With eye on Vision 2030, Saudi ramps up privatisation efforts

The Saudi government wants to raise as much as $200 billion through privatisation in the coming years, in addition to the $100 billion it anticipates from its share listing of up to 5% of Aramco.

Saturday 24/08/2019
The production facility of Saudi Aramco’s Shaybah oilfield in the Empty Quarter. (Reuters)
Impressive ambitions. The production facility of Saudi Aramco’s Shaybah oilfield in the Empty Quarter. (Reuters)

Saudi Arabia appears to be moving forward with plans to privatise non-oil assets, taking action to sell flour mills and the first of several desalination plants.

The move, part of Saudi efforts to generate $9 billion-$11 billion in non-oil revenue and create 12,000 jobs by next year, may prove daunting, given the pace and, while such privatisation efforts crack open the door to foreign investment in state enterprises, there remains ambiguity as to whether Saudi partners will be required to participate in some of those asset sales.

The Saudi government wants to raise as much as $200 billion through privatisation in the coming years, in addition to the $100 billion it anticipates from its share listing of up to 5% of state oil and gas giant Saudi Aramco.

Saudi Crown Prince Mohammed bin Salman bin Abdulaziz in an interview last October indicated the kingdom would privatise more than 20 companies this year as part of Saudi Vision 2030 — the umbrella plan to revamp the Gulf country’s economy by substantially reducing dependence on income from oil exports.

“In 2019, we will have more than 20 services that will be prioritised, most of them in water, agriculture, energy and some of them in sports,” he said.

In June, Crown Prince Mohammed told Asharq Al-Awsat that the government would finalise privatisation deals valued at approximately $533 million by the end of this year.

Riyadh’s privatisation initiative for 2020, which was published by the Saudi Press Agency in April 2018, highlighted the goal of attracting 14 public-private partnership (PPP) investments valued at $6.4 billion-$7.5 billion. Riyadh includes PPP arrangements to build and operate infrastructure as well as partake in state asset sales in its definition of privatisation.

The initiative pinpointed the corporatisation of Saudi ports and the privatisation of the production section of the Saudi Saline Water Conversion Corporation (SWCC) and the Ras al-Khair desalination plant. It also addressed privatising the national football league, selling flour mills operated by the state grain buyer, the Saudi Grains Organisation (SAGO), and privatising some services in the transportation sector.

The kingdom’s National Centre for Privatisation (NCP) in January said it saw the 2020 goals “as attainable targets. Progress in most cases is going according to schedule.”

However, several high-profile privatisation proposals have seen delays. The NCP stated there were no “obstacles” to privatising up to 16 of the kingdom’s football clubs by 2020 but Qusai al-Fawaz, then president of the Saudi Football Federation, had a different perspective.

“I don’t have an exact time for this,” Fawaz said in January. “I don’t know whether it will be 2020 or 2022 until the plan is ready.”

Turki al-Sheikh, former head of the Saudi Sports Authority, estimated that selling all 16 of the football clubs could raise $800 million-$1.5 billion.

Plans to sell a minority stake in Riyadh’s King Khalid International Airport were put on hold in 2018 and although the country’s ports have yet to start privatising. Foreign companies were authorised last year to apply for port shipping agent licences without having to work with a local investor.

The original time frame for the sale of SAGO’s four flour mills envisioned the privatisation to be completed by the end of 2016. Initially, there had been heightened interest in the SAGO privatisation deal from large agribusiness firms, including Archer Daniels Midland Company and Bunge Ltd., but the slow process has reportedly turned away some potential buyers.

Following a pre-qualification phase that ended in June, SAGO announced that qualified companies could participate in the bidding phase by performing due diligence and submitting financial offers.

Although the qualification document for bidders does not mention a requirement that the mills must remain majority Saudi-owned, foreign investors may be reluctant to pursue making offers without clarification. At least one consortium involving a Saudi firm had expressed interest in the sale. Reports suggest that Saudi-based Al Rajhi Holding Group and Dubai-based Al Ghurair Group were considering working together to bid on the flour mills.

One major privatisation effort in the kingdom’s water sector was reportedly nearing completion. The sale of the Ras al-Khair desalination plant near Jubail in Eastern province is said to be well-advanced and should be wrapped up by year’s end. The plant is valued at $7.2 billion, which would provide a huge chunk of Riyadh’s dollar target goal for privatisation sales for 2020 but details, including who has made the investment and the sale’s timing, are scarce.

The Ras al-Khair sale is the first component of the privatisation of the production portion of SWCC. The SWCC, which operates some 30 desalination plants in the kingdom, earlier this year asked Saudi and international banks to submit proposals to advise on selling stakes in its assets, with four to six desalination facilities expected to be in contention.