Moves to privatise utilities assets in Saudi Arabia and expand the reach of its networks through increased investment should create new opportunities for private operators and service providers.
The government is gearing up to sell a state-owned power generation firm and a water desalination company by the end of this year, according to Mohammed Al Tuwaijri, the vice-minister for economy and planning, who said each would be a multi-billion-dollar deal.
The privatisation process for these is “in a very, very advanced stage”, he told the press recently, “not only financial advisers hired, but we have appetite secured”.
The generation firm is the first of four owned by state utilities provider Saudi Electricity Company (SEC) to be privatised over the next few years – one per year – under the country’s five-year development plan released in June 2016, the National Transformation Programme.
The Saline Water Conversion Corporation (SWCC), meanwhile, announced last month it had hired US-based management consultancy DuPont Sustainable Solutions to help optimise its operations and risk management in preparation for a potential sale by year’s end. The SWCC currently supplies 70% of the country’s desalinated water.
The move dovetails with a government target for private partners to supply 52% of the country’s desalinated water requirements by 2020.
“We want to create an environment that will allow SWCC to compete internationally so that ultimately, we have a sustainable business that the people of SWCC and Saudi Arabia can benefit from,” Ali Al Hazmi, its governor, said at the announcement.
The approaching sales are part of a broader government plan to raise some $200bn by selling state assets over the next few years under its overarching Vision 2030 blueprint for economic and social development.
In mid-May Al Tuwaijri said authorities had conducted detailed valuations to calculate this figure, identifying 16 entities as top priorities for a sell-off and over 100 opportunities for pursuing public-private partnerships.
This is in addition to revenue from plans to sell an up to 5% stake in the national oil company, Saudi Aramco, next year and invest the proceeds in development projects.
As for the utilities sector, late last year officials announced that SEC – the state entity responsible for generation, transmission and distribution of power – would be divided into four separate companies and transferred to the Public Investment Fund ahead of privatisation. Each of these would have around one-quarter of the company’s current 60 MW of generation capacity at the time of sale.
Investor appetite may be further whetted by the prospect of private sector involvement in power distribution: last year the SEC said it would retain its transmission and distribution operations after selling its generation assets, but was open to an expanded role for the private sector in downstream operations.
Demand for cost-effective utilities is set to rise as the government pushes for greater efficiency in public service delivery amid lower oil prices, including by cutting electricity subsidies.
“In particular, the public sector will either move to transfer secondary activity to private operators or to co-invest in energy-efficient utilities solutions,” Kamal Pharran, CEO of Saudi Tabreed District Cooling Company, told OBG.
The increased investments called for in the National Transformation Programme – in large-scale housing, infrastructure and industrial developments – will also drive demand for utilities expansion, Pharran said, as the country seeks to lift both output and efficiency in delivering water, power and district cooling services.
Among the programme’s goals are to enhance utilities capacity by improving performance, productivity and flexibility as well as expanding coverage. The plan also calls for an optimisation of operations through privatisation.
“The current cash shortage and privatisation drive by the government is only going to lead to more outsourcing,” Pharran told OBG. “Smarter investments in long-term costs savings will be more likely as entities focus on their core businesses and spin off services where they are less efficient.”
Stay updated on how some of the world’s most promising markets are being affected by the Covid-19 pandemic, and what actions governments and private businesses are taking to mitigate challenges and ensure their long-term growth story continues.
Register now and also receive a complimentary 2-month licence to the OBG Research Terminal.
Register Here×Following delays, the long-awaited GCC Railway looks likely to be revitalised, a move that could transform trade and connectivity across the Gulf.
La production marocaine de phosphates et de produits dérivés, comme les engrais, devrait connaître une hausse considérable. En effet, l’Office Chérifien des Phosphates (OCP), qui détient le...
The Turkish Prime Minister Bulent Ecevit has spent the last week in the US hoping to garner support for economic reforms at home and trade concessions for Turkish exports to the US.
