{"id":144795,"date":"2025-05-25T12:13:45","date_gmt":"2025-05-25T09:13:45","guid":{"rendered":"https:\/\/www.salamahlaw.com\/?p=144795"},"modified":"2025-05-25T12:41:50","modified_gmt":"2025-05-25T09:41:50","slug":"investment-contracts-under-the-saudi-legal-framework","status":"publish","type":"post","link":"https:\/\/www.salamahlaw.com\/en\/investment-contracts-under-the-saudi-legal-framework\/","title":{"rendered":"Investment Contracts under the Saudi Legal Framework"},"content":{"rendered":"<p dir=\"ltr\"><span style=\"font-weight: 400;\">Investment is one of the primary drivers of national and institutional development, playing a pivotal role in boosting economic growth. It facilitates the inflow of substantial capital aimed at advancing the host country\u2019s economic development, while also creating employment opportunities and enabling the transfer of technological advancements. Consequently, a clear legal framework is essential to define the rights and obligations of investors within the territory of the host state. This is typically achieved through a well-structured legislative or contractual regime. For this purpose, investment contracts have emerged to regulate the relationship between the involved parties.<\/span><\/p>\n<p dir=\"ltr\"><span style=\"font-weight: 400;\">In this article, Al-Salamah Law Firm provides an overview of the legal framework governing investment contracts in the Kingdom of Saudi Arabia.<\/span><\/p>\n<h2 dir=\"ltr\"><b>What Are Investment Contracts?<\/b><\/h2>\n<p dir=\"ltr\"><span style=\"font-weight: 400;\">Foreign investment generally involves allocating capital into viable investment opportunities through the establishment of economic projects that fulfill market needs and generate profits. Typically, international or foreign investment relates to the movement of goods, services, and capital across borders.<\/span><\/p>\n<p dir=\"ltr\"><span style=\"font-weight: 400;\">Under the updated Saudi Investment Law, \u201cinvestment\u201d is defined as the use of capital to establish, expand, develop, finance, manage, or partially or wholly own an investment project within the Kingdom, for the purpose of generating economic returns.<\/span><\/p>\n<p dir=\"ltr\"><span style=\"font-weight: 400;\">However, the law does not define <\/span><i><span style=\"font-weight: 400;\">investment contracts<\/span><\/i><span style=\"font-weight: 400;\"> explicitly, leaving the interpretation to legal scholarship and jurisprudence. Scholars generally define these contracts as agreements between a domestic party (the state or a public entity) and a foreign private party, whereby the latter undertakes to execute a project (such as construction or civil engineering works) in return for compensation. This compensation may include profit-sharing mechanisms, whereby costs, profits, and losses are distributed between the parties.<\/span><\/p>\n<p dir=\"ltr\"><span style=\"font-weight: 400;\">International legal bodies have also attempted to define investment contracts:<\/span><\/p>\n<ul dir=\"ltr\">\n<li style=\"font-weight: 400;\" aria-level=\"1\">The Institute of International Law considers investment contracts to be those involving international economic relations.<\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\">The United Nations Commission on International Trade Law (UNCITRAL) defines them as commercial agreements of a contractual nature.<\/li>\n<\/ul>\n<p dir=\"ltr\"><span style=\"font-weight: 400;\">In essence, investment contracts are typically of an international character, concluded between a sovereign state (or one of its agencies) and foreign public or private entities for the purpose of establishing or managing public facilities, or supplying them with advanced goods and services.<\/span><\/p>\n<h2 dir=\"ltr\"><b>Characteristics of Investment Contracts<\/b><\/h2>\n<p dir=\"ltr\"><span style=\"font-weight: 400;\">Investment contracts possess distinct features that differentiate them from other contractual arrangements:<\/span><\/p>\n<ol dir=\"ltr\">\n<li style=\"font-weight: 400;\" aria-level=\"1\">\n<h3><b>International Nature<\/b><\/h3>\n<p><span style=\"font-weight: 400;\">\u00a0The contract is considered international if the state or one of its public bodies is a party. Contracts between private entities from different countries do not fall within this definition.<\/span><\/p>\n<p>&nbsp;<\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\">\n<h3><b>Foreign Party Involvement<\/b><\/h3>\n<p><span style=\"font-weight: 400;\">\u00a0The second party is a foreign national or entity, whether natural or legal.<\/span><\/p>\n<p>&nbsp;<\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\">\n<h3><b>Public Utility as Subject Matter<\/b><\/h3>\n<p><span style=\"font-weight: 400;\">\u00a0The contract pertains to a public utility, serving a public interest.<\/span><\/p>\n<p>&nbsp;<\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\">\n<h3><b>Purpose<\/b><\/h3>\n<p><span style=\"font-weight: 400;\">\u00a0The goal is to establish, maintain, or manage public utilities or to supply them with modern technological goods and services.<\/span><\/p>\n<p>&nbsp;<\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\">\n<h3><b>Negotiation Framework<\/b><\/h3>\n<p><span style=\"font-weight: 400;\">\u00a0Such contracts are typically negotiated directly between the state and the foreign investor.<\/span><\/p>\n<p>&nbsp;<\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\">\n<h3><b>Long-Term Engagement<\/b><\/h3>\n<p><span style=\"font-weight: 400;\">\u00a0These contracts are usually long-term, involving the exploitation of resources and the establishment of permanent facilities owned by the foreign party for the duration of the contract.<\/span><\/p>\n<p>&nbsp;<\/li>\n<\/ol>\n<h2 dir=\"ltr\"><b>Types of Investment Contracts<\/b><\/h2>\n<p dir=\"ltr\"><span style=\"font-weight: 400;\">Investment contracts vary in form, depending on the host country\u2019s developmental needs. The most common and widely recognized types include:<\/span><\/p>\n<h3 dir=\"ltr\"><b>1. Petroleum Service Contracts<\/b><\/h3>\n<p dir=\"ltr\"><span style=\"font-weight: 400;\">These are among the most prevalent in Saudi Arabia, wherein the state engages foreign parties for exploration, production, and marketing of petroleum resources. These contracts aim to strike a balance between national sovereignty and the technological and operational expertise of foreign companies.<\/span><\/p>\n<p dir=\"ltr\"><strong>Examples include:<\/strong><\/p>\n<ul dir=\"ltr\">\n<li style=\"font-weight: 400;\" aria-level=\"1\">\n<h3><b>Concession Agreements<\/b><\/h3>\n<p><span style=\"font-weight: 400;\">\u00a0As defined in Article 1 of the Franchise Law, a concession involves granting a franchisee the right to operate a business associated with a trademark or trade name, under specific operational guidelines, in exchange for a financial or non-financial consideration (excluding payments for goods or services).<\/span><\/p>\n<p>&nbsp;<\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\">\n<h3><b>Participation Agreements (Joint Ventures)<\/b><\/h3>\n<p><span style=\"font-weight: 400;\">\u00a0The state enters into joint ventures with foreign investors to develop major projects.<\/span><span style=\"font-weight: 400;\"><br \/>\n<\/span><span style=\"font-weight: 400;\"><br \/>\n<\/span> <b>Example<\/b><span style=\"font-weight: 400;\">: The joint venture agreement between <\/span>Saudi Aramco and TotalEnergies<span style=\"font-weight: 400;\"> (France) in 2008 to establish an integrated refinery. Commercial operations commenced in 2014.<\/span><\/p>\n<p>&nbsp;<\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Shared costs and profits (initially 62.5% for Aramco, 37.5% for TotalEnergies).<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Design, financing, construction, and operation of a high-capacity refinery.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Aramco supplied the crude oil; TotalEnergies contributed technical expertise.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Operational profits and capital risks were allocated proportionally.<\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\">\n<h3><b>Contractor Agreements<\/b><\/h3>\n<p><span style=\"font-weight: 400;\">\u00a0These are based on government-initiated projects with foreign contractors responsible for exploration and development.<\/span><span style=\"font-weight: 400;\"><br \/>\n<\/span><span style=\"font-weight: 400;\"><br \/>\n<\/span> <b>Example<\/b><span style=\"font-weight: 400;\">: The EPC (Engineering, Procurement, Construction) contract for the <\/span><b>Sakaka Solar Power Plant<\/b><span style=\"font-weight: 400;\">, signed between the Saudi Power Procurement Company (a Public Investment Fund entity) and <\/span><b>ACWA Power<\/b><span style=\"font-weight: 400;\"> in partnership with <\/span><b>TSK Group<\/b><span style=\"font-weight: 400;\"> (Spain). It was Saudi Arabia\u2019s first renewable energy project under its clean energy initiative.<\/span><\/p>\n<p>&nbsp;<\/li>\n<\/ul>\n<h3 dir=\"ltr\"><b>2. Technology Transfer Agreements<\/b><\/h3>\n<p dir=\"ltr\"><span style=\"font-weight: 400;\">These agreements involve the legal transfer of technology from one party to another for consideration. The contract subject is the technology itself and may take the form of:<\/span><\/p>\n<ul dir=\"ltr\">\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Technical know-how transfer.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Technical assistance agreements.<\/span><\/li>\n<\/ul>\n<p dir=\"ltr\"><b>Example<\/b><span style=\"font-weight: 400;\">: The agreement between <\/span>SABIC<span style=\"font-weight: 400;\"> and <\/span>Yokogawa Electric Corporation<span style=\"font-weight: 400;\"> (Japan) to transfer control systems and digital technologies used in SABIC\u2019s petrochemical plants.<\/span><\/p>\n<p dir=\"ltr\"><span style=\"font-weight: 400;\">Key clauses included:<\/span><\/p>\n<ul dir=\"ltr\">\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Limited license for use within Saudi Arabia.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Training programs for Saudi personnel.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Non-disclosure obligations.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">International arbitration clause (jurisdiction: London).<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Retention of intellectual property rights by Yokogawa.<\/span><\/li>\n<\/ul>\n<h3 dir=\"ltr\"><b>3. Public Works Contracts<\/b><\/h3>\n<p dir=\"ltr\"><span style=\"font-weight: 400;\">These are contracts wherein the government entrusts a foreign entity with executing public works under specified terms and conditions and for an agreed price.<\/span><\/p>\n<p dir=\"ltr\"><b>Example<\/b><span style=\"font-weight: 400;\">: The <\/span><b>Haramain High-Speed Rail<\/b><span style=\"font-weight: 400;\"> project between the Saudi Ministry of Transport and Logistics Services and the Al-Shoula Consortium led by <\/span><b>Talgo<\/b><span style=\"font-weight: 400;\"> (Spain). The contract was based on the Design &amp; Build model.<\/span><\/p>\n<h3 dir=\"ltr\"><b>Conclusion<\/b><\/h3>\n<p dir=\"ltr\"><span style=\"font-weight: 400;\">Investment plays a vital role in the Kingdom\u2019s Vision 2030, which seeks to position Saudi Arabia as a leading global investment powerhouse. To achieve this, the Kingdom has updated its investment legislation and procedures.<\/span><\/p>\n<p dir=\"ltr\"><span style=\"font-weight: 400;\">At <\/span><b>Al-Salamah Law Firm<\/b><span style=\"font-weight: 400;\">, we provide comprehensive legal services in connection with investment contracts. We work closely with both public authorities and foreign investors, offering extensive expertise to ensure the sustainability and legal soundness of investment arrangements. Do not hesitate to contact us for assistance tailored to your investment needs.<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Investment is one of the primary drivers of national and institutional development, playing a pivotal role in boosting economic growth. It facilitates the inflow of substantial capital aimed at advancing the host country\u2019s economic development, while also creating employment opportunities and enabling the transfer of technological advancements. Consequently, a clear legal framework is essential to&#8230;<\/p>\n","protected":false},"author":34,"featured_media":144883,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[26],"tags":[],"class_list":["post-144795","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-general-articles"],"acf":[],"_links":{"self":[{"href":"https:\/\/www.salamahlaw.com\/en\/wp-json\/wp\/v2\/posts\/144795","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.salamahlaw.com\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.salamahlaw.com\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.salamahlaw.com\/en\/wp-json\/wp\/v2\/users\/34"}],"replies":[{"embeddable":true,"href":"https:\/\/www.salamahlaw.com\/en\/wp-json\/wp\/v2\/comments?post=144795"}],"version-history":[{"count":2,"href":"https:\/\/www.salamahlaw.com\/en\/wp-json\/wp\/v2\/posts\/144795\/revisions"}],"predecessor-version":[{"id":144885,"href":"https:\/\/www.salamahlaw.com\/en\/wp-json\/wp\/v2\/posts\/144795\/revisions\/144885"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.salamahlaw.com\/en\/wp-json\/wp\/v2\/media\/144883"}],"wp:attachment":[{"href":"https:\/\/www.salamahlaw.com\/en\/wp-json\/wp\/v2\/media?parent=144795"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.salamahlaw.com\/en\/wp-json\/wp\/v2\/categories?post=144795"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.salamahlaw.com\/en\/wp-json\/wp\/v2\/tags?post=144795"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}