Kuwait edging towards privatisation

The Kuwaiti economy has seen many successes over the years, with the massive expansion of the energy sector, the diversification of the country's economic base and the moves to become a financial hub in the Middle East. However, one story that does not rank highly among the list of achievements is Kuwait's privatisation programme.

Even before Iraq's invasion of Kuwait in 1990, there were draft plans to privatise some public holdings, though these were put on the backburner after the war as the state struggled to put the country and its economy, especially the crucial energy sector, back in working order. This was followed by initial moves in the mid-1990s to launch a privatisation programme.

In 2004, the government approved a privatisation programme, based on previous plans, that took in major sell offs in the telecommunications, energy, postal, shipping interests, ports and utilities sectors. However, few of these ambitious proposals have translated into results.

The Kuwaiti privatisation programme has been hindered on many fronts, not least of which has been opposition within the country's parliament. Though the legislature has passed laws to facilitate the sale of state assets, there has been no sense of urgency in pushing the programme ahead. Furthermore, successive parliaments have shown a willingness to bind any privatisation with the requirement that guarantees be included to ensure that there will be no job losses suffered by Kuwaiti nationals after the transfer into private hands and that the public be protected from any significant price rises.

Given that a number of Kuwait state-owned enterprises operate at a loss or provide their services at a subsidised rate, such as is the case with the electricity sector, these caveats would prove to be something of a disincentive to new owners seeking to restructure and indeed earn a profit.

There has been some progress however. The state has privatised the majority of the 120 petrol stations it owned, along with the state-owned lubrication oils plant and the coke smelter operations in 2004.

Prior to this, the state managed to sell most of the shares it had in 62 companies it acquired to assist creditors following the collapse of the unofficial stock market in 1982.

One firm that has long been touted for full or at least partial privatisation is the country's national carrier, the Kuwait Airlines Company (KAC), the first airline set up by an Arab state. For many years a loss maker, the state-owned airline has suffered from underinvestment and growing competition, both from international carriers and more recently from local outfit Jazeera Airways.

In announcing KAC's 2006 results in late December, which saw 30% in losses from the 2005 figure of $80.9m to $56.6m, Sheikh Talal Mubarak Al Sabah, the airline's chairman, took the opportunity to again call for a move towards privatisation.

KAC needed to be transformed from a state company to one that could work in line with commercial laws and allow it to compete with other companies in the private sector, Al Sabah said.

However, while all but stalled, there is a renewed push to give the privatisation programme new life. On January 23, Rashid al-Tabtabaei, the undersecretary of the ministry of commerce and industry, said that privatisation was necessary for Kuwait, and that there needed to be competition within the private sector in order to create a balance in terms of costs of services.

"The private sector led the economic development movement, while the public sector was responsible for monitoring and follow ups," al-Tabtabaei said during a seminar conducted by the Kuwait Association of Accountants and Auditors.

The ministry of communications has plans to privatise some of its operations, in an effort to improve services, which have been the subject of much criticism. On January 4, Abdulaziz al-Osaimi, the ministry undersecretary, said that a number of proposals had been submitted to the cabinet recommending the privatisation of the postal service.

Freeing the postal sector from government bureaucracy and intervention could only be of benefit in the long-term, he said.

In May 2006, Hani Hussain, the chief executive of Kuwait Petroleum Corporation, said they were seriously looking at having an initial public offering (IPO) to float 20% of shares in a new petroleum refinery, which is due to be completed by 2010.

"We are looking at the best ways of doing that and we are talking to several parties about doing it," he said at the time. "This is something we are very keen to do."

(C) Oxford Business Group - www.oxfordbusinessgroup.com

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