RPT-Sale of the century? $300-billion Saudi state sell-off moves slowly

Reuters Staff 7 MIN READ (Repeats Friday item) * Privatisation critical to economy in era of cheap crude * Healthcare, grains, postal, electricity suffer snags -sources * Sales process will take longer than expected - Saudi banker SPONSORED * Saudi Arabia lacks bankruptcy law * GRAPHIC - Saudi economy tmsnrt.rs/2AspssP By Tom Arnold, Saeed Azhar and Katie Paul DUBAI/RIYADH, Dec 1 (Reuters) - Saudi Arabia’s $300-billion privatisation programme was billed as the sale of the century when Crown Prince Mohammed bin Salman unveiled his plan to great fanfare. Nineteen months later, it is moving at a snail’s pace, bankers, investors and analysts familiar with the process say. The main problems they cite are heavy bureaucracy, an inadequate legal framework, frequent changes of priority in government departments and fatigue among investors. Some also blame a wait-and-see approach among many investors due to uncertainty about the fallout from an anti-corruption campaign in which dozens of royal family members, ministers and senior officials were rounded up in early November. The centrepiece listing of state oil company Saudi Aramco - expected alone to raise up to $100 billion - is on track to go ahead next year, Prince Mohammed told Reuters in October. However, Riyadh has yet to select any exchange abroad that will handle - along with the Saudi market - what would be the biggest share flotation in history. Sectors where the privatisation process has been slow include grains, the postal service and healthcare. “It’s going to take longer (than many expected),” a Saudi banker who has worked on transactions told Reuters. “There are headwinds from the shifting of priorities in government and at a micro-level as these are old institutions that have often never kept books and are not up to the rigours of privatisation.” The sell-off is a cornerstone of Prince Mohammed’s Vision 2030 plan to bring in fresh revenue and diversify the economy - which is recession and blighted by high unemployment - away from energy exports in an era of low oil prices. But the bankers, investors and analysts are expressing concerns including over the lack of a regulatory framework to assure would-be shareholders about how much control foreign companies could gain as a result of the stake sales, including the right to lay off staff. Vice Minister for Economy and Planning Mohammed al-Tuwaijri told Reuters in April that, excluding Aramco, the government aimed to make $200 billion by putting large parts of the Saudi economy in private hands. The Ministry of Economy and Planning did not immediately reply to a Reuters request for comment. FACTBOX - Saudi Arabia’s privatisation plans PATCHY PROGRESS The selloff, including five percent of Aramco, is intended to improve state finances. The government posted a $79 billion deficit last year. However, the record is patchy in the four sectors that Tuwaijri had highlighted as priorities for this year: grain silos, sports, electricity generation and water provision. Banks recently submitted bids to advise on the privatisation of Saline Water Conversion Corporation’s $7.2 billion Ras Al Khair desalination and power plant. But there has been less progress in the other three sectors. Saudi Arabia’s deputy electricity minister said in October he aimed for progress in privatising the power sector in 2018, after “some developments required us to wait”. Prospective bidders for the kingdom’s state-owned grain mills have complained of an unwieldy sale process and onerous ownership rules. Elsewhere, the Ministry of Health has put on hold its tender seeking financial advisers for the privatisation of 55 primary healthcare units in Riyadh, after receiving their bids in April, a financial source familiar with the matter said. It then issued a new tender to seek a technical adviser on the expected costs and demand linked to the privatisation, the source said. The Ministry of Health did not immediately reply to a Reuters request for comment. “Compared with many of its neighbours, Saudi Arabia has only limited experience in terms of privatisations, and still lacks an adequate regulatory framework,” said Raphaele Auberty, a BMI Research risk analyst for the Middle East and Africa. Shortcomings include the absence of a framework for large-scale public-private partnership projects and a bankruptcy law, said Karen Young, a senior resident scholar at the Arab Gulf States Institute in Washington. Saudi Post Corp’s privatisation, which had at one stage been earmarked to begin early this year, has been shelved for the time being. Abdullah Alswaha, Minister of Communications and Information Technology, told Reuters last month that Saudi Post would enter a five-year “corporatisation phase”. This would turn it into a state-run company with a profit and loss responsibility before a sale to the private sector. “It makes sense to focus more on putting that corporate DNA, leadership and resources, then think about a complete privatisation,” said Alswaha. Uncertainty has surrounded a plan to privatise soccer clubs. Earlier this year Jadwa Investment was appointed to advise on the sale of up to five soccer clubs in the Saudi Professional League, sources told Reuters in February. The General Sports Authority did not immediately reply to a request for comment. “At one stage it was looking like the bidding process could start as early as 2018 but recent indications perhaps suggest 2019-20 is more likely,” said Steven Bainbridge, head of sports law and events management at Al Tamimi & Company, who has been fielding interest from potential clients on the process. Confusion has been created about an airport privatisation process after some local media reported that the government intended to privatise 27 of them by the middle of 2018, a target analysts said was unrealistic. But in an emailed reply to questions from Reuters, Faisal Hamad al-Sugair, Chairman of Saudi Civil Aviation Holding Company, said the goal was for the airports to be “corporatised”, or turned into private companies, by that date. Privatisation would follow later. “Various challenges have arisen and have been resolved. The deadline of mid-2018 is reachable,” he said. ($1 = 3.7502 riyals) Additional reporting by Reem Shamseddine in Khobar and Alex Cornwell in Dubai; editing by Timothy Heritage and David Stamp Our Standards:The Thomson Reuters Trust Principles. ===================================== Saudi King Salman orders protection of workers' rights King Salman issued orders to end the suffering of the workers in a decisive and quick way after seeing that the company failed to address these issues. Saudi Gazette, Jeddah Tuesday, 9 August 2016 Text size A A A Saudi Arabia’s King Salman issued a series of directives with the intention of resolving all cases of unpaid salaries and avoid repetition of such incidents in the Kingdom’s labor market in future, Minister of Labor and Social Development Mofrej Al-Haqbani announced on Monday. Accordingly, special teams have been constituted to closely monitor the firms to check whether they are fulfilling their contractual obligations and to intervene in case of violations, the Saudi Press Agency reported. Saudi Oger contracting company has been the subject of complaints by thousands of its workers for not paying salaries to them for the past nine months. Al-Haqbani said the recent labor issue is not a common phenomenon but a special case with a contracting company because of its violation of contractual obligations. The ministry will take penal action against the company in line with the Labor Law. King Salman’s directive obliges companies to pay salaries to their workers through the Wage Protection Program. Under the system, companies will not be paid for their work by the government until the Ministry of Labor and Social Development confirms that workers’ salaries have been paid on time. The minister emphasized that the Saudi Labor Law and its executive bylaw protects the rights of all workers in the private sector and the Labor Law is keen on having balanced relations between employers and employees with strict adherence to contractual obligations by both the parties in addition to protecting their wages through legislations. “Under the program, all companies have to transfer salaries to bank accounts of their workers and the ministry will strictly follow these transfers every month and take penal action against firms violating the law. The ministry allows workers, who did not receive salary for more than three months, to transfer their sponsorship to another employer without the permission of the current employer and can sue the employer at labor courts for their dues.” “Official inspection team from the ministry found that Saudi Oger Ltd. violated its contractual obligations with workers with regard to salary and accommodation. Serious lapses were found in serving food, providing health services to workers, and maintaining and cleaning accommodation. The King issued orders to end the suffering of the workers in a decisive and quick way after seeing that the company failed to address these issues. Accordingly, the ministry has taken the following measures. The workers are allowed to renew their iqamas (residency permits), and get final exit visa at the state’s expense, and the company will be liable to meet this cost in due course. Saudi Arabia allows workers, who did not receive salary for more than three months, to transfer their sponsorship to another employer without the permission of the current employer. (Reuters) The maintenance and cleaning of their accommodation have been done. The ministry also ensured continuous supply of food and drinking water to the workers and followed up on the efficiency of provision of this service. Free medical services have been made available at their camps. The ministry also entered into contracts with legal firms to offer free legal service to the workers. The ministry will guarantee rights of those workers who decided to leave on final exit. It entrusted Saudi Arabian Airlines to arrange free transportation for such workers and the payment will be levied from the company in due course. The ministry also coordinated with the concerned embassies in identifying those who want to transfer their sponsorship and those who want leave the Kingdom on final exit. Al-Haqbani also said that the ministry launched electronic service called “Mustasharik Al-Omali” to offer free consultancy service to both employers and employees on labor related problems. The ministry, in cooperation with the Saudi Telecom, introduced the scheme to distribute free SIM cards to new workers upon their arrival at airports to contact the ministry if required. The ministry also started contact center with services in eight languages so as to enable workers to lodge grievances. This article first appeared in the Saudi Gazette on Aug. 9, 2016. Last Update: Tuesday, 9 August 2016 KSA 10:19 - GMT 07:19 ======================================= S Arabia OKs vast economic reform plan Mon Apr 25, 2016 12:16PM Home / Others / Business Saudi Arabia has approved a plan for a major economic reform that would cut the kingdom’s reliance on oil by 2030. Saudi Arabia has approved a plan for a major economic reform that would cut the kingdom’s reliance on oil by 2030. Saudi Arabia announced on Monday that it had approved an ambitious economic plan which is meant to turn the economy around from reliance on oil to being investment-driven within the next decade and a half. The approval of the plan – dubbed "Saudi Vision 2030" – was publicized by Saudi King Salman in a televised announcement. The plan – which appears to be the brainchild of the king's son, Deputy Crown Prince Mohammed bin Salman – is expected to set in motion what could be a period of significant economic change in the oil-rich kingdom. It basically focuses on privatizations, further reductions in subsidies, and selling the shares of the state-owned oil company Saudi Aramco and the creation of a giant $2 trillion Sovereign Wealth Fund. "We plan to sell less than five percent of Aramco. Aramco's size is very big. It is estimated at between $2 trillion and $2.5 trillion," said Prince Salman who is second in line to the throne and serves as the country's defense minister. "We plan to set up a $2 trillion sovereign wealth fund... part of its assets will come from the sale of a small part of Aramco," he told the Saudi-owned Al-Arabiya news channel. The prince further emphasized that another way to drive up non-oil revenue is by investing more in mineral mining and boosting the kingdom's own military production capacity. To the same effect, he said a plan is on agenda to set up a holding company for military industries that would be fully owned by the government at first and listed later on the Saudi bourse. "We are now about to establish a holding company for the military industries 100 percent owned by the government that will be listed later in the Saudi market," Prince Mohammed told Al-Arabiya TV. "We expect it to be launched by end of 2017 with more details." Saudi Arabia was the world's third largest arms buyer last year, with purchases of more than $87 billion last year. The prince also said the kingdom, which annually welcomes millions of Muslim pilgrims to the holy cities of Mecca and Medina, would become more welcoming to other types of tourists — in line with Saudi Arabia's values. A new residency visa program could generate additional revenue and would allow Muslims and Arabs to live for extended periods in the country, he said. ======================== 77,000 sacked by Saudi Binladin Group Mon May 2, 2016 3:21PM Home / Others / Business The construction giant Saudi Binladin Group which was at the heart of a deadly crane accident in Mecca last September has reportedly fired 77,000 of its workers. The construction giant Saudi Binladin Group which was at the heart of a deadly crane accident in Mecca last September has reportedly fired 77,000 of its workers. Reports emerged on Monday that the Saudi Binladin Group, one of the kingdom’s most powerful firms, has sacked 77,000 foreign workers. The revelation was made by Al-Watan newspaper which said Binladin, that has built some of the kingdom’s landmarks, is also facing accusations that it is failing to pay salaries to its staff. AFP has quoted an unnamed official working with the firm that “some staff have been let go” without providing an exact number. Another official has also been quoted as saying that the move was in line with a drop in the number of Biladin projects. "The size of our workforce is always appropriate to the nature and size of projects and the timeframe they are to be carried out by the group," Yaseen Alattas, a Saudi Binladin Group spokesman, told AFP. He said workforce changes would be normal "especially when some projects have ended or are about to end". Most of the jobs eliminated "are on specified term contracts" for particular projects, Alattas said The report by Al-Watan said the sacked employees were among 200,000 expatriates – mostly believed to be Egyptians - employed by the company. It added that 12,000 out of the 17,000 Saudis working for the firm as engineers, administrators and inspectors were also expected to be let go. The AFP said it had realized in March that delayed receipts from the government, whose oil revenues collapsed over the past two years, have left employees of the kingdom's construction giants struggling to survive while they await their salaries. However, Binladin Group was also sanctioned by the government after a deadly crane accident in Mecca last September, it added. On Friday, Al-Watan reported that 50,000 of the group's staff were refusing to leave the country while their salaries remained unpaid after more than four months, AFP said. An Arab News report on Monday blamed "unpaid workers" for torching several Binladin Group buses in Mecca over the weekend. The Group developed landmarks including the domed Faisaliah Tower in central Riyadh and the Mecca Royal Clock Tower, one of the world's tallest buildings. After decades of thriving on lucrative government contracts, the company faced unprecedented scrutiny after one of its cranes working on a major expansion of the Grand Mosque in Mecca, Islam's holiest site, toppled in September. At least 109 people including foreign pilgrims died, leading King Salman to suspend the firm from new public contracts. This has been a factor in the firm's economic difficulties, a well-informed source has told AFP. ============================= Tue May 10, 2016 | 8:36 AM EDT Saudi Aramco finalizes IPO options and plans global expansion Oil tanks seen at the Saudi Aramco headquarters during a media tour at Damam city in this file photo dated November 11, 2007. REUTERS/ Ali Jarekji/File Photo Oil tanks seen at the Saudi Aramco headquarters during a media tour at Damam city in this file photo dated November 11, 2007. Reuters/ Ali Jarekji/File Photo Saudi Aramco finalizes IPO options and plans globa...X By Rania El Gamal DHAHRAN, Saudi Arabia (Reuters) - Saudi Arabia's state-owned oil giant is finalizing options for its partial privatisation and will present them to its Supreme Council soon, its chief executive said about the centerpiece of the kingdom's efforts to overhaul its economy. The company has a huge team working on the proposals for the initial public offering (IPO) of less than 5 percent of the company's value, which include a single domestic listing and a dual listing with a foreign market, CEO Amin Nasser said on Tuesday. They will be presented "soon" to Aramco's Supreme Council, headed by Deputy Crown Prince Mohammed bin Salman, who is leading an economic reform drive to address falling oil revenue and sharp fiscal deficits by boosting the private sector, ending government waste and diversifying the economy. Nasser also said Aramco was seeking to expand globally via joint ventures in Asia and North America. "We are looking at the current market status that, even though challenging, is an excellent opportunity for growth," Nasser said, adding that he was looking at opportunities in the United States, India, Indonesia, Vietnam and China. The CEO was speaking to reporters during a rare media visit to the company's extensive, well-guarded Dhahran headquarters, located near where American oilmen first struck the Arabian Peninsula's enormous crude reserves at Well Number 7 in 1938. Besides proposing to sell a stake in the company, which would require it to release sensitive reserves data, Riyadh has asked Aramco to play a big role in developing industrial projects aimed at stimulating non-oil economic sectors. Last month, Prince Mohammed said he expected the IPO would value Aramco at at least $2 trillion, but that he thought the figure might end up being higher. Any valuation would account for both oil price expectations and the size of Saudi Arabia's proven oil reserves. Company officials said Saudi Arabia had discovered a total of 805.6 billion barrels of oil, of which 141.5 billion had already been produced and 260 billion barrels were considered "proven", the industry term for reserves that can definitely be extracted. Aramco also had 403 billion barrels of reserves it could probably extract, they said, adding that it hoped to add another 100 billion barrels to total reserves by 2025 by increasing the recovery rate by 50-70 percent using new technology. GROWING DEMAND ADVERTISEMENT Aramco expects global crude oil demand to grow by 1.2 million barrels per day this year, he said, and has seen increasing demand in the United States and India. "We will meet the call on Saudi Aramco," Nasser said, adding that the company will increase capacity in future if needed, but that for the time being its maximum sustainable capacity would stay at 12 million bpd, with total capacity of 12.5 million bpd. Saudi Arabia produced an average of 10.2 million bpd of crude in 2015, he said, adding there had been a big drop in oil output among non-conventional and even other conventional producers. The expansion of the Khurais oilfield will come on stream in 2018, he said, adding that the latest stage of its expansion project at the southeastern Shaybah oil field would be finished "in a couple of weeks". The increased capacity of 250,000 bpd, taking Shaybah's total production capacity to 1 million bpd, is aimed at rebalancing Saudi Arabia's crude oil quality and at compensating for falling output at other fields as they mature. The immense Saudi Aramco complex in Dhahran resembles a small city, with its large residential complex, its own hospital, sports stadium and parks. Inside a sleek control room, technicians monitored huge screens that showed via digital graphics the core elements of the business, from the progress of oil tankers across the oceans to the available crude grades and refining facilities. At Aramco's research center nearby, officials showed reporters "the cave", a colorful virtual representation on wraparound screens of drilling operations under the Shaybah oil field. INDUSTRIALIZATION Aramco's continued investment in downstream industry is seen as a crucial element of economic diversification plans. One example of this is its plans to sign an agreement soon with Saudi Basic Industries Corp (Sabic), the state-run petrochemical and metals conglomerate, to jointly develop an oil-to-chemicals project, an official said in a briefing to reporters. Related Coverage Saudi Aramco says to sign chemicals project MOU with SABIC Saudi Aramco says its oil output trending slightly upwards Saudi Aramco says in final stages of preparing IPO options The project, likely to cost up to $30 billion, would chime with efforts to better integrate the kingdom's energy and industrial sectors. On Saturday a new Energy, Industry and Mineral Resources Ministry was created in place of the old oil ministry. Another example is its huge ship repair and shipbuilding complex that it is developing at Ras al-Khair on the kingdom's east coast to be fully operational by 2021, Nasser said. The first part of the shipbuilding complex will be ready by 2018, and it will eventually make oil rigs and tankers, Nasser said. A presentation by the company said the complex would create 80,000 jobs and allow Saudi Arabia to reduce its imports by $12 billion, while increasing the country's gross domestic product by $17 billion. (Reporting by Rania El Gamal; Writing by Andrew Torchia and Angus McDowall; Editing by David Stamp and Pravin Char)