LONDON: Saudi Arabia’s privatization push is set to shift gear this year with plans to raise as much as $10 billion through state assets sales by 2020, according to a new report.
The water sector is expected to produce the first spoils of the state’s privatization plans, with the sale of the Ras Al-Khair desalination plant already advanced with four flour mills likely to follow soon after, the report from law firm Hogan Lovells said.
“The PPP market is fairly vibrant across the GCC, but the key focus in on Saudi Arabia where we expect to see more deals in renewables, education, transportation and health,” said Sohail Barkatali, a Dubai-based partner at Hogan Lovells.
However there remains concern about whether privatizations will inevitably require laying off large numbers of Saudi nationals, the Middle East Investment Outlook report noted. Such concerns, which also exist among other Gulf states seeking similar asset sales, may make so called “greenfield privatizations” more popular.
Some privately financed projects are already underway in the Kingdom, including the first utility scale solar project, as well as the world’s largest independent water desalination plant at Rabigh.
A total of 14 public-private partnership (PPP) awards are expected to be made by the end of the decade in areas that include parking, recycling and renewables.
However the lack of clear payment guarantees in the fledgling PPP sector may give the advantage to regional players who are better able to understand and manage sovereign risk according the law firm.
The UAE’s GEMS Education is among the recent entrants planning to build private schools in the Kingdom, while Mediclinic, the South African health care group with operations in the UAE, is also planning to invest in clinics in the country.
The trajectory of the oil price in 2019 may also impact the pace of privatization in Saudi Arabia and elsewhere in the Gulf where similar asset sales are being planned, spurred by a prolonged period of oil price weakness that have depleted state coffers.
According to Bank of America Merrill Lynch’s World at a Glance report, published this week, a higher breakeven oil price remains a concern for the Kingdom as it seeks to boost spending. “The gradual and sticky move higher in the fiscal breakeven oil price, coupled with the relative erosion of fiscal buffers since 2014, increases the economic vulnerability to a sustained drop in oil prices,” it said.
The bank said that prolonged low oil prices, fiscal reform slippage and the departure of expatriates remained risks to the economy.