Saudi privatisation get into top gear

Figures from the Saudi Arabia General Investment Authority show a dramatic increase in the number of licences issued to international and domestic projects in the first quarter of 2005 involving ventures valued at $6.4 billion. According to SAGIA’s governor Amr Al- Dabbagh this is an 800% plus increase on the same period of last year.

Privatisation is pivotal to the strategy of attracting foreign direct investment. During his recent visit to the US, Khalid ibn Musaaed Al-Saif, chairman of the international trade development committee of the Council of Saudi Chambers of Commerce and Industry, said that the government intends to divest control of state-run corporations and institutions with a total value of $800 billion within the next ten years.

After a hesitant start the process is clearly beginning to accelerate. Ettihad Etisalat, Saudi Arabia’s second mobile phone service is expected to start operations by the end of June while a new fixed line licence is expected to be awarded by the Saudi telecoms regulator, the Communications and Information Technology Commission, in 18 months time.

A legal framework regulating civil aviation and Saudi airspace has also been drawn up and debated by the Consultative Council this year which could soon see private commercial airlines licensed to compete with state-owned Saudi Arabian Airlines on domestic routes.

Saudi Arabian Airlines own privatisation process is beginning to take off according to the carrier’s director-general Dr. Khaled Ben-Bakr. The process is currently focused on transforming non-core units including catering, ground handling services and maintenance as well as the Prince Sultan Flight Academy in Jeddah into commercial units and profit centres.

However, it was the sale of 30% of the state telecommunications operator Saudi Telecom in an initial public offering at the end of 2002 that represented the first big step in the government’s ambitious plans in which some 20 major economic sectors will be opened up for private sector participation

The range of activities targeted includes water and drainage, saline water conversion, air transport and aviation services, railways, roads, seaport services, postal services, municipal services such as cleaning and waste disposal and collection of revenues, building schools, printing of educational books and the management of social welfare organisations, health facilities including some hospitals, government-owned hotels and the future railway network.

The Kingdom’s Saline Water Conversion Corporation has revealed that it is seeking financial, technical and legal advisors to develop a strategy to privatise the state-owned company as early as 2008.
There is a particular focus on power development given the Kingdom’s requirement for an additional 20,000 megawatts of generating capacity by 2010 to cope with the growth in demand for electricity rising by 4.5% a year. In 2001, the government set up a regulator to oversee the electricity sector as a step towards opening up the power sector to private investment.

As a result, independent power and water projects are being discussed for projected plants at Shuaiba and Jubail. Saudi Electricity Company and SWCC are jointly promoting the Shuaiba project in which the successful bidder is expected to have a 60% stake.

The new east-west railway land-bridge project to link Jeddah and Dammam is designed to be carried out as a build-own-operate venture private sector while the assets and staff of the existing Saudi Railways Organisation will be transferred to whatever consortium takes up the BOT opportunity.