Five-year plan to privatise Saudi airports
London - Saudi Arabia is planning to privatise its airports and services related to them starting in the first quarter of 2016, a move seen by financial analysts as an effort to diversify the kingdom’s economy.
The announcement from Saudi Arabia’s General Authority for Civil Aviation (GACA) revealed that the initiative, which is to start with Riyadh King Khalid International Airport, will take five years to complete and is an effort to relieve pressure on the kingdom’s national budget.
“The privatisation programme comes in line with the kingdom’s plan to improve the productive efficiency of airport systems and ease the financial burden on (the) state budget,” GACA Chairman Sulaiman al-Hamdan said in the statement.
Following the privatisation of Riyadh’s international airport, which will be known as the Riyadh Airports Company, air traffic control will also be privatised under the banner of the Air Navigation Services Company, while information technology units will be privatised and relabelled the Saudi Company for Aviation Information Systems. Both steps are scheduled for the second and third quarters of 2016, according to the GACA statement.
Saudi Arabia has privatised some sectors of its aviation industry, including its national carrier’s catering wing, Saudi Airlines Catering Company, and its ground handling service firm, the Saudi Ground Services Company. Both firms are listed on the Saudi stock exchange.
GACA earlier announced an expansion project for the King Khaled International Airport designed to more than double the airport’s annual passenger capacity to 35 million. Jeddah’s even busier King Abdulaziz International Airport will be a part of an expansion project that will see the airport’s capacity increased by 15 million passengers a year to 80 million passengers a year.
The announcement by GACA comes as Saudi Arabia is trying to diversify its economy. Low oil prices, due to increased production, continue to take a significant bite out of the country’s revenues. Global oil prices are about $44 a barrel, a stark contrast to June 2014 when prices peaked at $115 dollars a barrel.
There were rumours earlier this year, after the United Arab Emirates became the first member of the oil-rich Gulf Cooperation Council to scrap transport fuel subsidies, that the kingdom would eliminate energy subsidies. However, Saudi Petroleum Minister Ali al-Naimi said Saudi Arabia doesn’t need to reduce its substantial domestic energy subsidies a week after stating the kingdom was looking into such a move.
Additionally, Saudi Arabia will not be changing its oil production levels anytime in the near future and the effects on its domestic economy have been acknowledged by Saudi officials. In a recent interview with the Financial Times, Saudi Health Minister Khalid al- Falih, who is also chairman of Saudi Aramco, said: “We knew that it was going to be painful but the extent of the pain went beyond our expectations. The market has overreacted as it typically does in such down cycles.”
International Monetary Fund (IMF) Managing Director Christine Lagarde warned that global energy prices could remain low for years and urged Gulf countries to adjust budgets accordingly. She said the countries could no longer rely on revenues from oil and natural gas alone.
Saudi Arabia’s energy strategy in continuing to pump record amounts of oil is an effort to defend its market share against high-cost oil from Russia, Canada and the United States. Other factors are believed to be politically motivated, such as neutralising Russia and Iran, particularly for their support of Syrian President Bashar Assad.
Recently, Qatari Oil Minister and acting OPEC President Mohammed al-Sada said he saw signs of an oil price rise in 2016, emphasising that prices had “bottomed out”.
He said world gross domestic product growth in 2016 is predicted to be 3.4% against an expected 3.1% in 2015 and that would result in an increase in global oil demand of 1.3 million to 1.5 million barrels per day.