Kuwaiti Sell-Off To Go Ahead
Tuesday, May 18, 2010

Kuwait’s parliament last week passed a controversial bill to privatize public sector functions as a response to diversify the economy away from its reliance on oil revenues. The bill was finally passed with a small majority after a heated 8-hour debate.

The bill will allow local entrepreneurs and foreign entities to own stakes in government assets in sectors not involved in oil and gas production, health or education, albeit with several conditions.

More than three quarters of Kuwait’s working population are employed in the public sector, and they benefit from high salaries thanks to the country's oil wealth, which currently contributes 95% of government revenues. Opposition MPs argued that opening up the public sector to privatization would lead to lower wages as firms strive for greater profits.

While the bill received heavy criticism in the House, those arguing in favour insisted that it was the only available option to secure the nation’s future, with supporters of the bill arguing that oil revenues would not be able to support the public sector indefinitely.

The bill, which also requires approval from the Emir and the Cabinet, stipulates certain conditions on the privatization of state assets, which is to be overseen by the higher privatization council, to be headed by the Prime Minister. These conditions stipulate that private investors must operate in accordance with Islamic Shariah law, and maintain employment and remuneration levels for at least five years following the acquisition.

40% of shares will be sold to Kuwaiti citizens in an Initial Public Offering, while 35% will be held by foreign or local entities. 20% of the shares will continue to be held by the government, which will continue to hold the authority to veto decisions. The remaining 5% will be distributed among employees.

While the bill has received parliament's approval, some MPs have voiced the need for greater safeguards on local employment, corruption and transparency.