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