Mohammad bin Salman: More than 20 sectors will be privatized by 2019

Time: October 06, 2018     

The Saudi crown prince revealed that the kingdom will have more than 20 privatized industries by 2019. (Supplied)

In an interview tackling a wide range of topics, Saudi Arabia’s Crown Prince Mohammad bin Salman said that the kingdom will have more than 20 privatized industries by 2019.

He said in the interview with Bloomberg on Wednesday night at a royal compound in Riyadh, and published late Friday: “In 2019, we will have more than 20 services that will be privatized, most of them in water, agriculture, energy and some of it in sports.”

The Saudi crown prince revealed that negotiations are underway “with investors. Some of them here, some of them global. We want to make sure that these investors have the know-how to run the businesses.”

Mohammad bin Salman said that the Saudi government will own small parts of these companies “to secure the quality for a period of time,” as the crown prince puts it.

He added in the interview that: “We are pushing that the majority of these companies when they move to the private sector, most of them will be IPO-ed. So the investors will own the majority, the minority will be for the Saudi government and a little bit will be IPO-ed on the stock market. We need this to increase transparency. We didn’t want to move fast with unknown investors. Picking the right investor, putting it on the stock market, watching it clearly so you can really notice if there are any problems before they really happen so you can intervene to fix things.”

This article was first published in Al Arabiya English  

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Saudi Arabia kick starts sale of state flour mills

Time: July 02, 2018

 

DUBAI (Reuters) – Saudi Arabia on Thursday kicked off the sale of its flour mills, one of the first privatizations of the kingdom and a litmus test for other large state asset sales to follow.

Saudi’s state grain buyer SAGO said it would start accepting applications for qualification of potential interested investors on Aug. 26. The kingdom will also make an announcement regarding the timeline for the qualification process on the same day, SAGO said in a statement.

HSBC Saudi Arabia ― the financial advisor for the privatization ― said the launch of the qualification phase preceded the potential bidding phase.

The sale of Saudi’s flour milling sector is part of a wide-reaching overhaul of its economy and has drawn interest from some of the world’s largest agribusiness firms.

This article was first published in Reuters

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Saudi Arabia said to have growing ‘appetite’ for privatisation

Report suggests that the top candidates for privatisation are government entities within the power and water sectors
The Oliver Wyman report suggests that the top candidates for privatisation are government entities within the power and water sectors.

Industries in Saudi Arabia are said to have a big appetite for privatisation, as the Gulf kingdom moves towards the implementation phase of Vision 2030, according to a new report by Oliver Wyman.

The report said it is pertinent for Saudi Arabia to act now to diversify its economy and increase reserves.

With the GCC countries increasingly considering regulation for privatised industries and the subsequent implementation, the case of Saudi Arabia stands out with the announcement of privatising 5 percent of Saudi Aramco’s shares, it noted.

It suggested that the top candidates for privatisation are government entities within the power and water sectors such as Saudi Electric Company, the Saline Water Conversion Corporation and Sadara, the semi government chemical company.

Oliver Wyman said each of these industries have relatively high investor appetite and are anticipated to provide a positive impact on the economy.

“The rapid change in policies in Saudi Arabia suggests that the climate is ripe for privatisation in the kingdom,” said Jeff Youssef, partner, Public Sector, Oliver Wyman.

“We conducted a market survey across significant government industries and we were able to conclude that a change in the perception of the privatisation regulation among the stakeholders was on the horizon.

“The public in Saudi Arabia are increasingly ready to embrace change and we were able to note the increase in appetite for investment across many sectors. Privatisation can accomplish much good if executed well, and we believe that the market currently will pave way for the ease of implementation,” he added.

The report also highlighted that the smooth transition to privatisation has the potential to play an integral part in Saudi Arabia’s reform and diversification strategy.

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This article was first published in  Arab News

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Saudi foreign reserves to rise thanks to privatisation, inclusion in emerging market indexes

Time: June 01, 2018

Saudi Arabia’s foreign reserves, which rose to more than a one-year high in April, are expected to continue climbing in the medium term thanks to privatisation plans, inclusion in emerging markets benchmarks and higher oil prices, according to Japan’s biggest lender, Mitsubishi UFJ Financial Group.

Net foreign assets at the Saudi Arabian Monetary Authority, the kingdom’s central bank, grew $13.3 billion month-on-month in April, official data showed this week.

“We view that the inclusion of Saudi Arabia in the FTSE and MSCI EM indices, along with privatisation plans which are likely to come to fruition in 2019, will lead foreign exchange reserves to continue rising over the medium-term,” said the report from MUFG on Thursday.

“The sharp increase in April was primarily due to current account surpluses (owing to a rise in oil receipts) and foreign borrowing.”

The reserves had declined over the last three years from their August 2014 peak of $737bn due to draw downs to plug a fiscal deficit shortfall that reached a record in 2015.

However, the government has narrowed its fiscal deficit, introduced taxes and cut spending over the last three years to help slow the draw down of reserves. It also issued in April $11 billion in international bonds and started a domestic sukuk programme last year to diversify its sources of funding the deficit.

Saudi Arabia, the world’s biggest oil exporter, is revamping its economy under the overarching Vision 2030 programme to cope with the low oil price environment. The country’s reforms, which include changes to stock market regulations, are expected to help it gain inclusion in index complier MSCI widely-tracked emerging market index. Rival FTSE Russel already announced plans to include it in its emerging market benchmark. The inclusion, which is expected to be announced next month, will trigger $15-$30bn in inflows over the next 12 months, according to MUFG.

The government is also plans to privatise some prized assets, including a share float of 5 per cent of Saudi Aramco, the world’s biggest oil producer.

“Moreover, key privatisation plans, such as the Aramco IPO, as well as IPO and public-private participation (PPP) initiatives in sectors such as in transportation, leisure and utilities, could all generate higher inflows, however this will likely come to fruition from 2019 onwards,” MUFG said.

“Saudi Arabia continues to remain well-positioned to withstand its challenging operating environment, noting that the fiscal breakeven price is $87.9 per barrel this year and is able to continue financing fiscal deficits and the investment programme in line with Vision 2030.”

This article was first published in The National

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Major Saudi industries ripe to welcome privatization

Time: May 27, 2018

DUBAI — Industries in Saudi Arabia are poised with high appetite for privatization as the Kingdom rigorously moves towards the implementation phase of Vision 2030, according to a new report by Oliver Wyman titled “Creating a Sustainable Privatization Program – Realizing Saudi Arabia’s Vision for the Future.”

According to the report, Saudi Arabia is set to embark fully on its ambitious reform agenda aimed to transform its economy and society in the coming decade with the rallying of the oil prices since the start of 2018. It is pertinent for the Kingdom to act now to diversify its economy and increase reserves.

With the GCC countries increasingly considering regulation for privatized industries and the subsequent implementation, the case of Saudi Arabia stands out with the announcement of privatizing 5% of Saudi Aramco’s shares.

Appropriate governance structures are needed to manage the process of privatization and maintain and enhance communication between the various stakeholders. The government must define clear guidelines and procedures for the selection of private investors, the report said.

Clear criteria must be defined to prioritize target assets and services that are based on government objectives. Filtering for norms and standards help in selecting and prioritizing assets/services. Some of the basic criteria include: enterprise value; ownership policy; government scope; asset categorization and assessment; how complex privatization is likely

to be; and what impact will it have economically and socially.

After assets are filtered, they should be ranked by the extent to which they are most suited for privatization, and separated based on whether privatization should be done in the short term, medium term, or long-term. The assets should then be further categorized based on the privatization model best suited to achieve the government’s objective, the report stressed.

“A common practice, with clear benefits, involves the development of framework legislation (such as prioritization of assets, bidding processes, ways of selecting finalists, etc.). Doing so improves the transparency, consistency and effectiveness of the process, generating greater confidence in potential investors. As such, adopting framework legislation can increase the number and quality of prospective investors,” the report noted.

The general market perception suggests that the top candidates for privatization are government entities within the power and water sectors such as Saudi Electric Company, the Saline Water Conversion Corporation and Sadara, the semi-government chemical company. Each of these industries has relatively high investor appetite and is anticipated to provide a positive impact on the economy. Moreover, the market sees them as having a high ease of implementation compared to the other industries under consideration.

“The rapid change in policies in Saudi Arabia suggests that the climate is ripe for privatization in the Kingdom,” said Jeff Youssef, Partner, Public Sector, Oliver Wyman.

“We conducted a market survey across significant government industries and we were able to conclude that a change in the perception of the privatization regulation among the stakeholders was on the horizon. The public in the Kingdom of Saudi Arabia are increasingly ready to embrace change and we were able to note the increase in appetite for investment across many sectors. Privatization can accomplish much good if executed well, and we believe that the market currently will pave way for the ease of implementation,” he added.

The report also highlighted that the smooth transition to privatization has the potential to play an integral part in Saudi Arabia’s reform and diversification strategy. When executed properly, privatizing state-owned industries can bring clear benefits to the economy, driving growth and employment and improving the fiscal balance. To ensure that privatization is a long term, sustainable solution, the Kingdom will have four key criteria; the right industry, the right model, a regulatory framework for monopolies and a well-equipped governance structure. — SG

This article was first published in Saudi Gazette

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Private sector to run 25 govt schools

Time: May 02, 2018

Jeddah — Some 25 government schools will be operated by the private sector as per an approval given by the Council of Ministers at its session chaired by Custodian of the Two Holy Mosques King Salman here on Tuesday.

The Cabinet approved the Independent Schools initiative upon the recommendation of the Council of Economic and Development Affairs (CEDA).

The supervisory committee of the education sector will carry out this initiative in accordance with the provisions of supervisory committees tasked with privatization.

Education is among the 10 government sectors to be privatized as part of the privatization program announced by CEDA.

The 10 government sectors identified for privatization include environment, water and agriculture; transportation; energy; labor and social development; telecommunications and IT; education; municipalities; health; housing; and Haj and Umrah.

Minister of Culture and Information Awwad Al-Awwad said the Cabinet valued the privatization program named Delivery Plan 2020 approved by CEDA under the chairmanship of Crown Prince Muhammad Bin Salman, deputy premier and minister of defense, last month.

The program targets realizing the goals of Vision 2030 to increase the private sector’s stake in the gross domestic product (GDP) from 40% to 65% by 2030. The privatization program aims at generating SR35 billion to SR40 billion in non-oil revenues by 2020 and creating up to 12,000 jobs.

The Cabinet reiterated the Kingdom’s keenness to alleviate the suffering of the Syrian people. It noted in this regard its pledge to donate $100 million through the King Salman Humanitarian Aid and Relief Center (KSRelief) for Syrians announced at a conference on “Supporting the future of Syria and the region” at the European Council in Brussels last month.

The Cabinet said the Syrian people are being subjected to horrific war crimes. It reiterated that a political solution is the only way to solve the Syrian crisis.

The Cabinet approved the establishment of diplomatic relations between the Kingdom and Monaco at the level of non-resident ambassador.

The Cabinet also approved the food security strategy and its executive plan on the recommendation of CEDA and the minister of environment, water and agriculture.

This article was first published Saudi Gazette
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Signposts on the Kingdom’s path to privatization

Time: April 29, 2018

In the past three decades, governments in many countries have moved thousands of state-owned businesses to the private sector. Airlines, railroads, postal services, electric utilities, and many other types of businesses, valued at more than $3.3 trillion, have been privatized.

One of the key figures in the history of privatization was the former prime minister of the UK, Margaret Thatcher. She came to power determined to bring the stagnant British economy back to life with market-based reforms. Privatization became her most important and enduring economic legacy.

I remember reading the morning headlines highlighting her bold answers to skeptics in the House of Commons about privatization and the sale of major household businesses, including British Airways, British Telecom, British Steel and British Gas.

During Thatcher’s years in office, almost 50 companies were sold or privatized — including dozens from the power and water industries — raising more than £50 billion for the Exchequer, the UK’s finance ministry.

It is music to my ears to hear about the Saudi Council of Economic and Development Affairs approving the executive plan for the “privatization program,” which has been named “Delivery Plan 2020” and is a key part of the wider Saudi Vision 2030 program that aims to improve the efficiency of the national economy and enhance the services provided to reach as many as possible beneficiaries.

Saudi Arabia aims to raise around $200 billion in the next several years through privatization programs in 16 sectors, ranging from oil to health care, education, airports and grain milling. The Kingdom wants to raise another $100 billion through the sale of a 5 percent stake in Saudi Aramco.

Vision 2030 hopes to increase the private sector’s stake in gross domestic product from 40 percent to 65 percent by 2030.

Saudi Arabia aims to raise around $200 billion in the next several years through privatization programs in 16 sectors, ranging from oil to health care, education, airports and grain milling.

Basil M.K. Al-Ghalayini

The program aims to enhance fairness in transactions with the private sector, increase job opportunities for Saudis, and attract the latest technologies and innovations.

In addition, it seeks to capitalize on the successful previous experiments, with the participation of the private sector, in the field of infrastructure and a broad spectrum of various service sectors, such as energy, water, transportation, telecommunications, petrochemicals and finance.

Privatization has had a huge effect on the global economy. It has spurred economic growth and improved living standards as privatized businesses cut costs, increased service quality, and innovated. The reforms also massively increased the size and efficiency of the world’s capital markets. Many of the largest share offerings in world history have been privatizations, and a large share of global stock market capitalization is from privatized companies.

Learning from the experiences of the UK and other economies, I am confident that Saudi Arabia’s execution of its privatization program will be successful and a role model for other economies to follow.

 This article was first published Arab News
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Saudi Arabia says healthcare to remain free after privatisation

Time: April 26, 2018

The Ministry of Health in Riyadh announced on Wednesday that Saudi citizens will continue to receive free healthcare despite a programme which will see the health sector move into private hands.

“The privatisation of the health sector has important foundations that cannot be changed, such as free healthcare for citizens and ensuring service quality and efficiency,” said the ministry.

Citizens of Saudi Arabia currently receive free healthcare in public hospitals. On Tuesday, the Saudi Council of Economic and Development Affairs approved a plan to implement the Privatisation Programme to sell government assets for $9.3-$10.7 billion by 2020.

The health sector is one of ten to be privatised as part of the kingdom’s Vision 2030, which aims at the diversification of the country’s sources of revenue.

 This article was first published Middle East Monitor

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Challenges and risks in the historic Saudi Arabian privatization plan

Time: April 26, 2018

Saudi Arabia’s plan to kick-start its historic privatization program has been well received by an international investment community that is often skeptical of big announcements.

Bankers have spoken of the “positive momentum” behind the plan, and that it looks realistic and achievable. Raising around $10 billion through state sell-offs, public private partnerships and trade sales is certainly a long way from the $200 billion put up as the total value of the privatization program just last year, but you have to start somewhere.

The $10 billion figure relates to sell-off proceeds between now and the end of 2020, while the bigger figure was an estimate of the total value of proceeds from
all asset sales and other privatization measures (excluding whatever comes from an IPO of Saudi Aramco) under the Vision 2030 strategy. Saudi policymakers still have the potential to meet the higher figures over the next 12 years as the pace of sell-offs accelerates and they — and global markets — become more familiar with the process.

The value estimates announced earlier this week do not include any proceeds from assets held by the Public Investment Fund, which has hundreds of millions of riyals’ worth of holdings in public and private Saudi companies that can be sold separately from the process being organized by the National Center for Privatization (NCP).

Working out which assets will be sold first is still a guessing game, but the NCP report identified two individual “game-changers:” Saudi ports and the desalination business Saline Water Conversion Company. Both look relatively trouble free from a privatization perspective — solid revenue-generating businesses able to pay the level of dividend associated with utilities the world over. Trade and water are, in their own ways, what Saudi Arabia is all about, so there seems little need for explanatory marketing campaigns.

Hospitals and schools also figure high on the NCP priorities list, but these present greater challenges, not in the sense that their profitability or value is in doubt, but in terms of the big role they pay in the Kingdom’s social and cultural life. Selling them will require a greater degree of sophistication.

The NCP “Delivery 2020” document was — justifiably — big on theory and structure, with much space given to explanations of the need for legal, regulatory and institutional frameworks for the privatization process.

Saudi Arabia’s plan to kick-start its historic privatization program has been well received by an international investment community that is often skeptical of big announcements.

Frank Kane

Some bankers were surprised that further progress had not been made on this front, and a substantial amount of work does appear necessary before the first assets can be sold. But the Saudi government has shown that it is not afraid to get things done quickly.

The NCP document also recognized that there are challenges and risks associated with such an ambitious program of state sell offs — one of the biggest in history. The plan said that Saudi Arabia had only limited experience of private-sector involvement in the economy, confined to specific sectors. “Hence, necessary expertise, knowledge and skills related to the privatization of state-owned assets and activation of private-sector engagement across the whole government are very low,” it said.

There were issues, too, with the lack of sufficient skills and expertise in the private sector “since the government was the only available service providers for many sectors.” The document also highlighted gaps in the legal and regulatory structures to enable such a big privatization program. “The current situation is not attractive to the participation of the private sector, as it is not interested in sectors where there are no clear regulations or directory of procedures that govern all the above-mentioned points, and that may stand in the way of reaping the full benefits of privatization,” it said.

The NCP acknowledged that there were risks to the successful execution of the sell-off plan. It said that there was “high potential impact” from the “limited liquidity in the KSA financial ecosystem,” and recommended keeping the process open to international markets, among other measures. It identified a “critical potential impact” from changes in market conditions in the course of the privatization program, and advised hedging strategies, best and worst case scenario planning, and adoption of international best practice to gain access to global financial funds. Seeing potential pitfalls is an essential part of the privatization process, and it is commendable that the NCP has recognized that.

 This article was first published Arab News
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Education, Haj among 10 sectors set to be privatized

Apr 26, 2018

RIYADH — The privatization program announced by the Council of Economic and Development Affairs (CEDA) on Tuesday will focus on 10 government sectors, according to the CEO and board member of the National Center for Privatization and Public–Private Partnership (NCP) Turki A. Al Hokail.

The NCP-led initiative aims at boosting the contribution of local sectors to the national economy through a range of programs that seeks to transform the economy and make it more robust and dynamic.

The 10 government sectors identified for privatization include environment, water and agriculture; transportation; energy; labor and social development; telecommunications and IT; education; municipalities; health; housing; and Haj and Umrah.

Al-Hokail said the privatization program aims to enhance competitiveness, elevate the quality of service, contribute to economic development, and improve the business environment by privatizing government services.

The program also seeks to eliminate obstacles that may limit the private sector from playing a larger role in the development of the Kingdom’s economy, including developing and operationalizing the legal system related to markets, businesses and drafting a public-private-partnership law that will protect the rights of both users and investors.

“The privatization program is in the interest of Saudi citizens and will bring many benefits, and improve the investment climate. The program’s strong governance foundation effectively will be a strong pull factor for global investors and large corporations because it sets the guidelines that will make the program attractive. It will also allow the government to focus on overseeing and monitoring progress,” said Al-Hokail.

The privatization program aims to help increase the percentage of private sector contribution to the Kingdom’s GDP from 40% to 65%.

The National Center for Privatization & PPP established by Council of Minister’s resolution No. 355 is mandated to introduce privatization through the development of programs and regulations and put in place the necessary mechanism and tools to establish entities for private sector’s participation.

Some of the money is to come from asset sales in sectors such as education, water, telecommunications and health care. Some of those sales could occur through initial public offers of shares, while others might be direct transfers.

Hokail said Riyadh was willing in principle to consider sales of 100 percent stakes in state firms, but decisions on each deal would depend on investor demand and market conditions.

The rest of the money would come from public-private partnerships (PPPs) — deals in which private companies invest in infrastructure and are paid to operate it for a period, before eventually transferring it to the state.

Authorities hope to offer a draft law on PPP frameworks for public consultation and feedback within a week or so, before implementing a final version later this year, Hokail said. He said authorities aimed by 2020 to complete five asset sales, 14 PPPs and four corporatization exercises, in which state projects would be converted into independent firms in preparation for their possible sale at a later date. — With input from Reuters

This article was first published by Saudi Gazette