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July 30, 2021

Ras al-Khair instructs assets sale bonanza

The cancellation of the Saudi desalination plant sale highlights the challenges facing Riyadh’s utilities privatisation programme.

By MEED   

The termination of the tendering process for the sale of a majority share of Saudi Arabia’s Ras al-Khair integrated power and water desalination plant highlights the challenges in privatising assets in the Kingdom as well as elsewhere in the Middle East region.

Unlike the tried and tested public-private partnership (PPP) model, which has been widely used over the past two to three decades in procuring greenfield power generation and water production assets, the region is still at a nascent stage when it comes to privatising state assets, whether in terms of operation and maintenance contracts, selling shares to the public or through an equity sale.

The termination of the tendering process appears anticlimactic given that the Kingdom’s much-awaited Private Sector Participation (PSP) law comes into effect this month, boosting investor confidence in acquiring assets as part of Riyadh’s National Transformation Programme.

Saudi Arabia’s Privatisation Supervisory Committee for the Environment, Water and Agriculture sectors said it suspended the tendering process ‘in order to capitalise on knowledge and capacity built in the Kingdom as a result of many years of experience in the areas of water desalination, new technologies, research and development (R&D) and supply chains.’

It also said it will announce a new engagement strategy and plan for Saline Water Conversion Corporation (SWCC) assets such as [the] Ras al-Khair plant.

This has not stopped the market from making various assumptions about the decision.

First, only two consortiums were planning to bid for the contract, out of seven that were prequalified, which implies key issues in terms of the timing and structure of the project.

It is understood that the entity that oversees the Kingdom’s water desalination and transmission assets, SWCC, had set a fixed asset purchase price for Ras al-Khair, which meant potential bidders would have competed on the lowest tariff.

However, the timing of the sale could have been better, with one expert noting that a great appetite and offers from investors were unlikely given the current economic environment.

Equally important, some – if not most – investors are double-taking on brownfield gas-fired assets as well as desalination plants that utilise multi-stage flash (MSF) technologies in view of their decarbonisation targets.

From a timing viewpoint, rescheduling the sale – given the state-funded project cost the Saudi Government at least $3.9bn to build – makes economic sense. However, it may be more challenging to address investors’ reticence in acquiring less-energy-efficient assets.

Finally, some allude to an expected further restructuring in the Kingdom’s water sector, which might see mandates expand or change between SWCC, the state water offtaker Saudi Water Partnership Company and the newly formed Water Transmission & Technologies Company.

It is worth noting, however, that these assumptions do not reduce the significance of Ras al-Khair’s planned sale on the Kingdom’s privatisation programme, as well as the future success or failure of similar planned transactions in neighbouring Kuwait and Abu Dhabi.

This article is published by MEED, the world’s leading source of business intelligence about the Middle East. MEED provides exclusive news, data and analysis on the Middle East every day. For access to MEED’s Middle East business intelligence, subscribe here.

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