Saudi Arabia has started collecting proposals from international energy companies hoping to build the kingdom’s first nuclear power plant. The decision to develop a nuclear energy industry is one of the cornerstones of Vision 2030, Crown Prince Mohammed bin Salman’s roadmap towards an eventual post-oil future. Vision 2030’s other essential component is the proposed listing of state-owned oil giant Saudi Aramco. These two ambitious programs for 2018 suggest that Saudi Arabia is getting serious about diversifying away from oil and actively courting foreign investment to prepare for a post-carbon future.
The budding Saudi nuclear industry is not intended to replace the oil industry which has supported the kingdom for generations, but rather to complement it. Already the world’s top oil exporter, Saudi Arabia envisions satisfying domestic electricity demand with nuclear and renewable energy in order to save more of its crude oil for export.
The current targets for nuclear energy are ambitious but feasible. Saudi Arabia plans to build 17.6 GW of nuclear capacity by 2032. The current call for tenders will kick off the country’s nuclear program with two reactors with a combined capacity of 3.2 GW. These reactors are scheduled to be commissioned in 2027 and will bring nuclear energy to 5% of the country’s energy mix. A target of 9.5 GW of wind and solar energy by 2023 completes the kingdom’s plan to tackle domestic electric demand growing by more than 7% annually.
Russian, Chinese, and South Korean energy companies are planning to bid for the contract to build these first two reactors, as are the French giant EDF and troubled US company Westinghouse. The US, France, and China are highly familiar with the Saudi investment context, figuring as the first, third, and fifth biggest foreign investors in the kingdom, respectively. EDF, which recently submitted the lowest bid for the first utility-scale solar plant in Saudi Arabia, specifically talked about using their European Pressurized Reactors (EPRs) in the kingdom. While the first EPRs have faced delays coming into service, they are the world’s largest reactor models. The EPR at Flamanville 3 in France recently passed key pre-operational tests and is expected to start up late this year, before the Saudi government will release its shortlist of firms selected.
One trick for the Saudi officials contemplating the various bids will be to ensure that the winning company is on board with the kingdom’s ambition to keep the entire nuclear energy value chain based in Saudi Arabia. This has historically stymied nuclear cooperation agreement negotiations between Saudi Arabia and the US, though the Trump administration may agree to let Saudi Arabia enrich its own uranium. Saudi Arabian officials consider the ability to localise nuclear fuel production a “sovereign right” which will allow the kingdom to be more self-sufficient and economically efficient. Domestic nuclear fuel production would enable Saudi Arabia to exploit its estimated 60,000 tons of uranium.
The Saudi energy minister recognised this development of a national uranium exploration and enrichment industry as key to achieving Vision 2030. It contributes to both of the plan’s main objectives: investing heavily in new industries and creating jobs for young Saudis, who make up 70% of the population. The principal vector of this diversified investment will be the world’s largest sovereign wealth fund, which aims to reach $2trn by 2030 by boosting its portfolio of international investments. Already, the fund has secured several major overseas deals, including $20bn in an American infrastructure fund run by Blackstone and $3.5bn in Uber.
Vision 2030 is also underpinned by the planned listing of state-owned Saudi Aramco, which could be worth as much as $2trn – making it the biggest share offering in history. The Saudi government is expected to sell a 5% stake of Aramco by the end of 2018. The listing may take place in stages, with a local listing first on the Tadawul, the Saudi stock exchange, followed by a subsequent international listing.
Recently, the kingdom has begun hastening preparatory steps for the listing. It converted Aramco to a joint-stock company on January 1, 2018, and invited international banks to Saudi Arabia to pitch their services as sale coordinators. The forthcoming IPO has spurred intense interest from foreign investors. China has reportedly offered to buy up to 5% of Aramco directly. Russian, South Korean and Japanese sovereign wealth funds are allegedly interested as well. In parallel with the preparations for Aramco’s IPO, Saudi Arabia has been taking regulatory steps to woo foreign investors. These measures included allowing them to own up to 49% of shares of listed companies and reducing the minimum value of assets managed by foreign institutions to qualify as investors.
Analysts in the past have questioned whether the IPO will ever actually occur, sceptical that Riyadh would part with ‘the family silver’. Similarly, when Vision 2030 was announced, critics wondered whether Saudi Arabia could follow through on such a massive undertaking.
The government’s willingness to open Aramco to outside investors dovetails perfectly with their embracing atomic energy, however, should send two strong signals to foreign investors: that Saudi Arabia is serious about reducing its dependence on oil, and receptive to foreign investment to do so.
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