Riyadh's government shake up introduces era of uncertainty

03 May 2015

Saudi Arabia’s modernisers are delighted that the bureaucracy that dominates the kingdom is receiving a long-needed overhaul to bring in fresh blood, new ideas and performance-related accountability. But there are risks.

Three big things have emerged in the changes in Saudi Arabia’s government last week

The first and most obvious is the replacement as crown prince of Prince Muqrin, the youngest son of Saudi Arabia’s founder King Abdulaziz, by Prince Mohammed bin Nayef, deemed the most competent of Abdulaziz’s many grandsons.

It’s not inconceivable that Mohammed bin Nayef may yet fail to get the top job. But that would require either a serious failure by one of the kingdom’s most capable officials, a complete change of mind by King Salman in concert with the inner core of leading Saudi princes about his suitability for kingship or the collapse in the health of a man more than 20 years younger than the one he’s meant to replace.

In most foreseeable circumstances, Prince Mohammed bin Nayef will succeed in due course. The matter’s as good as settled.

The promotion of Prince Mohammed bin Salman to the position of deputy crown prince places the king’s son in line of succession. His eventual emergence as crown prince is, nevertheless, far from a foregone conclusion. He’s got to prove himself first and consistently.

Saudi oil changes hands

The second big thing is evidence that the management of the kingdom’s oil and gas industry is about to change hands.

The abolition of the supreme council for oil and gas and the creation of the Council for Economic & Development Affairs (CEDA) where the kingdom’s petroleum policy is now forged have diluted the grip exercised over the industry by the Ministry of Petroleum & Mineral Resources in general and of its minister Ali al-Naimi in particular.

Now approaching 80 years old, Al-Naimi wants to retire and was asked by the Supreme Petroleum Council in 2010 to name a successor. Giving up the chairmanship of Saudi Aramco, the world’s largest oil and gas producer, is probably a relief. But the announcement on 1 May that Saudi Aramco is being split from the Oil Ministry is a significant evolution in the governance of the kingdom’s oil industry.

Khalid al-Falih, until the reshuffle the CEO of Saudi Aramco, is superbly qualified to take over the company’s chairmanship.

The problem is that having a separate Saudi Aramco chairman and Oil Minister involves losing the direct input of Saudi Aramco’s management in cabinet and CEDA debates.

Saudi Arabia’s law restricts the number of cabinet posts. Getting Al-Falih into the cabinet was a technical challenge that has been addressed by appointing him to the vacant post of Health Minister. As a seasoned senior manager, Al-Falih is a safe pair of hands. But he is not in the cabinet to sort out the kingdom’s health sector.

New superministry

There is more than one theory about what might happen next.

The most popular is that Al-Naimi will retire, probably this year. Al-Falih, now chairman of Saudi Aramco, would then move seamlessly into his cabinet post whilst still retaining the chairmanship of Saudi Aramco. This would represent a continuation of the practice of concentrating regulatory, policy-making and operational power in the hands of the kingdom’s oil minister. It would also maintain the tradition that Saudi Aramco and the oil ministry is always be led by a non-royal.

The alternative is that King Salman’s son Abdulaziz, reappointed deputy oil minister in January, is being groomed to become minister. A respected technocrat as well as an impeccable aristocrat, Abdulaziz would tighten the grip King Salman and his close family members are increasing over all areas of Saudi government policy.

The decision to separate Saudi Aramco has sparked speculation that Al-Falih is in fact being prepared to take over as head of a new energy superministry that would regulate the kingdom’s domestic energy supply chain including refining, electricity and heavy industry.

The ministry, if it is formed, would also be responsible for developing the kingdom’s renewable and nuclear energy programme to replace the King Abdullah City for Atomic & Renewable Energy (KA-Care), whose future is now uncertain.

Saudi Aramco is an important producer and consumer of electricity and water, the chief executive of Saudi Electricity Company (SEC) is a former senior Aramco executive and Al-Falih has led the company’s drive into petrochemicals.

If the superministry were created, Al-Falih is the obvious candidate to lead it.

The positive result would be that the kingdom would at last have an integrated domestic energy framework that would facilitate the application of coherent energy efficiency and demand management policies, the development of solar power and the launch of the kingdom’s nuclear power programme.

The complication is the oil ministry’s role would be reduced to international energy diplomacy. But the kingdom’s oil production and pricing policy are now under the CEDA, which includes all cabinet members.

No one body or individual can now claim supremacy over it. All are servants of the king.

Riyadh restructures

The third big thing is that it’s clear that King Salman’s succession in January is not an end but the start of a process of radical change in the way Saudi Arabia’s governed.

Since the start of January, Saudi Arabia has had three crown princes, there have been two cabinet reshuffles, many ministers have been replaced or demoted and all King Abdullah’s ministerial councils have been abolished. The power of the Ministry of Petroleum & Mineral Resources and its minister has been diluted. There is a new foreign minister for the first time in almost 40 years.

Key funding agencies have been detached from the Finance Ministry.

They include the Public Investment Fund, an important sovereign wealth fund that specialises in domestic investments. The Finance Ministry’s role has been reduced to budgetary planning and management and economic policy advice.

The CEDA, which Prince Mohammed Bin Salman is trying to run as if he were the CEO of a major corporation, is testing its own members. Ministers are being required to present their vision and plans to a core CEDA group including Finance Minister Ibrahim al-Assaf.

Those that have disappointed have been dismissed.

Under King Fahd and King Abdullah, ministers were rarely replaced and often couldn’t even retire. Cabinet changes are now a monthly occurrence.

This process encompasses the leadership of government corporations and agencies, once seen as sinecures but no longer. Government projects are being closely scrutinised, a result of the need to contain spending at a time of lower oil prices.

Further important changes in the cabinet and other parts of the kingdom’s government are therefore certain before the end of the year. Modernisers are delighted that the bureaucracy that dominates the kingdom is receiving a long-needed overhaul to bring in fresh blood, new ideas and performance-related accountability.

New challenges

But there are risks.

Government officials accustomed to a predictable career and a reasonable pension when it ends are nervously wondering whose head will roll next.

The pace of government decision-making has slowed as a result. Businesses are complaining that approval of government contracts is being postponed as the kingdom’s civil servants wait and see.

The optimists say that positive results will soon be evident. Pessimists are beginning to wonder whether the sub-optimal certainties of the era of King Abdullah is giving way to a new one of ad hoc improvisations, knee-jerk reactions and policy U-turns under King Salman and his kin.

The oil price crash and regional political turmoil meant change was both necessary and inevitable. The robust new leaders of the kingdom of Saudi Arabia, the Middle East’s most powerful nation that has defied the doomsters since it was created in 1932, deserve the benefit of the doubt.

But for how long?

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