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Globalisation spurs need for privatisation

BY MOUSHUMI DAS AND SANDHYA D'MELLO / 31 May 2004

DUBAI - The trend towards globalisation and increased technology demands have precipitated rapid privatisation and deregulation around the world. The UAE is also under pressure, as WTO regulation will be implemented in 2007.

Although privatisation and deregulation efforts have been slow in the UAE, it has become the model for other Gulf states as the government recognises the need to expand investment opportunities to both foreign and domestic investors.

The way to privatisation has been shown by the Abu Dhabi Water and Electricity Authority (ADWEA) when in 1998, it signed an agreement with CMS Energy Corp to develop the UAE's first independent water and power project (IWPP) the Taweelah A-2. This was the first and most ambitious privatisation move by any Gulf state.

Moreover, in the year 2000, Abu Dhabi moved swiftly and selected the Franco-Belgian joint alliance of TotalFinaElf and Tractebel for its second IWPP, the Taweelah A-1.

Abu Dhabi can justifiably claim to have the most ambitious utility plan in the Gulf, having successfully begun the development of its power and water projects with foreign partners.

According to Shaikh Diab bin Zayed Al Nahyan, chairman of ADWEA, the main objective of introducing Independent Power Producers (IPPs) is to ensure that supplies are secured, services improved, efficiencies raised and costs reduced.

But bankers and advisers working closely with ADWEA say it is best not to compare the UAE's privatisation process with the UK or US because of two reasons. First, the power sector in the West is much larger and has various demand criteria. Secondly, the Gulf region has massive power peaks demanding a huge security system on the power distribution side.

Privatisation of non-oil assets will also spread wealth around. The privatisation of other sectors including tourism and airport will also increase revenues and bring boom in the economy as recently private property developers have seen huge profits and massive growth in revenues.

This year Abu Dhabi is set to float major projects to the local private sector and privatise important industrial plants with minimum participation from the government. The government will then build the world's largest oil services complex. To achieve this target, the emirate is also planning investment laws in line with WTO rules.

In order to continue to be a regional and global player in the IT industry, it is imperative that Etisalat, the state-owned telecommunication provider established in 1976 be privatised.

Last month, Etisalat's monopoly status was demolished as a UAE federal decree was issued on privatisation of telecommunication sector. The Government of Dubai will provide opportunities to other telecom services to operate along with Etisalat. A committee will provide licences to other companies and a supervisory committee was formed with the appointment of three members, which includes Dr Mohammed Khalfan bin Kharbash, Minister of State for Financial and Industrial Affairs, Ahmed Mohammed Al Hamiri and Ahmed Abdullah bin Byat. Bin Byat is also the director-general of Dubai Technology, e-Commerce and Media Free Zone (TECOM). TECOM is the sole provider of telecommunication services to Dubai Internet City and Dubai Media City and has been very enthusiastic about the privatisation of the telecom sector.

According to Bin Byat, Although the service record of Etisalat is very good, opening the new market will create different needs, which will compel the telecom companies to deal differently with their subscribers and try to reduce costs and improve performance. All this requires time and the supreme committee will study the decree in detail and lay down foundations for its implementation and required procedures after removing Etisalat's monopoly. Apart from TECOM, other competitors from other AGCC countries like Mobile Telecommunications Company (MTC) from Kuwait and Wataniya Telecom also from Kuwait are planning to enter the lucrative telecom sector and are evaluating various opportunities available in the UAE telecom sector.

Etisalat also presented at the Connect Telecom summit, its latest in terms of mobile and fixed line technologies that are planned for implementation during the coming months as well as sharing its extensive experience as the first operator to implement 3G networks in the Middle East. 3G subscription has now reached about 4,000 customers and is expected to see rapid growth now that Etisalat is teaming up with mobile handset producers like Motorola to catalyse the development of the handset market.

According to Khalid Al Kaf, Etisalat's general manger for Network Services: "Etisalat's plans for converged fixed networks and its early implementation of 3G mobile networks position the Corporation as a global technological pioneer. Bringing all these technologies together to form a ubiquitous network, providing connectivity anywhere, anytime to any device will be our next goal."

According to sources, Etisalat is not afraid of any competiton, as it is well established and second only to Saudi Telecom in the region with a net profit of $782 million in 2003.

After having taken views from the various case studies it is also apparent that the capital markets are equally gearing up for the privatisation process in years to come.

Mohammed Rashid Ashraf, chief executive officer, Easttrust LLC, said: "UAE as such does not have the compelling need for privatisation because the government does not run budget deficit so the role of state asset is not necessary to plug fiscal hole. However privatisation can have ancillary strategic benefits for the economy. This can be implied to technology transfer boosting local stock exchange spreading ownership of equity wealth to nationals and making public sector institutions more efficient by subjecting to discipline of the market place."

 

 
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