KHOBAR, Saudi Arabia (Reuters) - Saudi Aramco received (IPO-ARMO.SE) the approval of the Saudi government to set up two new companies that will develop and operate a new Energy Industrial City in Saudi Arabia, as the kingdom seeks to expand its industrial base, state news agency SPA reported on Monday.
The city will be developed over 50-square km of land in the oil producing region, SPA said quoting a cabinet statement.
An earlier report said the city will be close to Abqaiq and will develop energy-related industries.
“The government approved Aramco’s offer to set up a developer that will undertake laying out the infrastructure of the city, manage its fixed assets.” This company will eventually own the fixed assets in the city.
Aramco will also set up another company to handle operations and maintenance of the city.
SPA did not provide further details on the Energy Industrial City which have been in Aramco’s plans for a few years.
Low oil prices have drastically slowed Saudi Arabia’s economy so it is trying to create manufacturing jobs and produce goods and services which it has traditionally imported.
Its strategy is to use large amounts of government money and the procurement budgets of big state-run enterprises, such as national oil firm Aramco, to attract foreign expertise to develop strategic industries.
The creation of “industrial cities” - huge projects in which state institutions play key roles in planning and raising finance, but which seek to attract private investment - is part of the government’s efforts to jump-start development.
A senior Aramco official said in March, investments in the city are expected to be 16.5 billion riyals (3.41 billion pounds).
In May, Saudi Aramco signed deals to build the Gulf’s largest shipyard through a joint venture with three companies, a $5.2 billion project aimed at helping reduce the economy’s reliance on oil and create jobs, a key part of Vision 2030.
“The country in general is pushing manufacturing big time and Aramco is playing a bigger role to promote local manufacturing with potential added value to the industry,” said a source.
“Expanding energy industries will achieve the target set by the kingdom to promote local content, the energy city is the core of localising the solar industry for example as well as oil and gas services and the establishment of two companies could be seen as something that is in line with the arrangements of Aramco’s privatisation plans,” said Fadl al-Buainain, a Saudi economist.
Saudi Aramco said in its 2016 annual review released on Thursday the value of its direct material procurement from local manufacturers increased by $800 million to $2.9 billion in 2016, representing 43.5 percent of its material procurement spending and is the highest level of local content in the its history.
Aramco launched the In-Kingdom Total Value Add (IKTVA) initiative to double the percentage of locally produced energy-related goods and services to 70 percent of the total spent by 2021.
Reporting by Reem Shamseddine, editing by David Evans