’s aim to apply a new and modern system for the allocation of industrial land that is adaptable and flexible, leaving room for constant improvement based on market information and regular assessments of performance. They attempt to increase transparency, competitiveness, and efficiency in land allocation, and enhance support for national industry. The strategy as described in a statement by the Cabinet spokesperson[2] is to outline the general rules for the allocation of industrial land while placing limited defined restrictions that investors are informed of beforehand. However, the conditions stated in the Guidelines for obtaining industrial land remain too restrictive and contradict the declared governmental policies for easing access to land, promoting entrepreneurship and economic inclusion. This is manifest in requiring that the applicant be an established joint stock company in exclusion of other simpler company forms, placing minimum educational requirements on entrepreneurs, and requesting financial statements for three preceding years. This is an attitude that is likely to reduce competition and enhance monopolistic practices.   [1] Prime Ministerial Decree No. 816/2019 issuing guiding principles for the allocation and pricing of state-owned industrial land, Official Gazette, Issue No. 13 (bis), 31 March 2019. [2] The Cabinet of Ministers, “The Prime Minister issues a decision on the principles of the allocation and pricing of industrial land”, 6 April 2019, available through this link (in Arabic).