Saudi Arabia slows down privatisation plans

Riyadh – Mubasher: The delay of the local and international initial public offerings (IPOs) of state-run Saudi Aramco is the latest sign that the Kingdom is slowing down its privitisation drive.

Set by the government three years ago when Brent crude traded at less than $40 per barrel (pb), the privitisation programme is the centerpiece of Crown Prince Mohammed bin Salman’s “Vision 2030” reform plan, intended to diversify the GCC nation’s economy and invest more heavily in infrastructure.

Although the International Monetary Fund (IMF) urged the oil-rich nation to speed up the sale of stakes in state-run firms, the move “seems to be less urgency”, after oil prices have been doubled, Bloomberg News reported.

“It is undeniable that the privatization schedule is running behind what was initially assumed,” Jean-Paul Pigat, head of research at Dubai-based Lighthouse Research told Bloomberg.

Saudi Arabia seeks to increase its non-oil revenue by floating stakes in state-owned assets, including Saudi Arabian Oil Company and soccer clubs. To this end, the National Center for Privatisation was set up in 2017.

 

Mitsubishi UFJ Financial Group Inc.’s Middle East and North Africa co-head Elyas Algaseer had previously expected that Saudi privatisations to surpass $350 billion in around five years. 

In April, the Saudi government said it planned to raise as much as SAR 40 billion from its privatisation plan by 2020 ($11 billion).

In addition to Aramco’s delayed IPO, Saudi Arabia has also postponed the sale of a stake in King Khaled International Airport, two informed sources told Bloomberg.

Moreover, the sale of the $7.2 billion Ras Al Khair power plant hasn’t been completed yet.

However, the delayed privitisations aren’t forecast to hurt the Saudi economy in the short term, “they raise questions about the government’s commitment to reform and whether its targets were realistic,” according to Bloomberg.

Along with bolstering the kingdom’s non-oil revenues, privitisation schemes are a “crucial step” to slash the state’s dominant role in the economy which has relied for long times on public spending to provide jobs and generate economic growth.

In the same vein, CEO of the National Center for Privatization Turki al Hokail said that the Saudi body had “completed a large number of significant milestones” over the last 14 months.

He noted that at least 10 projects are underway, stressing the government’s commitment to the plans.

Earlier this month, Moody’s Investors Service said in a report that the delay of Aramco's local and international IPOs reflects complexities facing the Saudi government in opening up the public sector.

It suggests that progress in privitisation plans will be gradual, according to the New York-based ratings agency.

“Slower privatization may be down to a combination of institutional constraints, concerns over public opposition to the sale state assets, and a reassessment of the eventual benefits from the process,” Jean-Paul Pigat told Bloomberg.

Mubasher Contribution Time: 20-Sep-2018 10:49 (GMT)
Mubasher Last Update Time: 20-Sep-2018 12:13 (GMT)