An employee oversees the commercial prices of Saudi Aramco shares in 2019.
Photographer: Faisal Al Nasser / Bloomberg
Photographer: Faisal Al Nasser / Bloomberg
Saudi Arabia has failed to disclose projected oil revenues following Aramco’s listing, as doing so could give clues as to the state energy giant’s dividend plans.
The kingdom relies on the payments of Aramco, the world’s largest oil company, will help cover the budget deficit and bolster an economy that has been attacked this year by coronavirus blockages and falling crude oil prices. The Dhahran-based company sold shares for the first time in December 2019, although the government still owns about 98%.
“The reason we do not disclose the breakdown of oil and non-oil is because of Aramco’s presence as a listed company,” Finance Minister Mohammed Al-Jadaan told a news conference after the budget announcement of the kingdom for next year. “The government treats Aramco as a tax provider. We have income that comes from Aramco, taxes that come from Aramco and also dividends, since the government is the biggest shareholder ”.
Read: Saudi Arabia joins spending cuts when 2021 budget is announced
This is the first time in years that the kingdom – which received dividends from Aramco even before it was made public – has not broken down projected oil revenues.
As part of its sales to investors, Aramco executives pledged to pay an annual dividend of $ 75 billion, the largest in the world, for at least five years after the initial public offering in Riyadh. While Aramco has remained on track for the first three quarters of this year, analysts have questioned whether it can maintain such significant payments as its finances are under stress after the fall in oil prices.
Read: Saudi Arabia’s stretched finances tangle the Aramco cow
Aramco generated $ 33.5 billion in free cash flow in the first nine months of the year, which topped $ 20 billion in its declared dividends for the period.
Brent crude has risen to about $ 50 a barrel since OPEC +, an alliance of major oil exporters led by Saudi Arabia and Russia, cut production in May. But the global benchmark continues to fall 23% this year.
To save cash to keep shareholder payments, Aramco has reduced spending, more borrowed and fired hundreds of mostly foreign workers. So is it hired the American investment bank Moelis & Co. to advise him on the sale of stakes in some subsidiaries, which could raise billions of dollars.
Oil realism
The 2021 Saudi budget assumes the average oil price in line with the analyst’s average
Source: Bloomberg and Al Rajhi Capital research
The kingdom declared in its budget that it would reduce spending by 7.3% next year to 990 billion rials ($ 264 billion). Revenue is expected to be 849 billion rials. This would reduce the fiscal deficit to 4.9% of gross domestic product by 12% by 2020.
The government projects an average oil price of $ 45 to $ 48 a barrel in 2021, according to estimates by Cairo-based EFG Hermes Bank.
“We expect the government’s oil revenues to range between 400 and 500 million rials, depending on Aramco’s dividends,” said Riyadh-based Al Rajhi Capital. Non-oil revenues will hover around Rs 400 billion, driven by an increase in value added tax and private sector growth, he said.
Analysts at Goldman Sachs Group Inc. they said in October that, according to their calculations, the kingdom was budgeting for oil prices about $ 50 a barrel over the next three years.
| What Bloomberg Economics says: |
|---|
|
“The government has stopped producing revenue projections from oil. The 2021 budget accumulates oil revenues with central bank transfers, government investment profits, administrative commissions and confiscations. That makes it harder to infer the assumption of the oil price from the budget. “ – Ziad Daoud, emerging chief economist Read more here |
Saudi Arabia needs oil to trade at $ 66 a barrel next year to balance its budget, according to the International Monetary Fund.
“Saudi Arabia is not talking about oil prices,” Al-Jadaan said. “The Ministry of Finance does not talk about the price of oil or its forecasts. The kingdom is a major supplier and affects the oil market, and it would not be in their interest to talk about future oil prices. “
| IMF balance oil prices in barrels (in April 2020): |
|---|
| Country | 2019 | 2020 | 2021 |
|---|---|---|---|
| Iran | 244 | 389 | 320 |
| Iraq | 56 | 60 | 54 |
| Kuwait | 53 | 61 | 60 |
| Saudi Arabia | 83 | 76 | 66 |
| United Arab Emirates | 67 | 69 | 61 |
– With the assistance of Reema Al Othman, Vivian Nereim, Lin Noueihed and Nayla Razzouk
(Updates in more detail everywhere.)