Saudi Arabia expected to encourage generous Aramco dividend policy

S&P estimates that the Saudi construction sector accounts for about 8 percent of total bank loans in the country. (Reuters)
Updated 07 October 2017
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Saudi Arabia expected to encourage generous Aramco dividend policy

LONDON: A “generous” dividend policy would help to align the interests of Saudi Aramco investors and the government, S&P said in a report.
The rating agency noted that a reduction in income tax rates for the larger hydrocarbons producers earlier this year means that the government will be encouraged to push the national oil company to offer attractive dividends when it floats.
A plan to list Saudi Aramco in 2018 is on track, the company’s CEO confirmed this week. The flotation of about 5 percent of Saudi Aramco is a centerpiece of Vision 2030, a wide-ranging reform plan to diversify the Saudi economy beyond oil.
The Kingdom this year reduced the tax rate for the largest oil producers like Saudi Aramco to 50 percent from 85 percent. That is in addition to a 20 percent royalty payment the company makes to the government.
“The government will now be incentivized to encourage Saudi Aramco to follow a generous dividend policy to compensate for the reduction in tax revenues,” said S&P in a report published over the weekend that affirmed the Kingdom’s ratings.
“In this way, the interests of investors and the government will be more aligned,” it said.
Because the ultimate use of the proceeds from the IPO has not yet been defined, S&P did not factor them into its projections for the non-oil economy which it expects to grow by about 1 percent this year and next.
The Kingdom is expected to “consolidate its public finances to ensure liquid assets are maintained” close to total economic output over the next two years, S&P noted.
The agency affirmed its foreign and local currency rating and said the country had a stable outlook.
Saudi Arabia last year announced the National Transformation Program (NTP) — which offers structure and detail to Vision 2030, the country’s blueprint for economic and social transformation.
Among the targets included in the plan is the creation of 450,000 private sector jobs by the end of the decade and an increase of the private sector’s share of the economy to 60 percent from 40 percent in 2014.
It also aims to boost education and increase home ownership to 52 percent by 2020 from 47 percent.
The total budgeted cost of the NTP is more than SR268 billion ($71.4 billion) — or about 12 percent of gross domestic product (GDP).
S&P expects the NTP could result in “accelerated economic growth” and an overall rebalancing of the economy.
But it noted that much depends on achieving challenging targets over a number of years.
The construction sector in the Kingdom still faces payment pressures and the industry accounts for about 8 percent of total bank loans, S&P estimates.
It expects non-performing loans to rise to between 2 percent to 3 percent over the next two years from about 1.4 percent at the end of last year — largely due to construction exposure
S&P said it expected Saudi Arabia’s external and government balance sheet positions to remain strong over the next three years.
The IMF last week estimated that the Kingdom may get a budget boost of more than $90 billion by 2020 from new taxes and changes to subsidies but cautioned that it should slow the pace of reforms.


DR Congo’s mining industry hobbled by poor infrastructure

Updated 10 sec ago
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DR Congo’s mining industry hobbled by poor infrastructure

  • DR Congo is Africa’s largest copper producer, and while it is the world’s leading source of cobalt, miners can only export concentrated forms of cobalt at 60-70 percent of the market price because of the energy problem.
  • A massive hydropower project on the River Congo, Inga 3, has the potential to power the entire country and even the continent, but it has been frequently delayed.

LUBUMBASHI: Feasting on a global demand for cobalt and copper, the mining industry in the Democratic Republic of Congo is flourishing — but two clouds loom over its sunny outlook.

First is the lack of power, which is holding back the development of the minerals processing sector and crimping the country’s ability to reap higher profits from the boom.

DR Congo is Africa’s largest copper producer, and while it is the world’s leading source of cobalt, miners can only export concentrated forms of cobalt at 60-70 percent of the market price because of the energy problem.

“We have an estimated potential of 100,000 MW/year but only produce 3,000 MW/year,” said Michael Shengo, chief of staff for the provincial mining minister for Haut-Katanga earlier this week, as he opened DRC Mining Week, an annual conference in the southeastern town of Lubumbashi.

A massive hydropower project on the River Congo, Inga 3, has the potential to power the entire country and even the continent, but it has been frequently delayed.

Now the project looks to be back on track, thanks to a joint bid by Spanish and Chinese companies: China Three Gorges Corp. and Actividades de Construccion y Servicios SA.

Bruno Kapandji, director of the Agency for the Development and Promotion of the Grand Inga Project, announced the project’s relaunch in front of miners and investors at the conference.

“Our objective is to start the Inga project this year. It could take five to seven years, maybe up to 11 years,” said Kapandji.

Another challenge for the mining industry, which represents 20 to 25 percent of the country’s GDP, is a new fiscal law to raise taxes.

Seven mining companies, known locally as “the G7,” have argued the new code violates terms of the previous version, which provided a 10-year stability clause after any fiscal change. Some of the companies could be preparing for legal action as a result.

One of its most vocal members, Mark Bristow, CEO of gold mining company Randgold Resources, had a warning for other industries operating in the country. “Attracting investment and developing a mining industry is about trust,” he said, “and I see the government is making guarantees to other industries (solar, electricity), and what do they think when they see our guarantees are being taken away?“

Discussing and signing deals is one thing, but implementing and developing them remains an immense challenge.

The World Bank has ranked DR Congo 182nd country out of 190 for doing business, and the French credit insurer Coface rates it at the same level as Libya, Venezuela, Afghanistan and Syria, due to the political uncertainties, corruption and poor governance.

There are glimmers of hope in other sectors in the troubled country, currently in the grips of an Ebola epidemic and a bloody internal conflict.

In the capital Kinshasa, French sports retailer Decathlon has just opened its first store — a gamble in a city of 10 million where many are struggling to pay for essentials such as food and shelter.

Richard Kalinda, a Franco-Congolese, who once said his dream was opening a shop in his home country, said: “I have to reach 0.1 percent of the population. We are marketing for the middle class, people who have a regular income.”

However, Kalinda added they will have to adapt their prices to the country’s average salary.

At the 5th edition of the “French week” organized by the Franco-Congolese Chamber of Commerce, the theme set the tone for those looking to invest in the country: “Securing business, a challenge and a necessity.”

For the chamber of commerce, opening and bringing international capital in DR Congo requires being very well informed.

“Companies often have to confront administrative and procedural challenges that could be called fiscal harassment,” said the French ambassador to DR Congo, Alain Remy in an interview with Mining and Business magazine.

Debt-ridden Gecamines, the state-mining company, announced this week it struck a recapitalization deal with its Anglo-Swiss partner Glencore who agreed on a $150 million payment.

Gecamines had started legal proceedings to dissolve the Kamoto Copper Mine, but Glencore has
reportedly agreed to write off the $5.6 billion debt to safeguard the joint venture.

“We are entering a period for the mining industry that will be profitable for all,” said Yuma, “but only if relations
between foreign investors and the DRC are more equitable. The new code will make that possible, and I call on everyone to conform to it.”