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Saudi Arabia’s $200 billion privatization drive gaining momentum

The Saudi government remains ‘very committed’ to megaprojects that would help achieve the objectives of the Vision 2030, its blueprint for life after oil, particularly infrastructure projects. (Reuters)
Mohammed Al-Tuwaijri, the deputy minister for economy and planning, appears to be on a media offensive to underline the Saudi government’s commitment to the economic transformation strategy envisaged in the Vision 2030 plan.
Following an interview with Reuters a couple of weeks ago, when he came up with a staggering $200 billion estimate of the value of the government’s privatization program — excluding the value of the planned Saudi Aramco initial public offering (IPO) — he spoke to Bloomberg this week to hammer home the message that the strategy is gathering momentum.
Al-Tuwaijri — who is also head of the finance committee of the Kingdom’s Council of Economic and Development Affairs — said that the country was looking to raise money on the international bond markets again before the end of the year, with an issue that could be bigger than last month’s $9 billion sukuk. That was “oversubscribed with a lot of strategic investors who wanted more,” he said.
The next international bond could come in the fourth quarter of this year, with as much as $10 billion penciled in as a target size. It will come on top of up to SR70 billion ($18.6 billion) the government will raise on domestic debt markets this year.
“We believe actually the banks are pretty liquid nowadays and their ability to invest in government bonds is good,” he said.
He insisted that the recent decision to reinstate some benefits to state employees would not derail the plan to balance the budget by 2020 and that the cost could be partly met through the domestic bond sales.
All this, he said, was based on an oil price stabilizing around current levels. Brent crude ended the week back above $50 a barrel, the level assumed in Saudi budget projections for 2017, after a week of downward pressure on worries about global inventories.
Al-Tuwaijri also mapped out the near-term schedule for privatization, with 16 entities “prime for privatization.” He said that four were “low-hanging fruit” that could potentially be privatized this year: The Saline Water Conversion Corporation (SWCC), a power-generation company under Saudi Electricity Co., grain silos and sports clubs.
“These are in a very, very advanced stage, not only financial advisers hired, but we have appetite secured,” Al-Tuwaijri told Bloomberg. The size of the desalination privatization and the power-generation company are each “in the billions of dollars,” he added.
Ultimately, four power-generation companies would be spun off from Saudi Electricity Co., he predicted, with one earmarked for disposal this year and in each of the following three years.
The government remains “very committed” to megaprojects that would help achieve the objectives of the Vision 2030, its blueprint for life after oil, particularly infrastructure projects. He cited Jeddah’s new airport and Riyadh’s metro system, under construction, as examples.
The Citizens’ Account, a system of cash payments to compensate low-income nationals for subsidy cuts, is on track to begin making payments after Ramadan. More than 11 million people have applied under the scheme, Al-Tuwaijri said, but eligibility is still being discussed.
“The direction we’re getting… is to be as generous as possible and cover as much as possible,” he said.
“That comes with a price,” Al-Tuwaijri added, explaining that the government is still assessing “how much of the subsidies or the lifting of the subsidies we’ll be getting … and what percentage the government is willing to balance.”
Mohammed Al-Tuwaijri, the deputy minister for economy and planning, appears to be on a media offensive to underline the Saudi government’s commitment to the economic transformation strategy envisaged in the Vision 2030 plan.
Following an interview with Reuters a couple of weeks ago, when he came up with a staggering $200 billion estimate of the value of the government’s privatization program — excluding the value of the planned Saudi Aramco initial public offering (IPO) — he spoke to Bloomberg this week to hammer home the message that the strategy is gathering momentum.
Al-Tuwaijri — who is also head of the finance committee of the Kingdom’s Council of Economic and Development Affairs — said that the country was looking to raise money on the international bond markets again before the end of the year, with an issue that could be bigger than last month’s $9 billion sukuk. That was “oversubscribed with a lot of strategic investors who wanted more,” he said.
The next international bond could come in the fourth quarter of this year, with as much as $10 billion penciled in as a target size. It will come on top of up to SR70 billion ($18.6 billion) the government will raise on domestic debt markets this year.
“We believe actually the banks are pretty liquid nowadays and their ability to invest in government bonds is good,” he said.
He insisted that the recent decision to reinstate some benefits to state employees would not derail the plan to balance the budget by 2020 and that the cost could be partly met through the domestic bond sales.
All this, he said, was based on an oil price stabilizing around current levels. Brent crude ended the week back above $50 a barrel, the level assumed in Saudi budget projections for 2017, after a week of downward pressure on worries about global inventories.
Al-Tuwaijri also mapped out the near-term schedule for privatization, with 16 entities “prime for privatization.” He said that four were “low-hanging fruit” that could potentially be privatized this year: The Saline Water Conversion Corporation (SWCC), a power-generation company under Saudi Electricity Co., grain silos and sports clubs.
“These are in a very, very advanced stage, not only financial advisers hired, but we have appetite secured,” Al-Tuwaijri told Bloomberg. The size of the desalination privatization and the power-generation company are each “in the billions of dollars,” he added.
Ultimately, four power-generation companies would be spun off from Saudi Electricity Co., he predicted, with one earmarked for disposal this year and in each of the following three years.
The government remains “very committed” to megaprojects that would help achieve the objectives of the Vision 2030, its blueprint for life after oil, particularly infrastructure projects. He cited Jeddah’s new airport and Riyadh’s metro system, under construction, as examples.
The Citizens’ Account, a system of cash payments to compensate low-income nationals for subsidy cuts, is on track to begin making payments after Ramadan. More than 11 million people have applied under the scheme, Al-Tuwaijri said, but eligibility is still being discussed.
“The direction we’re getting… is to be as generous as possible and cover as much as possible,” he said.
“That comes with a price,” Al-Tuwaijri added, explaining that the government is still assessing “how much of the subsidies or the lifting of the subsidies we’ll be getting … and what percentage the government is willing to balance.”

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