Saudi Arabia plans to link the most important tax paid by state-owned energy giant Aramco to the price of oil, a significant move ahead of the company’s initial public offering this year.
Adjusting the 20 per cent royalty on oil revenue Aramco currently pays would help the kingdom to raise extra money if prices climb. While not unusual in commodities industries, the move may not prove popular with potential investors. It would protect them from downturns, but also reduce their gains at times of rising prices.
The royalty will remain "for the time being" at 20 per cent, said Amin Nasser, the chief executive officer of Aramco, at the World Economic Forum in Davos, Switzerland. Later on "there will be some alterations that would happen when the price changes in the market”.
The comments are the first confirmation of a possible price-linked royalty, which was reported by Bloomberg last year. Mr Nasser cautioned that all the tax details would not be revealed until the company publishes its IPO prospectus "in due course." On top of the royalty, Aramco pays a 50 per cent income tax.
The CEO reiterated his company’s readiness to conduct the IPO in the second half of this year, pending a government decision on the venue for the listing. Aramco will attract a lot of investor interest and offer competitive dividends, he said.
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Saudi Arabia relies heavily on oil for its finances. While Crown Prince Mohammed bin Salman has an economic programme, dubbed Vision 2030, intended to break free from hydrocarbons, the government still gets most of its revenue from the industry today. The sale of 5 per cent of Aramco, which could raise as much as $100 billion, is part of the diversification plan.
It is not unusual for commodity producers to take a larger share of the pie during boom times. The UK, for example, uses a similar model for oil producers in the North Sea. Russia also varies tax rates with oil prices and the Australian government has proposed in the past price-linked rates for iron ore producers.
Separately, Aramco’s trading unit started swapping the kingdom’s crude oil for products refined in other countries, according to its chief executive officer.
The company has swapped crude with refiners in the Mediterranean in return for products, said Ibrahim Al Buainain, CEO of Saudi Aramco Products Trading. The refined products have been sold in Europe, North Africa and the west coast of Saudi Arabia, and the aim is to do more, he said.
“In the Mediterranean there is plenty of spare refining capacity,” Nr Al Buainain said. “That’s creating opportunities for trading.”
Aramco Trading previously bought and sold mostly fuel like petrol or diesel and last year started trading crude produced by other countries.
Aramco Trading handles about 1.5 million barrels a day of refined fuels, and wants to increase that to more than 2 million barrels, Mr Al Buainain said in May. It also plans to buy crude from other producers to supply some of Saudi Aramco’s joint-venture refineries globally, he said on Wednesday.
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Key changes
Commission caps
For life insurance products with a savings component, Peter Hodgins of Clyde & Co said different caps apply to the saving and protection elements:
• For the saving component, a cap of 4.5 per cent of the annualised premium per year (which may not exceed 90 per cent of the annualised premium over the policy term).
• On the protection component, there is a cap of 10 per cent of the annualised premium per year (which may not exceed 160 per cent of the annualised premium over the policy term).
• Indemnity commission, the amount of commission that can be advanced to a product salesperson, can be 50 per cent of the annualised premium for the first year or 50 per cent of the total commissions on the policy calculated.
• The remaining commission after deduction of the indemnity commission is paid equally over the premium payment term.
• For pure protection products, which only offer a life insurance component, the maximum commission will be 10 per cent of the annualised premium multiplied by the length of the policy in years.
Disclosure
Customers must now be provided with a full illustration of the product they are buying to ensure they understand the potential returns on savings products as well as the effects of any charges. There is also a “free-look” period of 30 days, where insurers must provide a full refund if the buyer wishes to cancel the policy.
“The illustration should provide for at least two scenarios to illustrate the performance of the product,” said Mr Hodgins. “All illustrations are required to be signed by the customer.”
Another illustration must outline surrender charges to ensure they understand the costs of exiting a fixed-term product early.
Illustrations must also be kept updatedand insurers must provide information on the top five investment funds available annually, including at least five years' performance data.
“This may be segregated based on the risk appetite of the customer (in which case, the top five funds for each segment must be provided),” said Mr Hodgins.
Product providers must also disclose the ratio of protection benefit to savings benefits. If a protection benefit ratio is less than 10 per cent "the product must carry a warning stating that it has limited or no protection benefit" Mr Hodgins added.
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Date started: January 2022
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Name: Maly Tech
Started: 2023
Founder: Mo Ibrahim
Based: Dubai International Financial Centre
Sector: FinTech
Funds raised: $1.6 million
Current number of staff: 15
Investment stage: Pre-seed, planning first seed round
Investors: GCC-based angel investors
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Name: HyveGeo
Started: 2023
Founders: Abdulaziz bin Redha, Dr Samsurin Welch, Eva Morales and Dr Harjit Singh
Based: Cambridge and Dubai
Number of employees: 8
Industry: Sustainability & Environment
Funding: $200,000 plus undisclosed grant
Investors: Venture capital and government
COMPANY PROFILE
Name: Haltia.ai
Started: 2023
Co-founders: Arto Bendiken and Talal Thabet
Based: Dubai, UAE
Industry: AI
Number of employees: 41
Funding: About $1.7 million
Investors: Self, family and friends
COMPANY PROFILE
Company name: Blah
Started: 2018
Founder: Aliyah Al Abbar and Hend Al Marri
Based: Dubai
Industry: Technology and talent management
Initial investment: Dh20,000
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Total customers: 40
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