Khalid al-Falih named new Saudi oil minister

Saudi Aramco chairman Khalid al-Falih was named as Saudi Arabia’s new Energy, Industry & Mineral Resources Minister on 7 May as part of a wide-ranging government shake-up announced by King Salman bin Abdulaziz al-Saud. The restructure saw several ministries merged and others abolished, including the Electricity & Water Ministry. Al-Falih, who had been serving as health minister, replaced Ali al-Naimi, who had served as Saudi Arabia’s oil minister for more than 20 years. Al-Falih spent more than 30 years at Aramco, becoming CEO in 2009, then chairman in 2015. Many of the key government changes have been made in sectors being targeted for reform.

Abu Dhabi’s Adnoc to cut 5,000 jobs

Abu Dhabi National Oil Company (Adnoc) plans to cut 5,000 jobs by the end of 2016, as part of a restructuring and cost-cutting programme in response to lower oil prices. The UAE’s state-owned oil producer has already terminated the services of 2,000 expatriate employees since the start of 2016, and has asked division managers to identify a further 3,000 job cuts by the end of this year. The planned job cuts would reduce Adnoc’s workforce by just over 9 per cent, from a headcount of about 55,000 at the start of 2016. Adnoc is responsible for the vast majority of oil and gas production in the UAE, and controls Abu Dhabi’s crude reserves, which represent about 6 per cent of the global total.

Oil prices to remain at $50 a barrel in 2016

US investment bank Goldman Sachs on 16 May predicted that oil prices will remain stable at $50 a barrel for the rest of the year. “The oil market has gone from nearing storage saturation to being in deficit much earlier than we expected,” the lender said. Brent crude hit a six-month high of just under $49 a barrel on 17 May due to concerns about supply disruptions in Canada, Nigeria and Venezuela. Opec continued to boost oil production in April, driven by increases in Iran and Iraq as the crude exporters’ group says it expects global oversupply to continue throughout 2016.

Moody’s slashes debt rating of three GCC states

The US’ Moody’s Investors Service on 15 May cut the debt ratings for Saudi Arabia, Oman and Bahrain, and assigned negative outlooks to the three remaining members of the GCC as foreign exchange reserves continue to dwindle and low oil prices squeeze government revenues. Moody’s affirmed the Aa2 ratings of the UAE and its biggest emirate, Abu Dhabi, but assigned a negative outlook.The UAE has been more proactive than its neighbours in restraining spending and reforming its finances in an environment of low oil prices. But Moody’s said the government’s policies to cut its budget deficit were still not clear. Moody’s confirmed the Aa2 ratings of Kuwait and Qatar but gave both a negative outlook.

IMF expects UAE growth to pick up

The Washington-based IMF says growth in the UAE is expected to pick up over the medium term thanks to expected improvements in oil prices and investment ahead of Dubai’s Expo 2020. The comments came as an IMF mission completed a visit to the country on 9 May. “With expected improvements in oil prices, growth is projected to pick up over the medium term, also supported by increased investment ahead of the World Expo 2020 and more favorable external conditions,” said Zeine Zeidane, who led the IMF mission, at the end of the visit. For 2016, growth is expected to be moderate, with non-hydrocarbons growth projected at 2.4 per cent due to sizeable fiscal consolidation.

Moody’s downgrades GCC debt issuers

US-based credit ratings agency Moody’s Investors Service on 19 May cut ratings on a slew of GCC banks and government-related entities (GREs). Nine Saudi banks, one Qatari, four Bahraini and four Omani lenders were downgraded. The move followed earlier sovereign downgrades of Saudi Arabia, Oman and Bahrain. Moody’s said the downgrades reflected tougher operating condition for banks, who are facing a slowdown in deposit and credit growth, tightened liquidity and weakening asset quality. The downgrade increases the cost of borrowing for state utility and telecoms companies, as they borrow to fund investment plans.

Iraq may receive $15bn with possible IMF loan deal

A possible loan deal between the Washington-based IMF and Iraq may unlock at least $15bn of financial support through to 2017. Iraq is to receive $10bn in IMF and World Bank assistance, and a further $5bn pledge may come from the Group of Seven (G7) meeting in Tokyo later in May, Iraq’s central bank chief Ali al-Allaq told US news agency Bloomberg. If successful, Baghdad will be the first major oil producer in the Middle East to secure a loan deal with the fund. The country need funds to shore up its stretched finances, battered by persistently low oil prices and its war with militants from the jihadist group Islamic State in Iraq and Syria (Isis).

Aramco prepares privatisation options

Saudi Aramco is preparing to present options for its part-privatisation to Saudi Arabia’s Supreme Council.The options include floating less than 5 per cent of shares on the Saudi Stock Exchange (Tadawul), and a dual listing on a major foreign market. The Supreme Council is led by Deputy Crown Prince Mohammed bin Salman al-Saud, who first announced the initial public offering (IPO) in early 2016. Reports have also emerged that Aramco is offering strategic stakes to global oil majors. The oil major would then work closely with them on major projects and technology.

Difficult 2016 for GCC banks

GCC banks experienced a difficult first quarter, with several large financiers and many smaller lenders reporting declines in profit. Operating conditions are widely said to be more difficult as economic growth slows and liquidity tightens. Asset quality is expected to deteriorate over the next year, but has been maintained in many banks so far.

Dubai receives world-record tariff for 800MW solar scheme

A consortium led by Saudi Arabia’s Abdul Latif Jameel, Spain’s Fotowatio Renewable Ventures (FRV) and the UAE’s Masdar has submitted a world-record low tariff of $3cents a kilowatt hour ($c/kWh) for the 800MW third phase of Dubai’s Mohammed bin Rashid al-Maktoum solar park. Dubai Electricity & Water Authority (Dewa) received bids from five teams on 1 May for the 800MW photovoltaic (PV) solar project.The low bid was 18 per cent lower than the 3.65$c/kWh submitted by China’s Jinko Solar Holding. 

Riyadh releases delayed contractor payments

Government ministries in Saudi Arabia have started releasing payments owed to contractors as the kingdom tries to ease pressure on the cash-strapped construction sector. The Health Ministry, one of the major clients for construction companies in the country, began to make payments to contractors during the first week of May. The ministry is expected to release a total of SR20bn ($5.33bn) over the coming weeks and months.The government is working with contractors who expected the payments to start flowing by the end of May.

Saudi Arabia invites proposals for potential bond

Saudi Arabia has invited banks to submit proposals to help it raise funds through a potential US dollar bond. The kingdom is expected to tap the international capital markets sometime this year. The move comes just weeks after the kingdom secured $10bn, its first international borrowing in more than a decade, to plug the budget deficit. US-based JP Morgan, UK-based HSBC and Japan’s Bank of Tokyo-Mitsubishi coordinated the five-year loan facility, which pays an all-in margin of 120 basis points. Saudi Arabia is rated A1 by Moody’s investors Service, A- by Standard & Poor’s, and AA- by Fitch Ratings, all US ratings agencies.

Middle East contracts awarded: April 2016

The total value of contracts awarded in the Middle East declined in April to $9.15bn from $12.83bn in March. The number of deals let remained constant at 44. Bahrain tops the list with the award for the sixth phase of Aluminium Bahrain’s (Alba’s) aluminium smelter expansion, which is valued at $3.5bn. The second-largest award went to the low bidder for the $1.5bn deal for Saudi Aramco’s Hasbah sour gas field expansion. A $500m deal was awarded in Iran for the Tavanir 500MW power plant. Bahrain and the UAE topped the list of country awards, followed by Saudi Arabia. Kuwait and the UAE look to be hotspots in the coming months.

Monitor Middle East contract awards every month.