Regulating the Waterworks—the New Water and Wastewater Sector Law

Back in late 2020, Royal Decree 131/2020 regarding the Water and Wastewater Sector made an unusual reference—it referred to a law that was not yet promulgated, stating that this yet-to-be-issued law would regulate the water and wastewater sector.

Fast forward to mid-2023, the Water and Wastewater Sector Law is finally out and you can read it by clicking on the below link:

Seeking to regulate a wide range of water-related activities, the new law covers not only the desalination and transportation of water, it also covers wastewater-related activities and—to a certain extent—water wells, especially as groundwater in the Sultanate becomes increasingly scarce.

Replicating a Successful Model—the Electricity Sector

The new Water and Wastewater Sector Law shares a lot in common with its older sibling, the Law on the Regulation and Privatisation of the Electricity and Related Water Sector—more commonly known in the industry as the “Sector Law”. With the passage of the Water and Wastewater Sector Law, I suspect the former will be referred to as the “Electricity Sector Law” moving forward, with the latter being referred to as the “Water Sector Law”. For the sake of simplicity, I too will follow this approach.

A considerable number of provisions in the Water Sector Law are quite similar to those found in the Electricity Sector Law. This is by design, as the new law is clearly intended to provide regulatory consistency with the long-established and well-received Electricity Sector Law. These similarities can be seen across the new law, such as in licence-related provisions, usufruct provisions, economic purchase provisions, and even in licence-modification provisions.

This should give comfort to investors interested in building desalination or sewage treatment capacity in Oman, as they would be able to invest in a sector that closely follows the success of the electricity sector, thanks to the latter’s robust and investor-oriented legislation.

This should give comfort to investors interested in building desalination or sewage treatment capacity in Oman.

In a similar fashion to the Electricity Sector Law, the Water Sector Law assigns the role of strategic decision-making to a dedicated ministry, being the Ministry of Agriculture, Fisheries, and Water Resources in this case, while reserving the regulatory role for the Authority for Public Services Regulation (APSR).

To future-proof the provisions of this law, the Water Sector Law also contains a dedicated chapter on market liberalisation, with the ultimate approval in this regard lying with the Council of Ministers. This, too, is similar to the provisions set out in the Electricity Sector Law to enable further liberalisation once the market is ready for it.

Who Buys the Water?

To ensure the continuity of sufficient water supply, the Water Sector Law permits the ongoing practice adopted under the Electricity Sector Law of the Oman Power and Water Procurement Company (OPWP) purchasing water capacity and output from the independent water projects (IWPs).

This is key to the sector, as OPWP supplies the majority of water capacity for the sector, rather than the Oman Water and Wastewater Services Company (recently rebranded as the Nama Water Services Company (NWS)). Nevertheless, the Water Sector Law is flexible as it allows both OPWP and the “working companies” to contract for water, meaning that IWPs may be either contracting with OPWP or one of the working companies, being the Dhofar Integrated Services Company for projects based in Dhofar and NWS for everywhere else.

This ongoing practice of the APSR (and previously the Public Authority for Water (PAW)) assigning this role to OPWP is intentional. It seeks to capitalise on OPWP’s strengths and reputation for transparency and robustness in its procurement of capacity and output, whether this is in the form of electrons or water molecules.

Prior to the new law, unless the project involved generating electricity alongside the production of desalinated water (known in the jargon as “related water”), APSR/PAW could only assign this role to OPWP by designating the IWP as a facility of “special nature” in accordance with Decision 254/2014. This is no longer the case, as APSR has the authority to direct OPWP without the need to abide by the aforementioned decision.

The Monetary Plumbing

The water and wastewater sector continues to rely on government subsidy for its operations and the new law ensures that this is done in a timely manner by placing an obligation on the Ministry of Finance (MOF) that is almost identical to the obligation imposed upon the MOF in the Electricity Sector Law.

Notably absent in the Water Sector Law is the MOF’s obligation to secure the availability of the financing necessary for the operations of government-owned companies, whereas it is clearly set out in the Electricity Sector Law. Instead, this obligation is imposed upon the Electricity Holding Company (more commonly known as Nama Holding) in coordination with the Oman Investment Authority.

The Water Sector Law also introduces a dedicated set of provisions on tariffs, listing in it the key principles that need to be adhered to when determining tariffs, which is not as spelt out in the Electricity Sector Law.

As for the fees that the APSR collects, the approach followed under the Water Sector Law is very much in line with the one adopted under the Electricity Sector Law, with the key difference being that the APSR will now need to obtain the explicit approval of the MOF prior to imposing such fees on the licensees.

Dispute Resolution, Penalties, and Fines

In the same vein as the Electricity Sector Law, no judicial claims can be brought against a licensee without having to first go through the APSR. This ensures that the regulator of the sector can mediate and resolve these disputes during their earlier stages.

In contrast to the Electricity Sector Law, the Water Sector Law ensures that the Ministry of Justice and Legal Affairs (MJLA) retains its relatively-new competence to adjudicate disputes between government entities and other government entities or government-owned companies. The availability of this avenue means that a government entity can—in theory—bring its claim before the APSR, the MJLA, or the competent court, subject to satisfying their respective conditions as set out in the law.

Interestingly, the Water Sector Law makes no reference to arbitration, in stark contrast to the Electricity Sector Law, which went as far as to identify the rules of arbitration that must be followed, being the International Chamber of Commerce rules. Investors keen to retain the arbitration route would have to do so contractually, which may be a concern as the courts of Oman have previously rendered arbitration clauses invalid—albeit in very different circumstances.

The Water Sector Law also introduces some hefty fines where its provisions are violated, reaching as high as 1 million Rial Omani and potentially 2 million Rial Omani in the case of repetition, whereas the fines under the Electricity Sector Law are capped at a meagre 50,000 Rial Omani.

Finally, if a crime takes place under the Water Sector Law, the board and executive management of the companies addressed by this law run the risk of being personally held accountable if they contribute to the occurrence of the crime. This potential liability, while present in the Commercial Companies Law to some extent, is not spelt out in the Electricity Sector Law. One more reason for investors to ensure that they get quality legal services, and by extension, quality legal translations and content.