WEC intends to issue the Request for Pre-Qualification (RFQ) for Rabigh-3 IWP in September 2017

Chapter 1: Privatization Objectives & Policies:

 

Introduction

 

Council of Ministers Decision No.60 dated 1/4/1418 A.H. [August 6, 1997] specified eight objectives of privatization in Saudi Arabia and determined the principles to be taken into account in order to achieve these objectives. Council of Ministers Decision No.257 dated 11/11/1421 A.H. [February 5, 2001] states that the Supreme Economic Council shall be responsible for supervising the privatization program and monitoring its implementation, in coordination with the competent government agencies, and for determining which activities are to be privatized. A list of the activities to be privatized shall be issued by decree of the Resolution, and the Supreme Economic Council shall develop a strategic plan and timetable for this purpose.

 

A.        Principles for Preparing the Strategy

Based on the foregoing, the privatization strategy for Saudi Arabia was prepared in accordance with the provisions of Council of Ministers Decision No.60 dated 1/4/1418 A.H. [August 6, 1997], to ensure a continued increase in the share of the private sector and to expand its participation in the national economy, by adopting the best available modality including transferring certain types of economic activity to the private sector, enhancing the participation of the private sector in economic development, and enabling it to carry out its investment and financing role in accordance with the national development plan.

 

The general objectives and strategic principles of the Seventh Development Plan, issued by Council of Ministers Decision No.58 dated 28/3/1420 A.H. [July 13, 1999] defined the eighth objective as "increasing the participation of the private sector in activities related to economic and social development." The third strategic principle stated, "To continue the policy of enabling the private sector to carry out many economic and social functions, provided that this results in real benefits in terms of reduced cost, good performance, and employment of citizens."

 

B.        Definition of Privatization

Privatization is the process of transferring the ownership or management of public enterprises, projects, and services to the private sector, relying on market mechanisms and competition, through a number of methods including contracts for managing, operating, leasing, financing, or selling all or part of the government assets to the private sector.

 

C.         Privatization Objectives and Policies

Council of Ministers Decision No.60 dated 1/4/1418 A.H. [August 6, 1997] defined the objectives of privatization, each of which will be reviewed and discussed prior to determining the policies needed to achieve these objectives, with due consideration of the need for complementarily and avoiding non-duplicity, as described below:

 

First Objective: Improving the efficiency of the national economy and enhancing its competitive ability to meet the challenges of regional and international competition. The Economic efficiency of the economy can be strengthened by subjecting projects to market forces. Enhancing competitiveness is closely linked to the general strategy of developing the private sector in Saudi Arabia. Important measures taken so far to create a favorable climate for investment, such as developing the capital and labor markets will help achieve this objective. It is important that all enterprises in a single sector be required to operate under the same conditions of competition.

 

Second Objective: Encouraging private sector investment and effective participation in the national economy, and increasing its share of domestic production to achieve growth in the national economy. Mature and strong private sectors participation is essential for Saudi Arabia, as the private sector is able to develop comparative advantage and provides a better opportunity for diversifying the economic base away from the dependence on oil. The private sector can direct efficiently capital investments towards more lucrative and commercially sustainable sectors. In order to expand private sector participation, privatization must adopt the management methods used in the private sector, based on commercial principles, even when an entity is converted into an enterprise in which the government retains the majority ownership. The privatization program must also include streamlining of procedures to encourage the private sector investment and ensure that privatized projects are able to achieve self-growth.

 

Policies necessary to achieve these objectives:

  1. Privatization of public projects, enterprises, and services that are appropriate for private sector participation and encouraging competition.
  2. Ensuring that privatization increases self- sustainable direct investment.
  3. Managing wholly or partially privatized project on commercial basis.
  4. Expediting the review of all regulations and procedures related to private sector activities to create a suitable environment, including the streamlining of procedures and harnessing obstacles.

 

Third Objective: Enlarging the ownership of productive assets by Saudi citizens. Privatization can be effective means to expand the participation of Saudi citizens in the ownership of productive assets in public enterprises and projects, by using the method of public subscription in the privatization, which is considered the most important privatization method to develop the domestic capital market.

 

Polices necessary to achieve this objective:

  1. Encourage participation of a large number of citizens to participate in various types of activities transferred to the private sector by using the privatization method of subscription whenever possible.
  2. Adoption of clear and transparent procedures to implement all privatization activities.
  3. Utilizing all media types to promote the objectives of privatization and the benefits of private sector participation for the national economy and the welfare of society.

 

Fourth Objective: Encourage domestic and foreign capital to invest locally. Privatization reflects the government s commitment to economic reform and a positive image to attract foreign investments. Privatization also helps develop the capital market, create new mechanisms for mobilizing capital and attracting notional capital outside the country, in addition to attracting foreign capital and domestic savings of residents in the Kingdom.

 

Polices necessary to achieve this objective:

  1. Facilitating the participation of foreign investments in the ownership of projects and various types of privatized productive activities, in accordance with the applicable rules.
  2. Continuous development of the financial market to provide opportunities for additional domestic and foreign investments and mobilizing additional channels to induce savings.

 

Fifth Objective: Increasing employment opportunities, optimizing the use of the national work force, and ensuring the continued equitable increase of individual income. Developing the nation’s human resources is a basic element of national development; therefore, the privatization program will attach particular importance to it, including Saudization, by developing appropriate regulations and incentives to encourage the private sector to hire Saudi citizens. The privatization of certain projects may reveal that the number of employees exceed the number actually needed. In most cases employees can be retrained or their skills can be upgraded. The potential growth of privatized projects and the opening of sectors to competition also help to deal with the problem of excess labor. In the short-run, privatized enterprises can agree to keep their employees until they study their future expansion requirements to meet increased demand for their services, which will reveal their actual requirements for employees. Programs can also be developed to deal with excess labor by further training them, or granting them shares in the capital of the privatized enterprise as part of their compensation, or by other methods.

 

Polices necessary to achieve this objective:

  1. Take steps to ensure that the privatization process includes the enterprises of new direct investments to help absorb the national workforce.
  2. Enhance the national workforce, increase rates of Saudization, and provide opportunities for training the national workforce to meet expansion requirements.
  3. Ensure fair treatment for excess employment resulting from transferring activities to the private sector.

 

Sixth Objective: Provide services to citizens and investors in a timely and cost-efficient manner. Privatization, particularly of investments that have monopolistic concession rights, may lead to increased prices and a reduction in the quality of services, because some enterprises (services) receive government subsidies prior to being privatized. As this is an extremely important issue, an independent regulatory agency should be established to deal with such matters.

 

Polices necessary to achieve this objective:

  1. Establishment of an independent regulatory agency to deal with the social, regulatory, and supervisory aspects to protect the interests of consumers, such as the provision, quality, and cost of services.
  2. Establishment of a systematic method for determining the fees for services, taking into consideration their cost that will result in continuous provision of services and financing for the investments of the enterprises. The government may provide support when necessary.

 

Seventh Objective: Rationalizing public expenditure and reducing the burden on the government budget by giving the private sector opportunities to finance, operate, and maintain certain services that it is able to provide. The government budget is expected to benefit from reduced allocations for operating expenditures as a result of the privatization of public enterprises or from transferring the management of public utilities to the private sector through contracts for management, leasing, or contracts for construction, and operation by the private sector.

 

Polices necessary to achieve this objective:

  1. Evaluation of infrastructure projects and public utilities to determine the feasibility of transferring their management to the private sector, while preserving the government s role in providing certain essential services.
  2. Suspend any additional government investments in public projects after it has been agreed to privatize them, with the exception of any necessary investment, required maintenance, and the revision of their financial, legal, and operational regulation in preparation for selling them.

 

Eighth Objective: Increasing government revenues from returns on participation in activities to be transferred to the private sector, and from financing compensation obtained, for example, from granting concessions and from the proceeds of the sale of part of government shares. The government aims at achieving positive financial results from privatization, either from proceeds from the sale of an entire public project or participation in the profits and obtaining the proceeds of the sale of part of its ownership of the project. In general, participation in the profits of, and maintaining partial ownership in a project provide better revenue to the government resulting from an increase in the value of the remaining shares it holds owing to the improved performance of the privatized project, in addition to the government s share of profits distributed among shareholders.

 

Polices necessary to achieve this objective:

  1. Make public projects that are to be privatized open to competition.
  2. Develop mechanisms to ensure that the government obtains sustainable income from privatized projects, whenever possible.
  3. Develop procedures to ensure that the government obtains an appropriate return from the sale of public enterprises to the private sector.

 

D.        Administrative and Implementation Arrangements for the Privatization Strategy:

Council of Ministries Resolution No.257 dated 11/11/1421 A.H. [February 5, 2001] provides that the Supreme Economic Council shall be responsible for supervising the privatization program and monitoring its implementation, in coordination with the competent government agencies, and for determining which activities are to be privatized, in addition to the recommendations of other government agencies for privatizing certain activities. The Council of Ministries Resolution shall issue a list of the activities to be privatized, and the Supreme Economic Council shall develop a strategic plan and timetable for that purpose. The agency responsible for supervising each activity to be privatized shall prepare an implementation program based on the required studies. The procedures and steps necessary to complete the privatization process shall be implemented in accordance with the pertinent regulations. Resolution No. 6/22 issued by the Supreme Economic Council on 12/5/1422 A.H. [August 2, 2001], which provided for the reorganization of the Privatization Committee within the Supreme Economic Council, under the chairmanship of the Council s secretary-general, with members representing the Ministry of Finance and National Economy, the Ministry of Industry and Electricity, the Ministry of Commerce, and the Ministry of Planning, in addition to two members from the Advisory Board for Economic Affairs. In order for the Committee to carry out the required activities and functions necessary for the discharge by the Council of its duties and responsibilities with respect to privatization, it shall:

 

  1. Recommend a privatization strategy to be approved by the Supreme Economic Council.
  2. Recommend the public enterprises, projects, and services to be privatized and set the priorities.
  3. Define the regulatory and implementation framework for the privatization process.
  4. Monitor and supervise the implementation of privatization activities.