Dubai: The UAE Cabinet yesterday approved the privatisation of the country's utility sector.

This involves privatisation of assets belonging to the Federal Electricity and Water Authority (Fewa), part of the UAE Federal Government, which supplies water and electricity to parts of the Northern Emirates.

The approval was made yesterday in a meeting chaired by His Highness Shaikh Mohammad Bin Rashid Al Maktoum, Vice-President and Prime Minister of the UAE and Ruler of Dubai.

"The Cabinet approved an amendment to Federal Law No. 31 for 1999 regarding the establishment of the Federal Electricity and Water Authority, adding an article that allows private investors to invest in the production and distribution of electricity and water in the country," said a statement.

The move marks a major shift from the tradition of owning and managing the state's assets towards allowing private participation. It is, however, not clear which model would the Federal Government adopt: initial public offering (IPO) or selling stakes to private partners.

Although privatisation of utilities is not new to the country, as most of the power and desalination plants in Abu Dhabi have already been privatised, the rest of the country is yet to follow. Dubai, which has one of the country's largest utility operations, has not yet made moves to privatise services, although it has allowed some quasi-private district cooling companies to enter the market recently.

The Cabinet's decision is in line with recent comments made by the global financial watchdog the International Monetary Fund (IMF) in its country report earlier this month.

"IMF directors encourage the listing on the equity market of large quasi-public enterprises, and promote an increased role for institutional investors in the markets," the report said.

The Cabinet decision comes hours after DP World, the world's third largest container terminal operator, announced its decision to offload 20 per cent stake, roughly valued at $4 billion through an IPO.

Welcoming the steps to enhance the supervision of capital markets and efforts to update the banking law and the company law, the IMF said, "These steps would, inter alia, remove barriers to foreign participation in UAE markets and help protect shareholder rights."

The IMF called on the authorities to move ahead to enact the draft securities law.

"Such measures would strengthen investor confidence, reduce market volatility, and deepen the UAE's capital markets," it said.

The latest round of privatisation moves will help the country's financial services sector and help attract larger liquidity pools, officials say.

Per E. Larsson, chief executive of Borse Dubai and Dubai International Financial Exchange (DIFX), said, "Our world-class trading platform will help DP World access the regional investment base, estimated to have $3 trillion in available liquidity, and the local retail investor base, as well as the international capital markets."

Hamed Ali, executive officer of DIFX, said, "We have successfully built a very healthy environment for trading, including a world-class trading platform and close links with regional and international brokers. These include 19 members - 14 international and 5 regional - contractual agreements with market makers, and connections with the international central securities depositories Clear-stream and Euroclear."

Fast facts: Demand expected to surge by 7%

- Utility demand in the UAE is expected to grow between six to seven per cent.
- Prices of electricity and water vary in the country as the UAE's four major utility authorities
- Abu Dhabi Electricity and Water Authority (Adwea), Dubai Electricity and Water Authority (Dewa), Sharjah Electricity and Water Authority (Sewa) and Federal Electricity and Water Authority (Fewa) supply water and electricity at various rates.- To meet the demand, Fewa is investing in new capacity.