Privatizing Oil Companies – Is It Expected?

25 August 2019 Business

The Brazilian oil company Petrobras last week announced its intention of going private and reducing government’s grip on the oil company. Is this the latest trend and is it going to last? Is it going to spread to our region and include our oil companies in Kuwait? Saudi Aramco is in the process of p r i v a t i z i n g five percent of its company which will be listed in the world stock market this year or by the end of next year.

However, the question is – Will such a move ensure better financial returns for the oil company on the long run? Is it aimed at improving the performance, efficiency, and know-how, and ensuring compatibility with its peer international oil companies? Will it result in added value both financially and operationally? Aramco for example could benefit both financially and operationally, even though the Saudi company will not admit its need for international experience.

Nevertheless, this is not the main reason, as privatizing five percent is aimed at being in the market and meeting its financial needs for trying to balance the state budget with more cash. For instance, Aramco is seeking about $100 billion trillion for its shares. For us in Kuwait, privatizing some of our oil companies is also necessary but for two purposes – the first purpose is financial, as oil prices are declining and the deficit in our annual budget is getting higher such that we desperately need some other sources of income to balance our budgets.

The other important purpose is to improve our capability in order to be more competitive with our peer group in terms of efficiency and performance. We are currently dependent solely on our experience but we need foreign partners to share their experience with us.

There are many of our companies that can be privatized – our refining companies, oil tankers, local marine agency, local marketing companies, and petrochemical companies, with the easiest being our overseas upstream company KUFPEC.

This should be privatized, considering the fact that the oil prices are declining and there is no hope for further improvements in the oil prices in the near future. Selling and privatizing have their own advantages that would allow immediate cash flow into the system, stricter accountability and of course transparency – aspects that most of our national oil companies are in need of.

There are certainly many advantages in going public and seeking new experienced shareholders, having closer eyes on the level of productivity and ensuring more efficient manpower are recruited, and redundant manpower are reduced. Saudi Aramco can certainly be the start, which can be followed later by other national oil companies but with different purposes.



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