Saudi Arabia has left big questions to answer about its grand plans to transform its energy sector as a cornerstone to broader economic reform.
The manner in which the vision has been communicated thus far, and the apparent resistance from some quarters within the kingdom, suggest that the plan has come before any communications strategy has been fully worked out.
The kingdom recently increased its public relations spending, including hiring a the firm of a top aide to both Bill and Hillary Clinton as a consultant, which may be aimed at addressing this but the story so far has left many confused.
The kingdom's deputy crown prince, Mohammed bin Salman, set the ball rolling on "Vision 2030" early this year by announcing a long list of ambitious goals for economic transformation, at the centre of which would be a public listing for Aramco, the state oil company that is the guardian of the nation's main source of wealth.
But from the outset, questions have been raised – not least from within Aramco’s leadership – about the form any public sale might take, especially given the strategic importance (and tradition of deep secrecy) of the state oil bureaucracy.
With great fanfare last week, Prince Mohammed was to announce much more detail of the initial public sale of shares in Aramco as well as other details of the National Transformation Plan.
But on Aramco there was little in the way of detail that had not already been floated: “up to 5 per cent” would be sold, which Prince Mohammed said would put a value on the entire company of “at least US$2 trillion”, and the parent company would be listed. Also there would be further listings of subsidiaries, “probably downstream” and it would all happen by next year or 2018.
Many questions follow that wish list. Although Prince Mohammed declared that the public listing of the parent company would necessitate a secondary listing outside of Saudi Arabia – on New York’s and/or London’s stock exchanges – the transparency that would require was soon brought into question by comments from Aramco’s chairman.
In an interview with The Economist after Prince Mohammed's blueprint was announced, Khalid Al Falih, the chairman of Aramco, again pointed to a central obstacle to capturing the value in a public float of the world's largest oil company: Saudi Arabia's oil reserves – its main source of wealth – are and will remain constitutionally the property of the kingdom.
Mr Al Falih said that “a concession and an appropriate fiscal regime” might be worked out that would be satisfactory for shareholders in this regard, but there is no precedent that is remotely close for that kind of corporate structure.
Furthermore, the "appropriate fiscal regime" – how Aramco be would taxed by the kingdom, for insance – is a huge determinant of the company's potential listed value. As Al Arabiya pointed out in its interview with Prince Mohammed, some reasonable guesses about future production, oil prices and taxes means "a valuation to investors more like US$300 billion to $400bn" would be more likely than one above $2 trillion for a listed Aramco.
An additional concern raised by Mr Al Falih is that a foreign listing – especially one in New York, which, as the world’s biggest public equity market, would seem the most appropriate for the world’s largest IPO – would leave Aramco exposed not only to transparency demands by international investors but potentially to lawsuits from a whole host of litigants.
This is a particular worry after recent moves by the US Congress to target the Saudi government and its assets for lawsuits in relation to the terrorist attacks in the United States in 2001.
The impact of the reform announcements so far has been to raise a great deal of scepticism.
“While the government’s longer-term ambitions are commendable, they need to be taken with a pinch of salt,” says Jason Tuvey, a Middle East economist at Capital Economics.
“All Saudi governments since the 1970s have outlined plans to wean the country of its ‘addiction to oil’ but, in practice, little has changed,” he says.
The real reforms needed to bring about the changes in the Vision 2030 wish list are fundamental: in education; in civil society; and in the labour market, as many economists have pointed out, including those at the IMF.
Nonetheless, the new generation represented by Prince Mohammed seems determined to push for more transparency and for reforms of the sclerotic bureaucracy represented particularly by Aramco in order to bring some dynamism to the economy.
To this end, the Saudi leadership has been bolstering its effort to both burnish the Saudi image abroad – in preparation for a higher-profile international financial role – as well as handling the mammoth task of internal communications with its people about the goals of the grand plan.
The Saudi leadership also faces the challenge of reconciling its powerful internal factions who must deliver the plan but clearly are not yet sold on it.
Among its key advisors is the Podesta Group, which was started by Anthony and John Podesta, the latter being a one-time chief of staff to the former US president Clinton and the current chairman of the election committee for Mrs Clinton. Documents released in March show that Anthony Podesta himself – also a Clinton fundraiser – is handling the Saudi account.
In March, the Saudi American public relation affairs committee was launched as an umbrella effort to help improve the Saudi image across a broad front, which will include Aramco’s push to expand sharply in the North American downstream sector to help to both secure its market share there and to diversify the conglomerate.
But so far, according to a number of industry sources, the Saudis have not started the search for an IPO communications consultant.
amcauley@thenational.ae
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