Saudi Aramco IPO plans as adjustment to cheap oil
Baku, Azerbaijan, Jan. 9
By Aygun Badalova - Trend:
Wave of privatization in Saudi Arabia, including the recent announcements about Saudi Aramco IPO plans show that the country is going to adjust to the low oil prices through tighter fiscal policy, according to Jason Tuvey, Middle East Economist at British economic research and consulting company Capital Economics.
"Increasing taxes and fees, a wave of privatisations, and plans outlined in the budget to cut spending by 14 percent this year, all reinforce our long-held view that the adjustment to cheap oil is going to come via tighter fiscal policy," Tuvey said in a report, obtained by Trend.
"It would appear that the authorities have little appetite to cut oil production in order to shore up oil prices, or to devalue the riyal," he said.
Deputy Crown Prince Mohammed bin Salman said in an interview with The Economist published Thursday that the kingdom was considering an Aramco IPO as part of a broader package of economic reforms, comparing his plans to Margaret Thatcher's shakeup of the British economy in the 1980s. A decision on Aramco is expected to be announced in the coming months.
Saudi Aramco controls more than a tenth of the global oil market.
According to various estimates, Aramco could be worth anything from US$1 trillion to upwards of US$10 trillion, which would make it the most valuable company in the world, Tuvey said.
He believes a full and complete privatization of Aramco's core activities seems highly unlikely, although a small stake could be listed on the Saudi stock exchange.
"Subsidiaries involved in downstream activities are the most likely to be completely sold off," he said, adding that the fact the possibility of privatizing Aramco has been raised should be seen as a positive step towards more transparent policymaking.
Tuvey believes, that in short, Mohammed bin Salman's emphasis appears to be on reducing the country's dependence on oil, encouraging the development of the private sector, and making full use of "underutilised" assets.
Saudi Arabia, by producing 10.25 million barrels per day of oil in the third quarter of 2015, ranks first among OPEC member countries in terms of crude production.