Aramco could pay less than the originally planned $73.5 billion to its Saudi state shareholder in order to prioritize investments, Crown Prince Mohammed said earlier this week, opening the door to the oil giant to relieve some of the pressure on its balance sheet, Bloomberg reports.
The announcement took observers by surprise, although it came on the heels of another one that said Aramco and SABIC will lead a $1.3-trillion, five-year investment push aimed at boosting Saudi Arabia's private sector.
Aramco could maintain its payouts to all its shareholders and meet its obligations under the investment prioritization plan, chief executive Amin Nasser said, as quoted by CNBC, a day after the second announcement. The dividends payable to private shareholders, around $1.5 billion, will not be touched, the Crown Prince said earlier this week.
"We are very excited with the government's announcement yesterday of the Shareek program," Nasser told CNBC in an interview. "We support this initiative which is very much aligned with Vision 2030. It promotes GDP growth through new investment and will have a multiplier effect for the Saudi economy."
The Crown Prince said on Tuesday that the 24 biggest Saudi companies could contribute some $1.33 trillion to the private sector investment push by reducing their dividend payouts, with Bloomberg noting that 65 percent of that amount will come from Aramco and its subsidiary SABIC.
"Building a vibrant and prosperous private sector is one of the national priorities for the Kingdom and that is why we are today inaugurating a new and more powerful era in terms of cooperation and partnership between the government and private sector," Mohammed said on Tuesday.
"The Shareek program we are announcing will strengthen the partnership with the private sector and has the objective of supporting local companies and enabling them to unlock new local investments valued at SAR 5 Trillion through the end of 2030."
By Charles Kennedy for Oilprice.com
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So when Saudi Crown Prince Mohammed bin Salman says that Saudi Aramco could pay less to its Saudi state shareholders he means it but only when oil prices rise high enough to almost double current Saudi oil revenues and enhance the cash flow of Aramco.
Furthermore, asking the 24 biggest Saudi companies to contribute some $1.33 trillion to the private sector investment push by reducing their dividend payouts might impact investment in these very companies and could never happen without higher oil prices. Even major non-oil Saudi companies depend on the oil price and government contracts to flourish.
Whether under the banner of Saudi Vision 2030 or Shareek programme spearheaded by Saudi Aramco and SABIC, the diversification of the Saudi economy needs oil prices higher than $80 a barrel to succeed. This will enable the government to invest heavily in the non-oil sector and thus reduce the economy’s dependence on oil.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London