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Aramco listing to power economic transformation

03 May 2017 03:29 (+01:00 GMT)
Aramco listing to power economic transformation

Amman, 3 May (Argus) — The sale of shares in Saudi Arabia's state-owned oil firm Saudi Aramco is forecast to allow the country's Public Investment Fund (PIF) to spend over 500bn riyal ($133bn) within three years of the sale on the development of sectors outside the Saudi oil sector.

"The PIF is the main engine for several major sectors in Saudi Arabia, and it will have a massive cash infusion from the Aramco listing," deputy crown prince Mohammad bin Salman said in a televised interview.

Prince Mohammad, who is also defence minister and in overall charge of the Saudi economy, said preparations are under way to list "around 5pc" of the value of Aramco in 2018, but he did not specify how much revenue he expects the sale to generate. The PIF will spend 50-70pc of the revenue generated by the sale to develop the domestic non-oil economy. he said.

The largest share of planned PIF investment would be directed at the mining sector, which holds resources estimated at $1.3 trillion, of which gold constitutes $240bn, said prince Mohammad.

Exploiting those mineral resources "requires massive investments", he added.

The PIF would also invest in localising various industrial skills in Saudi Arabia, particularly in the arms and car manufacturing sectors.

Prince Mohammad added that Riyadh spends around $50bn/yr on arms for the military, and that under the Vision 2030 economic road map, half that amount should be spend on locally manufactured arms by 2030.

Other areas in which the PIF will invest domestically are logistics, promoting Saudi Arabia as a Red Sea trade hub and turning the country into a regional aviation centre.

Projects successfully set up by the PIF will eventually be privatised, he said.

Asked about some publicly expressed fears over the planned sale of Aramco and calls to keep it fully government owned, prince Mohammad said: "I believe that such thinking that everything, even bakeries, should be government owned, tends towards communism and socialism."

"Today, you have a company that has a very high value. You can keep that company and its economic influence in Saudi Arabia, and you can make it grow in Saudi Arabia, while you also make use of it to stimulate other sectors that do not exist in Saudi Arabia."

If Aramco were not to be listed, it would take the country 40 or 50 years to develop its mining sector, prince Mohammad said. The listing of Aramco is a "short cut," said the prince, who also chairs the supreme council of Aramco that sits above the company's board of directors.

Prince Mohammad, who has risen to become the country's most powerful prince, even though his cousin, Prince Mohammad bin Nayef is heir to the throne, said that what Saudi Arabia will be selling in the listing of around 5pc of Aramco is a slice of the value of the company itself. But he said that no oil wells would be sold, and that they would remain state property, although the company has the right to exploit them.

He also confirmed that the company's production level will continue to be determined by the Saudi government, but pointed out that maximising production would be in the government's interest, since it would be earning revenues from the 50pc tax that Aramco would pay.

The 31-year-old prince, who is the driving force behind the planned listing of Aramco and a radical transformation plan to diversify the Saudi economy away from its overwhelming dependence on oil revenue, said that last week's reversal of cuts to overtime pay, bonuses and other job perks for public sector works was not an about turn resulting from public pressure.

The austerity measures introduced last year were a temporary reaction to a sustained period of lower oil prices, and were intended to be periodically reviewed. "They were reviewed after our oil revenues improved," said Prince Mohammad.

He revealed government finances assume three oil price scenarios to make plans. The "pessimistic" assumption uses $45/bl, the "medium scenario" assumes a $50/bl price and the "optimistic scenario" assumes a $55/bl price. "During the first quarter, we were close to the optimistic scenario," and the deficit in the government spending had been 44pc below the expected level.

Another factor that had prompted a reversal of the austerity measures was that non-oil government revenues during the first quarter had been higher than expected, he added.