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16th GAB Annual Seminar The Role of Monitoring in Achieving the Strategic Objectives of Privatization


16th GAB Annual Seminar

The Role of Monitoring in Achieving the Strategic Objectives of Privatization

28 April 2018

Background

28 April 2018 – Riyadh, InterContinental Hotel, King Faisal Hall The privatization of public sector assets is one of the most critical stages of economic transformation in most developed countries, as is currently the case in Saudi Arabia. On April 24, 2018, the Saudi Economic and Development Affairs Council launched the plan of implementation of the "Privatization Program", one of the programs to achieve the Kingdom’s Vision 2030. This plan was preceded by the decision of the cabinet no. (665) dated August 10, 2017, that established supervisory committees for the privatization of each sector and gave some details regarding the roles of the different authorities, especially those related to governance. The aim was to reduce the burden on the government budget and allow it to use its resources in other strategic sectors. The program also aims to increase the contribution of the private sector to GDP from 40% to 65% by 2030, and increase non-governmental investments. The privatization program aims to privatize government assets and services over $10 billion by 2020. The program is predicted to contribute about $3.7 billion to GDP for the same period, by raising the efficiency of the sectors targeted by privatization, improving the quality of their outputs and enhancing their sustainability. Although there exist some prior experiences of privatizing government assets, the preparation for the next privatization phase is a different challenge given the overall size of the target sectors and industries and in most of its stages will require vastly different qualitative preparation. The upcoming phase in the process of privatization of government assets and services aims to implement approximately 100 privatization initiatives that fall under approximately ten major sectors. Work has begun on a number of such initiatives, which are expected to be privatized by 2020, (including sports clubs, flourmills, projects of the General Organization for Water Desalination, and others). These will include privatization in various forms, whether through the sale of assets or through partnership between the public and private sectors. The first privatization initiatives of the Rabigh (3) independent water production project were signed at the end of December 2018.

The 16th GAB Annual Seminar at a Glance

The monitoring role is one of the main indicators of the success of the privatization strategy and process throughout its stages. It would be difficult to evaluate whether the privatization process achieved its strategic objectives in all stages of its contribution to economic growth without a comprehensive and robust monitoring and control process. Privatization is characterized by its ramifications and complexities in all its legal, financial and economic aspects, and the importance varies from stage to stage. In view of the importance of the monitoring role, and the need for this role to be fulfilled by a specialized and expert monitoring body that has the required regulatory specifications, the Saudi cabinet instructed the GAB last May to carry out this role and prepare the specific controls and standards to control the privatization process at all stages. A number of economic, accounting and auditing factors may determine the exact nature and quality of monitoring required for the privatization process. These may include whether the privatization process is intended to sell assets or form a partnership, the quality of the sector, the target industry, the size and value of the assets of the entity subject to privatization, the category and class of target investors (e.g. individuals or institutions) and other economic and accounting variables. Furthermore, due to the complexity of the monitoring process and the presence of several supervisory bodies, either governmental entities (e.g. the office of privatization and supreme supervisory committees) or private entities (e.g. accounting and audit firms and funding agencies), there may be interference or overlap of responsibilities, and, thus, the impact of these variables and factors in the selection of optimal strategies to determine the appropriate quality of control for different forms of privatization must be discussed. In order to meet all the regulatory and professional requirements of the process associated with privatization in the Kingdom of Saudi Arabia, the subject of the 16th annual seminar of GAB is devoted to discussing the issues and challenges of monitoring the various stages of privatization of public sector establishments. The GAB aims at selecting the topic for the seminar to benefit from the expertise of speakers and other countries' experiences in this regard. It is also expected that the speakers will provide a theoretical coverage of the relevant control concepts and an overview of the practical applications associated with each stage of the privatization. The recommendations of the 16th Annual Seminar are expected to contribute to the GAB in its next task in following up and monitoring the phases of the privatization of the public sector institutions subject to it.

Sub-themes of the 16th GAB Annual Seminar:

1. The readiness of the regulatory environment to monitor privatization and the development of relevant regulations and legislations

The process of privatization is often characterized by a variety of different stages, form, and content and for the optimal monitoring of these stages it is necessary to rely on a wide range of regulations related to the subject of privatization, from appraisal and evaluation to transferring ownership to individual and institutional investors. Although Saudi Arabia has some successful privatization experiences, these have been comparatively on a small scale, in a somewhat different legislative and regulatory environment, and in certain sectors with significant profitability. To enable the implementation of the monitoring of privatization and the establishment of clear and specific implementation regulations, through which the control process can be complementary without being restrictive, it is necessary to stand on regulatory rules and procedures, and address the monitoring barriers, to achieve very high levels of transparency and clarity in different stages of privatization. Fair evaluation and appraisal are some of the most critical steps in privatization as the success of this stage has many public and private benefits, and failure or inaccuracy may lead to consequences that may be difficult to address. Although the evaluation of an asset or service in less than its real value points to direct damage to the public purse, overpricing in privatization may also have serious consequences. For instance, in the case of public utilities, the excessive valuation of these enterprises may result in a series of monopolistic practices of overpricing, demobilization of employees and damage to Saudization programs as a result of investors trying to offset the unfair margin assessment. Since the concept of privatization is not limited solely to the transfer of ownership of assets from the public sector to private sector, it may extend to transferring specific government services to the private sector, including full or partial sale contracts and various public-private partnership contracts. A general and comprehensive review of all aspects of the regulatory environment should be undertaken to monitor the privatization. It is expected that this theme will discuss the local regulatory environment for the privatization monitoring system, and the readiness of the regulatory policies and legislation to complement the privatization process. The speakers will also try to answer the following questions:
1. What are the governance mechanisms of the entities subject to privatization (internal control, environmental monitoring, human resources) and the role of governance quality in reducing the costs of subsequent government control of the privatization process?
2. What is the adequacy and appropriateness of the laws and regulations related to privatization?
3. What are the control methods associated with the commitment of enterprises subject to privatization to achieve the Sustainable Development Goals (SDGs)?
4. Do the costs associated with the monitoring of privatization play a role in determining the quality and form of the monitoring process?


2. Challenges facing enterprises in transitioning from the governmental regulatory system to private sector control and governance systems

The different form and mechanisms of control between the public and private sectors is a real challenge for those subject to privatization. Therefore, it is necessary to take into account some of the side effects of privatization, in the regulatory context, in an attempt to deal with them and find mechanisms to mitigate them. The Supreme Audit Institutions (SAIs) in various countries are the government agencies mainly responsible for accounting and performance control, in conjunction with other legislators in enacting relevant laws and regulations, which differ significantly from the control of private sector enterprises. This session will discuss the theoretical and practical ways of transitioning from the governmental monitoring systems to their counterparts in the private sector, taking into account the different structural and administrative aspects. In addition to the challenges of the transitional period, the supervision of harmful practices in the later stages of the privatization process should be addressed. The most important of these are monopolistic practices and potential social and environmental abuses in the absence of the supervisory aspects or their ineffectiveness and efficiency in dealing with such violations, including unfair layoffs, price hikes, and other post-privatization practices. It is expected that this session will discuss local and global experiences in addition to reviewing the theoretical aspects of the control challenges of the different stages of privatization and practical applications that may contribute to overcoming them. Speakers will also try to investigate the following questions:
1. Do the benefits of monitoring outweigh the costs? Taking into account lower long-term regulatory costs (smaller number of government agencies covered by oversight, transfer of supervisory responsibility (agency costs) to investors etc.)
2. What are the most prominent protectionist tools to limit post-privatization negative practices?
3. What are the specific mechanisms and criteria for controlling the privatization process at different stages?
4. To what extent does the nature and size of the assets subject to privatization affect the choice of monitoring strategy?

Workshop 1 (00:00 to 0:00 hrs):

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Will be available soon

Workshop 2 (00:00 to 00:00 hrs):

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H.E. Mohamed Abdullah Al-Jadaan

Minister of Finance

H.E. Dr. Abed Abdulhamid Al-Kharabshah

President of the Jordan Audit Bureau

H.E. Dr. Aleksei Kurdin

Chairman of the Accounts Chamber of the Russian Federation

H.E. Yahya Abdullah Alsamaan

The Assistant of the Chairman of Majlis Alshura

Dr. Faisal bin Mansour Al-Fadhel

Member of the Saudi Shura Council, Chairman of the Committee of Economy and Energy

Professor Mohamed Omran

Executive Chairman, The Financial Regulatory Authority of Egypt

Dr. Najem Al-Zaid

Vice-Chairman of the Board of the Saudi Electricity Company, Member of the Board of The National Center for Privatization

Dr. Raja Almarzooqi

Associate professor of Economics, Institute of Diplomatic Studies, Former IMF Consultant

Professor Graeme Hodge

Professor of Law, Monash University, Australia

Mr. Mohamed Saleh

Chairman, Egyptian Exchange (EGX)ة

Dr. Abdullah Al-Fawzan

Chairman of the KPMG Middle East and South Asia (MESA)

Dr. Hamed Merah

CEO of the Saudi Center for Commercial Arbitration

Dr. Edward Olowo-Okere

Director, Governance, Governance Global Practice, World Bank

Dr. Mohamed Al-Hanawi

The General Auditing Bureau’s Advisor for the Privatization

Mr. Faisal Alsalloum

Executive Vice-President of Legal and Regulatory at the National Center for Privatization

Mr. Sultan Alqahtani

Executive Vice-President of Legal and Regulatory at the National Center for Privatization

Mr. Rayan Naqadi

CEO of the National Center for Privatization

Seminar Date :
28 April 2018
Seminar Location :
Saudi Arabia , Riyadh ,King Faisal Conference Hall, Intercontinental Hotel
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Organaizional Entity

[General Auditing Bureau]

Tel :
011 402 9255

Fax :
011 404 3887

Email :
sc@gab.gov.sa
alagla@gab.gov.sa