Saudi Arabia's privatisation push slows
This comes amid delayed Aramco listing
RIYADH: Aramco may have grabbed the biggest headlines, but the oil giant’s delayed initial public offering is just the latest sign of Saudi Arabia’s slowing privatisation push.
The programme is part of Crown Prince Mohammed Salman’s Saudi Vision 2030 to transform the economy and envisages the sale of stakes in ports, railways, utilities and airports.
When the government began to consider the plans almost three years ago, Brent crude traded at less than US$40 a barrel.
With oil prices now twice as high, there seems to be less urgency, even though the International Monetary Fund in July recommended privatization be accelerated. News in August that the sale of shares in Saudi Arabian Oil Co was on hold was the most dramatic suggestion that officials were taking their feet off the pedal.
“It is undeniable that the privatisation schedule is running behind what was initially assumed,” said Jean-Paul Pigat, head of research at Dubai-based Lighthouse Research.
“I’m not sure there yet exists a coherent long-term strategy that actually finds the proper balance between the roles for the public and private sector in the economy, and until this is formulated, delaying the privatization program might actually be in their best interests.”
Saudi Arabia wants to boost non-oil revenue by selling stakes in state assets, including Aramco, the stock exchange and soccer clubs.
It set up the National Centre for Privatization in 2017.
Privatizations could exceed US$350bil in about five years, Mitsubishi UFJ Financial Group Inc’s Middle East and North Africa co-head Elyas Algaseer said in August last year. In April, authorities put forward a target of as much as 40 billion riyals by 2020 (US$11bil).
Among proposed transactions yet to be completed are plans to sell a stake in King Khaled International Airport, which are on hold, according to two people familiar with the process. Saudi Arabia’s General Authority of Civil Aviation didn’t respond Wednesday to an emailed request for comment. The sale of the US$7.2bil Ras Al Khair power plant is also yet to be done. BNP Paribas was hired to advise on the deal in September last year.
While the delays aren’t likely to hurt the economy in the short-term, they raise questions about the government’s commitment to reform and whether its targets were realistic.
In addition to boosting non-oil revenue, the sale of state assets was seen as a crucial step to reduce the dominant role of the state in an economy long-dependent on public spending to create jobs and generate growth.
Privatisation centre chief executive officer Turki al Hokail said the body had “completed a large number of significant milestones” over the past 14 months and the program’s inclusion in Vision 2030 and its political, institutional and regulatory backing showed the government’s commitment to the plans.
At least 10 projects are underway, he said in response to questions on Sept 12. One of the initiatives that is moving forward is the sale of four flour milling companies by Saudi Grains Organisation, with a Nov 30 deadline for bidding qualification applications announced on Sept 5. Still, that’s three years after the idea was announced, and well past the initial target of end-2016 completion. — Bloomberg