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Abu Dhabi, UAEWednesday 26 September 2018

Saudi Arabia makes another move toward privatisation

The kingdom's cabinet created new committees to usher in regulatory framework for individual sectors up for private participation

Saudi Arabia, the Arab world’s largest economy, is creating new committees to oversee asset sales in eight key sectors, as it forges ahead with privatisation efforts.

The kingdom seeks to boost the contribution of the private sector in the economy to 65 per cent of GDP by 2030, the government said yesterday.

The country’s cabinet created the supervisory committees (SCs) to work with the National Centre for Privatisation and Public Private Partnership (NCP), which was established in April. The NCP and finance ministry will be permanent members in all SCs, which will provide technical, financial, legal and regulatory framework to establish a “best practice blueprint for the privatisation of the targeted entities”.

The SCs will act as executive facilitators for multiple sectors which will be privatised over the next decade in line with Vision 2030, spanning from environment, water and agriculture; transport; energy, industry and mineral resources; labour and social development; housing; education; health; municipalities; telecommunication and IT as well as the Hajj and Umrah sectors. The first step will be to establish and regulate the sale of state assets and entities.

“NCP has adopted a wide-ranging governance policy that will enable government agencies and hold each accountable as we move forward with stimulating private investment and privatisation,” said Turki Al Hokail, the chief executive of the NCP. “Effective governance means integrating a continuous evolution of improvement to keep pace with the rising accountability and transparency expected of government.”

Under vision 2030, privatisation has been identified as a key policy plank that will help boost the private sector’s contribution to national GDP. GDP from 40. The vision, introduced last year, will help the world’s biggest oil exporter wean itself off energy income.

Frank Wouters, a UAE-based energy consultant, said that privatising Saudi Arabia’s energy sector was a logical step that made sense that has and has been proven in other countries to increase efficiencies while freeing up cash for the government to spend elsewhere. “This is true for conventional generation, but even more so in the much more dynamic fields of new energy, where the level of innovation is very high,” he said.

The move to have more private ownership in the kingdom is expected to contribute 40 to 65 per cent of Saudi Arabia’sGDP,

But there may be issues with these entities now forced to make a profit, according to Mohammed Atif, the Middle East and Africa regional manager for energy consultancy, DNV GL. “There should be a transparent plan for human capital development and if capacity changes are foreseen in the workforce then a transition plan should be established,” Mr Atif said, pointing to utilities in the UK that increased prices while also increasing corporate salaries and profits.

He said: “However, in the end, higher performing profitable companies will benefit KSA (kingdom of Saudi Arabia); and hire standards in service and employees will help boost quality and innovation.”

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