BUSINESS

How asset management supports privatization across Saudi Arabia

June 16, 2021
Donavan Ellis, Digital Asset Management Consultant, Serco Middle East copy
Donavan Ellis, Digital Asset Management Consultant, Serco Middle East copy

By Donavan Ellis

Driven by Vision 2030, a wide range of government entities in Saudi Arabia are looking to privatize their organizations with the ultimate goal of diversifying revenue sources away from a reliance on oil. In a move that will further stabilize the Kingdom for future generations, privatization will enable the country to continue to grow exponentially through income generation from new sources.

Mapping the privatization road ahead

Privatization is no small task; it demands a broad range of activities to be completed in order to ensure that operations of these entities are profitable, making them attractive to foreign investors and driving growth.

Like any transaction, the entity looking to privatize and find foreign investment must in the first instance be an attractive proposition, enabling potential investors to conduct their due diligence and be confident that their capital is well placed.

A key aspect of this resides within asset management, and the following outlines the various steps that need to be considered:

  1. Having a clear link between your assets and the bottom line — each government entity that seeks to privatize must have a clear and definitive view of the assets under its ownership, their condition, cost to maintain and prospective lifecycle. Having a clear link between the performance of your assets and bottom line provides potential investors with a clearer view on the investment that they are about to make, their confidence enhanced by the transparent view of risk associated with the operations, maintenance and long-term reliability of the assets in question.

  1. Implementing the latest asset management principals — though there have been operations and maintenance contracts in place for assets owned by these entities, it is unlikely that the latest in asset management principles has been implemented. The potential risk this poses is high, as the operational cost of assets may hinder the future profit generation of the entity in question. Like any other aspect of business, the lower the cost associated with asset maintenance and lifecycle, the less the company has to take from its revenue to cover it, therefore improving the profit margin. A company with poorly maintained assets and an inaccurate view on their condition, longevity and potential operational costs makes for a risky – and unlikely – investment opportunity.

  1. Getting the right expertise — from the investor’s perspective, it is then essential that those government entities that wish to privatise seek the expertise of an asset management company to ensure that asset registration, asset condition is accurately recorded, monitored, maintained and improved and that a clear view of potential operating cost is available. By investing in this process as early as possible, entities seeking privatisation can create both short and long-term value in their organisations in addition to mitigating the risks for investors associated with the purchase of assets with unknown condition and potential lifespan, this process can also help clients contribute toward smart city strategies, reducing their carbon footprint and realising a range of opportunities to optimise energy consumption. The sooner that this is done the better, as the historical view provided by periodic audit will further reduce the risk associated with investment; trackable and traceable data surrounding asset condition will further instil confidence that the projected lifespan and operational costs are accurate.

  1. Adhering to international standards — over and above the creation of auditable asset data is the adherence to international standards and compliance that will provide government entities with an additional feather in the cap when seeking foreign investment to support privatisation activities. By aligning asset management policies, procedures and activities with recognised international standards, government entities can more easily convey to investors their commitment to quality and compliance whilst adding further credence to the data that they have collected. Foreign investors can easily recognise attribution to the latest in asset management and financial business practices, again building further confidence that their due diligence prior to investment will return an even smaller level of risk.



Supporting the privatization drive

Foreign investment is critical in supporting the privatisation activities of the Kingdom of Saudi Arabia. In doing so, diversification of the revenue streams within the Kingdom will mitigate the reliance on oil which, in the long term, will eventually become a much smaller source of revenue than it is now.

Ensuring that assets are correctly categorized and maintained in a manner that improves their value whilst reducing their operational costs is paramount in driving the value of a business seeking privatization. Early adoption of the latest in asset management principles will accelerate the privatization process, building confidence in foreign investors and achieving the privatization targets of the Saudi government efficiently.

Serco is primed to support these objectives, enabling government entities seeking privatization to maximize their value and their revenue potential upon entrance into the private sector. Serco’s expertise in the management of assets and their lifecycle is evidenced across the globe and within the region.

Appointed in 2019 to provide management consultancy services in partnership with the Mashroat programme in the Kingdom of Saudi Arabia, Serco is contracted to deliver various phases of the Kingdom-wide asset and facilities management transformation program and developed the new asset and facility management national standard.

Serco’s end to end asset management service offering covers all stages of the asset management journey, from the asset condition survey, tagging and verification process right through to operations and maintenance. The ability to support companies along the journey rather than only at initial stages ensures that maintenance lifecycles are founded in truth, are deliverable and cost effective.

The writer is Digital Asset Management Consultant, Serco Middle East


June 16, 2021
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