Saudi Arabia transfers ownership of flour milling companies to privatization agency

SAUDI ARABIA – Saudi Arabia has resolved to transfer four milling companies to the National Center of Privatization and PPP (NCP), the body responsible for enabling the privatization of certain government assets and services.

The resolution, which was made by the Council of Ministers, also issued the four milling companies identified and as Milling Company 1, Milling Company 2, Milling Company 3 and Milling Company 4 permits to produce flour under the ownership of NCP.

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The Council noted that the transfer of ownership will not have an impact on the ongoing privatization of the milling companies, which is still is expected to be finalized by 2021.

Saudi Arabia is in the process of privatizing its flour milling industry, selling off the mills operated by the Saudi Grains Organization (SAGO, previously known as the Grain Silos and Flour Mills Organization) in the form of the four milling companies.

The flour mills involved have a total daily milling capacity of 12,630 tonnes (wheat equivalent) and process 3.3 million tonnes of wheat a year.

In an April 2019 USDA report, the agency noted that the the government had approved the establishment of four milling companies and restructured the Grain Silos and Flour Mills Organization (GSFMO) under a new name, the Saudi Grains Organization (SAGO) on Nov. 9, 2015.

In July last year, the Saudi Grains Organization and HSBC Saudi Arabia – the financial advisor for the privatization – announced the conclusion of the qualification phase for the first stage of the privatization of the flour milling companies.

Saudi Arabia-based AlRajhi Holding Group and Al Ghurair of Dubai were reported to be putting together a joint bid to acquire the four milling companies. Other reports had mentioned interest from ADM and Bunge.

After the privatization of the mills, it is indicated that SAGO will remain the sole importer of subsidized milling wheat and will retain ownership of most of the country’s wheat silos as well as managing strategic wheat reserves.

In the latest development around the privatization bid, the Council of Ministers noted that the move to transfer ownership was in line with NCP’s role as the entity supporting and leading privatization in the Kingdom.

The NCP was established in 2017 and is responsible for executing the privatization of certain government entities, a priority identified as part of the Saudi Vision 2030. On 31st March 2020 the Council of Misters issued a resolution allowing NCP to own assets & companies.

The flour milling sector represents one of the targeted sectors for privatization under the Kingdom of Saudi Arabia’s Vision 2030 realization plan as a part of the initiatives under the third pillar of the privatization program document.

“It is worth noting that the four flour milling companies represent an attractive opportunity for the private sector to invest in one of the largest flour markets in the Middle East and North Africa with high and appealing growth rates, to further boost private sector productivity and improve product quality,” the Council said in a statement.

In the statement, the Council noted that the sector enjoys the support of the concerned regulatory and executive authorities led by the Ministry of Environment, Water and Agriculture and the National Center for Privatization and PPP.

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In an effort to boost the sector, Saudi Arabia has reintroduced domestic wheat production, despite concerns over water consumption for irrigation. A ban on wheat production had been imposed at the end of 2014-15 because of concern over the use of water.

The International Grains Council (IGC) estimates Saudi Arabia’s 2019-20 wheat production at 700,000 tonnes, up from 500,000 tonnes in 2018-19, and zero the year before that. It puts 2019-20 sorghum production at an unchanged 200,000 tonnes.

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