The ‘jewels in the crown’ of Saudi Arabia’s privatization program

DUBAI: The government of Saudi Arabia has for the first time revealed in detail the parts of the national economy that will be considered for privatization as part of the Vision 2030 strategy to diversify it away from oil dependency and public-sector domination.
In addition to Saudi Aramco — set for a record breaking initial public offering (IPO) on international stock markets next year — big chunks of the economy are regarded as potential privatization candidates, including Saudi Arabian Airlines (Saudia), the King Faisal Specialist Hospital and Research Center in Riyadh, and the commercial aspects of Hajj and Umrah pilgrimage services.
The National Center for Privatization (NCP), the body set up by the Council for Economic Development Affairs (CEDA) to coordinate the privatization program in collaboration with other government agencies, made the list available in response to a request from Arab News.
Hani Alsaigh, the NCP’s director general of strategic communication and marketing, said: “The NCP is working hard with other partners to oversee the efficient and strategic transfer of the Kingdom’s government assets to the private sector. The ambitious privatization program set out in Vision 2030 is expected to increase the private sector’s contribution to national (gross domestic product) from 40 percent to 65 percent, which will take place over a number of years.”
A value of $200 billion has been put on the privatization program over the next few years, double the estimated value of the Aramco IPO, making it one of the biggest sell-offs of state assets in history, bigger then the groundbreaking British privatization program of the 1980s and the dissolution of Soviet assets the following decade.
The other eye-catching items on the NCP’s potential “for sale” list include the Saline Water Conversion Corporation, the King Abdullah City for Economic and Renewable Energy, government universities, the Saudi Health Council, and Saudi Post.
According to an NCP briefing paper, the key objectives of the privatization program are to improve the efficiency of the national economy and enhance its competitive ability to meet the challenges of regional and international competition, as well as encouraging private-sector investment. It seeks to encourage ownership of productive assets by Saudi citizens while encouraging domestic and foreign investment.
It also wants to increase employment opportunities and raise income levels, while providing more efficient services to citizens and other stakeholders.
Financially, the privatization program aims to rationalize public expenditure and reduce the burden on the government budget, while increasing government revenues from ongoing stakes in some of the sell-off targets, and via compensation for concessions and proceeds of the sale of shares currently held by the government.
Ten supervisory committees have been set up by the Council of Ministers to oversee the sectors in which privatization activity is expected. They will work with the NCP and the Ministry of Finance to finalize the targets for privatization, and study the technical, financial, legal and regulatory aspects of the program.
The NCP said that there will be three key rules governing the privatization process.
The first is around disclosure, and stipulates that all activities should be carried out in a clear and transparent manner, and announced in accordance with recognized commercial standards.
The second rule says that there should be a realistic timetable established for each stage of the process.
The third involves an effective change in the style and methods of management with the aim of improving performance and implementing private-sector best practice.
The NCP said it was open to foreign involvement in the privatization process, and that it was considering a range of techniques to transfer ownership, including, but not limited to “transferring complete or portions of ownership, contracting for management and operation, leasing, financing, and asset sales ranging from public subscription to principal investors.”
The NCP would not comment on the question of whether the Kingdom would keep a “golden share” in certain sectors deemed to be of strategic interest, as has been the case in other global privatizations.
But it said there would be “important additional measures” for the benefit of Saudi citizens. “For example, specific measures and appropriate new regulations and incentives will be created to encourage the private sector to hire more Saudi citizens.”
Once the supervisory committees have completed their assessment of their individual sectors, they will submit an implementation plan and timetable to the CEDA for approval.