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Why OBOR plays strategic role in Saudi privatization
The privatization programme getting underway in Saudi Arabia is coming at an opportune time for China, given its own ambitions under the Belt and Road initiative. The two countries are currently strengthening their ties on both a military and commercial level.
Michael Marray 15 Feb 2017

The privatization programme getting underway in Saudi Arabia is coming at an opportune time for China, given its own ambitions under the Belt and Road initiative.

The two countries are currently strengthening their ties on both a military and commercial level. In January, a People’s Liberation Army (PLA) Navy task force made goodwill visits to four Persian Gulf states: Saudi Arabia, Qatar, the United Arab Emirates and Kuwait.

The guided-missile destroyer Harbin, the guided-missile frigate Handan, and the comprehensive supply ship Dongpinghu, had just finished one of the Chinese navy's regular assignments as part of the international effort to escort commercial shipping in the Gulf of Aden. The Chinese Defence Ministry said that the five-day visit to the Port of Jeddah was only the second time for Chinese PLA Navy ships to pay an official visit to Saudi Arabia.

Last August, ahead of the G20 Summit in Hangzhou, senior Saudi government officials and businessmen attended a forum in Beijing which explored potential connections between the Kingdom's Vision 2030 plan and One Belt One Road (OBOR). A number of high profile Saudi government officials and businessmen attended, including deputy crown prince Mohammed bin Salman bin Abdulaziz, minister of commerce Majid al-Kassabi, and energy minister Khalid al-Falih.

Prince Mohammed, who also leads Saudi Arabia’s council of economic and development affairs, is looking for inward investment to support Vision 2030.

Saudi Arabia is currently re-ordering its public finances in order to make a long term adjustment to lower oil revenues. Privatization in areas such as power and water, forms part of this. Transport infrastructure is included, and the General Authority for Civil Aviation (GACA) has plans to privatize all 27 of its airports between now and 2020.

As the world’s largest crude oil supplier, Saudi Arabia is already an important strategic partner for China. Saudi investment in China is also growing, and the number of projects in Saudi Arabia with Chinese partners is on the increase.

There are aleady around 160 Chinese companies in Saudi Arabia, operating in such fields as engineering, procurement, construction, telecoms and infrastructure development. For example, Sinopec is a joint venture partner with Aramco in the YASREF refinery on the Red Sea Coast.

During the visit to China last August, there were signings of a number of memoranda of understandings, including one between Saudi Aramco and China National Petroleum Corporation (CNPC), for cooperation in the chemical sectors. The two companies are also cooperating on the construction of a refinery in Yunnan Province, which will refine crude oil imported from Saudi Arabia. Saudi Aramco will have an equity stake in the new facility, which will come online this year.

Aramco also has an agreement with ChemChina, under which both companies will seek investment opportunities in the energy and chemical sectors, including an assessment of using Aramco crude oil grades as feedstock for ChemChina's refineries, via a Crude Oil Sales Agreement (COSA) that begins this year.

While in Beijing, the Saudi housing minister signed a Memorandum of Understanding for cooperation on the construction of 100,000 homes in al-Ahsa province, which is located in Eastern Saudi Arabia.

Already in early 2016 Dublin Airport Authority International won a tender to manage a new terminal at King Khaled International Airport (KKIA) in Riyadh. In addition to KKIA, the two biggest airports up for sale are Jeddah and Damman.

The programme of airport privatizations is likely to be of interest to Chinese companies, including HNA Group, which has been on an acquisition spree over the past two years invoving aircraft lessors, hotels and airlines.

HNA Airport Group currently manages or has cooperation projects with 13 airports, including Haikou Meilan Airport, Sanya Phoenix International Airport and Qionghai Boao Airport.

Last year Hainan Island-based HNA attempted to acquire London City Airport, but lost out in the final round of bidding to a consortium which included Ontario Teachers Pension Plan and the Kuwait Investment Authority.

HNA is currently in exclusive talks as preferred bidder for Frankfurt-Hahn Airport, which serves low cost carriers and cargo operations.

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