GCC Insights: Qatar: Privatisation drive moving gradually

The Qatari Government desires to implement an ambitious privatisation programme, but only if market conditions permit. Reducing budget burden is the primary goal of the programme, reflecting the state's worrying financial position.

For one, the 2002-2003 budget forecasts a deficit of 1.8 billion Qatari riyals. For another, Qatar's external debt was estimated to amount to $13 billion at the end of 2001, representing more than 80 per cent of the country's gross domestic product.

Over the last few years, the authorities took a series of steps to push for privatisation.

For example, in February, 1988, assets of the Ras Abu Fontas B power station were transferred to Qatar Electricity and Water Co (QEWC), the majority of which is privately owned. QEWC was established in 1990, aiming at playing a strategic role in the utilities sector.

It will focus on developing the utilities sector, in the light of the rising demand for power and water.

In fact, AES Energy Corp. of the U.S. is the operator of Qatar's first independent water and power project (IWPP), which is under construction. Once completed, the IWPP will add 750MW of electricity and 750 million gallons/day of water.

In 2001, port services were privatised - the business community welcomed the move, as it was partly meant to enhance efficiency.

In early 2002, the government set up the Qatar Fuel Co (QFC), given the job of distributing petroleum products throughout Qatar. The majority of QFC will be privately owned - with the giant state-owned Qatar Petroleum expected to have a partial stake.

In June, 2002, the government awarded a contract to the London-based Gulf Waste Management Co to carry out municipal cleaning services. The Ministry of Agriculture and Municipal Affairs calculates that the scheme, which includes other contracts, will save some 500 million riyals a year on cleaning services.

In December, 1998, the government sold 45 per cent of its stake at Qatar Telecommunications Corp. (Q-Tel) to local and foreign investors, earning the treasury some 2.7 billion riyals ($742 million).

For the Qatari government, the move was a milestone, but not necessarily for the investors. At the initial public offering (IPO), Q-Tel's share was valued at 60 riyals. Market price of the stock dropped later and has remained below the IPO price.

Investors are convinced that the IPO was extremely overpriced. To some extent, the Q-Tel experience has undermined the government's intentions to sell other major state entities. Q-Tel was the crown jewel of the non-oil sector.

More recently, Q-Tel has promised to revamp its operations as part of a two-year plan, with the intention of making the company more attractive to investors.

McKinsey and Co. will assist Q-Tel in its restructuring plan.

Qatar Steel Co (Qasco) is the next major state firm targeted for privatisation. A partial sell off of Qasco has been envisaged for some time to raise 1.3 billion riyals. The delay is linked to the poor performance of Q-Tel's shares at the local bourse.

Yet the authorities may be forced to further delay floating Qasco's shares due to lack of general investor interest and the lack of sophistication of Doha Securities Market (DSM), which is the smallest stock market in the Gulf.

The government has plans to sell part of its holding at the Qatar National Hotels Co. (QNHC). The Sheraton, Marriott, and newly opened Ritz Carlton, plus Doha Golf Club, are amongst a host of facilities owned by QNHC.

Also, the authorities hope to privatise the Qatar General Postal Corp. All in all, the activities reveal the government's determination to move ahead with privatisation plans.