Saudi Arabia’s $10bn privatization push gears up

The Riyadh skyline, Saudi Arabia. Areas for privatization in the Kingdom include water, renewables, education, transportation and health. (Shutterstock)
Updated 05 February 2019
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Saudi Arabia’s $10bn privatization push gears up

  • 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
  • Some privately financed projects are already underway in the Kingdom, including the first utility scale solar project

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.

FASTFACTS

UAE’s GEMS Education plans to build private schools in the Kingdom, while Mediclinic, the South African health care group, is planning to invest in clinics.


India suspends Kashmir border trade with Pakistan

Updated 19 April 2019
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India suspends Kashmir border trade with Pakistan

  • Kashmir has been on edge since a February suicide attack that killed 40 Indian paramilitaries
  • India said it had reports that trade on the border was being “misused by Pakistan-based elements for funnelling illegal weapons, narcotics and fake currency”

NEW DELHI: India has suspended trade across its disputed Kashmir border with Pakistan, alleging that weapons and drugs are being smuggled across the route, as tensions simmer between the nuclear-armed neighbors.
Kashmir has been on edge since a February suicide attack that killed 40 Indian paramilitaries and brought the two countries to the brink of war with cross-border air strikes.
On Thursday, India’s government, which is in the middle of a tough national election, said it had reports that trade on the border was being “misused by Pakistan-based elements for funnelling illegal weapons, narcotics and fake currency.”
It also said many of those trading across the Line of Control, which divides Kashmir into zones under Indian and Pakistani control, had links to militant organizations.
The home ministry said trade would be suspended until a stricter inspection mechanism is in place.
The cross-border trade is based on a barter system, with traders exchanging goods including chillies, cumin, mango and dried fruit.
It began in 2008 as a way to improve strained relations between New Delhi and Islamabad, who have fought two of their three wars over the disputed region.
The Indian Express newspaper said Friday that 35 trucks carrying fruit traveling from the Indian side of the border had been stopped after the government order.
Trade on the border has been suspended before, including in 2015, when India accused a Pakistani driver of drug trafficking.
The latest move comes after India withdrew “Most Favoured Nation Status” — covering trade links — from Pakistan after the February attack, which was claimed by the Pakistan-based Jaish-e-Mohammed Islamist group.
Islamabad has denied any involvement in the attack.
India’s Hindu nationalist Prime Minister Narendra Modi has made national security a key plank of his re-election campaign, pointing to the recent flare-up of violence as he battles the center-left opposition Congress party.
He is seeking a second term from the country’s 900 million voters in the mammoth election which kicked off on April 11 and runs till May 19. The results will be out on May 23.