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Saudi oil minister falls victim to MBS’s enthusiasm for Aramco IPO

  • September 10, 2019

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Khalid al-Falih appeared untouchable a year ago as he presided over a Saudi super-ministry that straddled energy, industry and mining. 

Crude prices had risen to their highest levels since the slump of 2014 partly because of his oil diplomacy. The much-hyped initial public offering of Saudi Aramco had stalled, suggesting technocrats, including the minister, had won the day in pushing for a more cautious approach to the listing. And when Crown Prince Mohammed bin Salman needed a senior minister to step up to help restore the kingdom’s image at Riyadh’s “Davos in the Desert” conference in the wake of the murder of Jamal Khashoggi, Mr Falih took to the stage — a reflection of his standing at home and abroad. 

But now as Prince Mohammed seeks to accelerate the listing of state-owned Aramco and inject new impetus into faltering economic reforms, Mr Falih has apparently been rendered surplus to requirements. Even under the tumultuous rule of the 34-year-old crown prince, the sacking of Mr Falih at the weekend represents a remarkable fall from grace for one of the kingdom’s highest-ranking officials. 

The demise was drawn out in an unusually staggered fashion over nine days. It began with Riyadh announcing that the government was creating a standalone ministry of industry and mineral resources, stripping it from Mr Falih’s portfolio. Two days later, he was replaced as chairman of Aramco by Yasir al-Rumayyan, head of the Public Investment Fund, the powerful sovereign wealth fund.

Surprise was expressed at the moves, but not shock as each had a rational explanation. In the case of the former, complaints had been made that Mr Falih’s portfolio was too big and he was not delivering on the industrial strategy. In the latter, it had long been expected that he would not be able to remain as both the energy minister and Aramco chair ahead of the IPO because of governance issues. 

Saudi managing director of the Public Investment Fund Yasir Al-Rumayyan speaks during a press conference on the State Budget 2018 at the Saudi Press Agency (SPA) offices in Riyadh, on December 20, 2017. / AFP PHOTO / FAYEZ NURELDINE (Photo credit should read FAYEZ NURELDINE/AFP/Getty Images)
Yasir Al-Rumayyan © AFP

People close to the government assumed that, while his wings were clipped, Mr Falih, who is respected in the oil industry, would focus on his energy file — one of the most powerful jobs in the kingdom. 

However, the final blow was delivered four days later.

Mr Falih was dismissed as energy minister in a royal decree issued in the early hours of Sunday and replaced by Prince Abdulaziz bin Salman, one of the crown prince’s older half-brothers. 

It appears that he paid the price for subdued oil prices, his perceived lack of enthusiasm for a hasty IPO and a no-nonsense style — which some deem arrogance — that offended fellow cabinet members. 

“Maybe he has some bad relations with other ministers in the government, like trade and finance, and he’s really not on good terms with some colleagues,” said one person familiar with the matter. “And the government has to say to one of them, ‘good bye’.” 

The person dismissed speculation that Mr Falih’s fortunes changed because of his perceived resistance to Prince Mohammed’s push to rapidly move ahead with the delayed Aramco IPO. 

“He’s not against it, he was convinced. Even if he was against it, he has to follow the orders of his boss,” the person said. 

Others, however, say Mr Falih’s implicit objections to a quick sale of the company he had spent much of his working life at, including 6 years as chief executive, sealed his fate in an era when Prince Mohammed has displayed a ruthless impatience with those who fall out of favour. 

“Falih was seen as a block in a way that the new chairman of Aramco is not,” said an adviser to Aramco, adding that Falih would voice objections louder than others and defend the company’s interests. “He advocated a more considered path, not understanding that the boss wanted to move faster. The boss wants a listing — it is foot to the floor now.” 

The IPO is at the heart of Prince Mohammed’s “Vision 2030” reform plan, both to raise finances to support megaprojects and to give credibility to his pledges to overhaul the oil-dependent economy. But it was delayed last year, partly because of disagreements about legal exposure and whether Prince Mohammed’s targeted valuation of $2trn was achievable. 

There was also an immediate need to replenish the PIF’s coffers, which helped explain the royal court’s decision to order Aramco to buy the sovereign wealth fund’s 70 per cent stake in Sabic, the petrochemicals company. That appeared to further delay the IPO. 

But the mood shifted in April after Aramco’s debut $12bn bond was massively oversubscribed, while the prospectus revealed that the company generated $111.1bn in net income last year. The bond’s success reinforced the view in Riyadh that the worst of the backlash over Khashoggi’s murder was over. The world’s top bankers were beating a path to the kingdom and Saudi officials again started talking up the prospects of the IPO. 

Mr Falih told a conference that month the listing would be “sooner than you think”, saying the 2021 timeline “could slip a little bit” or come forward. Banks have pitched to advise on the sale and people familiar with the matter say Riyadh would like a local listing as early as this year. 

But as those efforts were stepped up, tensions involving Mr Falih surfaced. In June, the FT revealed that, as the government sought to clarify the financial linkages between Aramco and the energy ministry ahead of the IPO, the sensitive topic of the oil firm paying the huge expenses of the minister — as had been tradition — became an issue. 

Murmurings were also heard that Mr Falih’s micromanaging style ruffled feathers at Aramco. 

“Even after Falih became minister and chairman, he has never allowed [CEO] Amin Nasser to have the space to run the company without interference,” said an Aramco insider. 

But the adviser to Aramco said the nature of Mr Falih’s dismissal also says much about the ruthless style of governance in the kingdom. “The crown prince does not understand the scale of the challenges to the kingdom and the oil company, but he is impatient for rapid progress,” he said. 

And with hindsight, people familiar with the matter say a “transition” was on the cards. Although a powerful technocrat, Mr Falih was never fully part of Prince Mohammed’s inner circle. As he has cemented his position as the kingdom’s de facto leader, the crown prince has relied on a clique of former bankers, such as Mr Rumayyan, and others he became close to through business, as his closest aides. 

“It has been the established technocrats versus the ‘bros’, the buddies MBS takes on hiking trips in the desert, and the bros are winning,” said a Gulf expert. “Falih was just not as obsequious as Rumayyan.” 

Additional reporting by David Sheppard in London

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