Saudi Arabia’s plan to kick-start its historic privatization program has been well received by an international investment community that is often skeptical of big announcements. Bankers have spoken of the “positive momentum” behind the plan, and that it looks realistic and achievable. Raising around $10 billion through state sell-offs, public private partnerships and trade sales is certainly a long way from the $200 billion put up as the total value of the privatization program just last year, but you have to start somewhere. The $10 billion figure relates to sell-off proceeds between now and the end of 2020, while the bigger figure was an estimate of the total value of proceeds from all asset sales and other privatization measures (excluding whatever comes from an IPO of Saudi Aramco) under the Vision 2030 strategy. Saudi policymakers still have the potential to meet the higher figures over the next 12 years as the pace of sell-offs accelerates and they — and global markets — become more familiar with the process. The value estimates announced earlier this week do not include any proceeds from assets held by the Public Investment Fund, which has hundreds of millions of riyals’ worth of holdings in public and private Saudi companies that can be sold separately from the process being organized by the National Center for Privatization (NCP). Working out which assets will be sold first is still a guessing game, but the NCP report identified two individual “game-changers:” Saudi ports and the desalination business Saline Water Conversion Company. Both look relatively trouble free from a privatization perspective — solid revenue-generating businesses able to pay the level of dividend associated with utilities the world over. Trade and water are, in their own ways, what Saudi Arabia is all about, so there seems little need for explanatory marketing campaigns. Hospitals and schools also figure high on the NCP priorities list, but these present greater challenges, not in the sense that their profitability or value is in doubt, but in terms of the big role they pay in the Kingdom’s social and cultural life. Selling them will require a greater degree of sophistication. The NCP “Delivery 2020” document was — justifiably — big on theory and structure, with much space given to explanations of the need for legal, regulatory and institutional frameworks for the privatization process. Saudi Arabia’s plan to kick-start its historic privatization program has been well received by an international investment community that is often skeptical of big announcements. Frank Kane Some bankers were surprised that further progress had not been made on this front, and a substantial amount of work does appear necessary before the first assets can be sold. But the Saudi government has shown that it is not afraid to get things done quickly. The NCP document also recognized that there are challenges and risks associated with such an ambitious program of state sell offs — one of the biggest in history. The plan said that Saudi Arabia had only limited experience of private-sector involvement in the economy, confined to specific sectors. “Hence, necessary expertise, knowledge and skills related to the privatization of state-owned assets and activation of private-sector engagement across the whole government are very low,” it said. There were issues, too, with the lack of sufficient skills and expertise in the private sector “since the government was the only available service providers for many sectors.” The document also highlighted gaps in the legal and regulatory structures to enable such a big privatization program. “The current situation is not attractive to the participation of the private sector, as it is not interested in sectors where there are no clear regulations or directory of procedures that govern all the above-mentioned points, and that may stand in the way of reaping the full benefits of privatization,” it said. The NCP acknowledged that there were risks to the successful execution of the sell-off plan. It said that there was “high potential impact” from the “limited liquidity in the KSA financial ecosystem,” and recommended keeping the process open to international markets, among other measures. It identified a “critical potential impact” from changes in market conditions in the course of the privatization program, and advised hedging strategies, best and worst case scenario planning, and adoption of international best practice to gain access to global financial funds. Seeing potential pitfalls is an essential part of the privatization process, and it is commendable that the NCP has recognized that. Frank Kane is an award-winning business journalist based in Dubai. Twitter: @frankkanedubai