Termination of Contracts with the Egyptian State: What impact does the Prime Ministerial Decree No. 3218/2022 have on foreign investors?

27 April 2023 - Dr. Christian Ule

In September 2022, the Egyptian Prime Minister issued Decree No. 3218 (hereinafter referred to as the “Decree”), which reformed the powers of state-owned companies and government entities to terminate contracts containing an international arbitration clause. 

To begin with, Egyptian law had previously established the Supreme Authority for Arbitration and International Disputes, (hereinafter referred to as the “SAAID”) by Prime Ministerial Decree No. 1062/2019, amended by Decree No. 2592/2020), an interministerial committee chaired by the Prime Minister.  

SAAID had the power to provide legal assistance to state-owned enterprises whenever it deemed it appropriate, to propose and review settlement proposals, to review the defense and the documents presented before the arbitral tribunals, and to propose amicable settlements between the contracting parties. 

Following the adoption of the new Decree, the powers conferred on SAAID have increased, however, this change is to the advantage of the party concluding a contract with the state entities.  

The Decree gives SAAID the right to approve any international arbitration clause in a contract between foreign investors and a public entity, amendments to such contracts, or any procedure constituting the termination or rescission of such contracts.  

In this sense, public entities include administrative bodies and wholly or partly state-owned enterprises. 

This amendment was urgently needed after state-owned enterprises had unilaterally terminated contracts containing arbitration clauses on numerous occasions, causing the state to incur huge expenses, mostly due to the lack of professionalism of mid-level administrative officials.  

The Egyptian State is now taking control and supervision over the actions of such state-owned companies and is helping to draft the arbitration clause in the first place to avoid conflicts in its application. 

The Decree is favourable to foreign investors because it promotes the application of contracts and, in the event of a dispute, the contract cannot be unilaterally terminated by the officials of the state-owned company for unjustified reasons unless SAAID approves such termination and the reasons for it. 

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Dr. Christian Ule

Managing Partner Middle east & East Africa

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