Prizes and pitfalls in the privatisation revolution

15 December 2006
A consortium led by Saudi Binladin Group is favoured to win the build-operate-transfer concession for the expansion of the Hajj terminal in Jeddah's King Abdulaziz International Airport. It confirms that privatisation is spreading in the Middle East. It also highlights how much more must be done before it is an embedded part of the region's policy portfolio.

The Hajj terminal is one of the first elements of a plan to deregulate and privatise the kingdom's aviation industry. The General Authority for Civil Aviation (GACA) has been created as the sector regulator. It has invited bids for three licences to run new domestic airlines. One has been issued and offers have been called for the concession to operate duty free shops in the kingdom's three existing international airports.

This looks promising. But the devil is in the detail. The viability of a privatised aviation business is determined by several factors. One is the regulatory environment. In Saudi aviation, this has yet to be finalised.

The story of incomplete privatisation is repeated across the region. The best-established infrastructure privatisation is Abu Dhabi's

power and water sector. All its biggest projects involve private capital. But the state continues to own 60 per cent of each and effectively guarantees them all. The regulator is, technically, not completely independent. Abu Dhabi is applying similar principles to its wastewater system. Strictly speaking, these are not true privatisations, where risk is entirely transferred to the private sector.

The Abu Dhabi wastewater initiative will draw on the three sewerage privatisations already under way in the GCC. The Sulaibiya plant in Kuwait is about to be expanded. It is the fruit of a very complex privatisation. It is comprehensively supported by the government which is committed to purchase all its treated effluent.

In June 2007, operations are due to start at the Tanqia project in Fujairah. The plant project has a monopoly over the emirate's wastewater. On 10 December, the government of Fujairah announced the regulations that will govern the sector. Next year will also finally see the start of operations in the Ajman wastewater project. When it was conceived about a decade ago, it

was the first private sewerage project in the Middle East. Its completion has been difficult for

everyone involved.

Transport is the new frontier for infrastructure privatisation. At present, all transport assets in the GCC are owned by the state, though services have been selectively contracted out. The countries of the region are now pressing ahead with projects that mobilise private capital to finance new schemes. The most striking examples are the Saudi landbridge between Jeddah and Dammam and the Mecca-Medina high-speed rail link.

But challenges remain. In November, the government announced it would provide a grant to companies investing in the landbridge concession. It was an acknowledgement thatthe project's risks were too large for investors to digest unaided. Questions are now being asked about the regulatory environment that will apply to the Saudi rail sector.

There have been birth pains associated with the emergence of more open financial services markets in the Gulf. The first head of the independent regulator appointed for the Dubai International Financial Centre was dismissed in 2004. In May this year, the head of the Capital Market Authority, Saudi Arabia's stock market regulator, was sacked. Here, as in other sectors, the region is still not at a point where governments are ready to forsake the right to intervene in areas where the national interest is seen to be at stake.

The most painless privatisations have been in telecommunications, where all GCC markets now have at least two operators. The regulatory regimes vary in their robustness, but there have not yet been serious differences between GCC telecoms players and their refere

A MEED Subscription...

Subscribe or upgrade your current package to support your strategic planning with the MENA region’s best source of business information. Proceed to our online shop below to find out more about the features in each package.

Get Notifications