Kuwait studies privatisation of oil services to boost revenues

Kuwait is considering privatising its oil services sector, a senior finance ministry official said on Tuesday, although any plans would not include its production capability.

The finance ministry and state-run Kuwait Petroleum Corporation are studying which sectors and services may be privatised, Undersecretary Khalifa Hamada told a news conference.

Gulf governments are being forced to consider measures such as privatisations, cuts to subsidies and other state spending, and tapping debt markets, to help bridge budget shortfalls caused by lower oil prices.

Saudi Arabia has proposed the privatisation of state oil giant Saudi Aramco, with the government expected to offer less than 5 per cent of its shares to international and local investors in what is expected to be the world’s largest initial share sale.

The structure of Aramco’s flotation and whether this will include production facilities is unclear.

Any privatisation of state oil assets is considered a politically sensitive subject in Gulf states, as oil is the economic bedrock which supplies the revenues to provide the generous cradle-to-grave welfare state enjoyed by citizens.

Hamada said any privatisation plans in Kuwait would not include its oil production facilities. He did not specify a time frame for the process.

Kuwait is expected to post a budget deficit of KD 9.5bn in the 2016-2017 fiscal year and it plans to cover this through the issuance of KD 5bn of international and domestic debt as well as drawing upon its reserves, Finance Minister Anas al-Saleh said on July 3.

Of the KD 3bn to be raised internationally, Hamada said this was currently being coordinated by both the ministry of finance and the country’s sovereign wealth fund, the Kuwait Investment Authority (KIA).

The issuance would take place by the end of the year, with negotiations with external advisors to begin in September.

BREXIT

Kuwaiti investments in the United Kingdom are expected to be hit by the United Kingdom’s decision to leave the European Union, although the impact of Brexit is expected to be “short-term and not large”, Hamada said.

The KIA, through its London-based subsidiary Kuwait Investment Office, is understood to have substantial investments in the U.K., in particular in real estate and infrastructure. It was part of the consortium which bought London City Airport earlier this year.

The KIA is one of the world’s largest sovereign wealth funds with about $592bn under management, according to the Sovereign Wealth Fund Institute, which tracks the industry.