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Saudi Arabia’s deputy crown prince Prince Mohammed Bin Salman told The Economist in an interview published on 4 January that he favoured selling shares in Saudi Aramco, the world’s largest oil company with a possible market value of $10trn.
The idea’s been floated before but is now on the Saudi government’s agenda.
Some say selling a company with the concession to develop the world’s greatest oil and gas reserves at a time when oil prices are heading to $30 a barrel is a bad move.
In fact, the timing couldn’t be better.
It’s likely that, if a share sale is approved, only Saudi Arabians will be allowed to buy and own Saudi Aramco stock. That means the people of Saudi Arabia will not only be able to take a direct stake in one of the world’s most profitable companies. They will have the opportunity to benefit from the recovery in oil prices forecast over the next five years.
Many Saudi Arabians don’t have the money needed to buy shares. But the Pension Fund and General Organisation for Social Insurance (GOSI), keepers of many Saudi Arabians’ savings, do. Then there are the kingdom’s banks, among the world’s most liquid, which have plenty of money and not a lot to invest in. And finally, Sama, the kingdom’s sovereign wealth fund, could use some of its assets to buy Saudi Aramco stock.
Foreign investors are unlikely to be given the right directly to invest in Saudi Aramco and will probably have to do so through locally-managed funds. The kingdom’s policymakers are not about to hand over Saudi Arabia’s most valuable asset to hedge funds and other speculators.
There are wider purposes.
Saudi Aramco and the kingdom will be able to mobilise finance from local, regional and international markets without pre-empting its borrowing capacity.
Selling Saudi Aramco shares will widen local participation in the kingdom’s equity market, another long-term government objective.
The Saudi Aramco board of directors and management will be exposed to the improving pressure independent investors can bring to bear to its investment and spending decisions.
And the move will facilitate the absorption of Saudi Basic Industries Corporation (Sabic), which is listed on the Saudi stock market, into the Saudi Aramco group, a measure that is looking increasingly possible following the decision to increase ethane and other petrochemical feedstock prices on 1 January. This will hit the corporation’s bottom line, but boost Saudi Aramco’s income. Selling shares in the oil company will allow this benefit to be shared with Sabic investors, if the merger follows.
The proposed is the logical extension of the decision taken in April to remove the chairmanship of Saudi Aramco from Saudi Arabia’s Minister of Petroleum & Mineral Resources Ali al-Naimi. Khalid al-Falih, former Saudi Aramco chief executive, was assigned the position and appointed to the kingdom’s cabinet as Health Minister. The move signaled that Saudi Arabia had decided to end the oil ministry’s control of the company. It also cleared the way for Saudi Aramco to be equipped to operate more like a private corporation than an extension of the kingdom’s bureaucracy.
Saudi Aramco veteran Amin Nasser, appointed the company’s chief executive officer in September, has been mandated to translate the vision into operational reality. It is likely the most enthusiastic supporters of greater independence from the Saudi state will be Amin and his team.
It will also clear the way for greater Saudi Aramco involvement in countries, notably the US, that have doubts about allowing state-owned and government-controlled foreign corporations to play a role in domestic energy markets.
But it will come at a price. Saudi Aramco will always be special, but a share sale and the corporatisation of Saudi Aramco will clear the way for the Saudi government to introduce competition in the kingdom’s domestic supply chain, including in refining, distribution and retail.
The sale of Saudi Aramco shares, therefore, will only be the start. The ultimate objective will be to create a global corporation that can compete with the world’s biggest energy companies including Exxon and Chevron, the company’s creators and former owners.
But in one particular respect, nothing will change. Ownership of Saudi Arabia’s oil and gas reserves are not for sale. And never will be.