Blood and Oil, page 10
Mohammed briefly drafted Jabri back into service when White House and US intelligence officials asked to deal with him to smooth out disagreements between the United States and Saudi Arabia over the Yemen campaign. But increasingly Jabri felt marginalized.
Then, in September 2015, while King Salman was traveling and MBN was at home in Saudi Arabia as acting king, Jabri saw a shocking piece of news pop up on Twitter: He’d been fired. MBN was equally surprised, and he and Jabri agreed it was a double insult. To fire MBN’s top deputy while MBN was acting king seemed intended to belittle the crown prince. Mohammed fired Jabri, saying he was under investigation for covertly meeting with UK and US officials, including CIA director John Brennan, without the king’s permission. The Royal Court put together a commission to investigate Jabri’s fifteen years of intelligence contacts, though King Salman disbanded it after MBN told him that Jabri was meeting with those officials on his orders.
Jabri’s longtime associates in the US intelligence community were shocked, and MBN was livid. But Jabri advised him to let it go—the firing seemed geared to escalate tensions between MBN and Mohammed, and no good could come of that.
The firing of Jabri was a blow to Mohammed bin Nayef’s US relationship and a warning sign that Mohammed bin Salman was undermining it.
For Jabri himself, it meant a life away from home. Afraid Mohammed would lock him up if he stayed in the kingdom, Jabri got in touch with old intelligence contacts in the West and remains in exile despite Saudi attempts over the years to get him back.
Chapter 5
Bring Me McKinsey
January 2016
Inside Aramco headquarters on Saudi Arabia’s Gulf coast, staff were in a state of quiet panic. A prepublication copy of an article in the Economist arrived early that morning in January 2016 with news that just about no one in the company was expecting. Mohammed bin Salman had decided to sell a chunk of the company to the public in the biggest stock offering in financial history.
“A shudder of silence” swept through the executive suite, one employee recalls. High-ranking officials at Aramco had been advising Mohammed on plans to diversify the Saudi economy, but they’d never considered selling part of the kingdom’s financial engine. It was the kind of idea cooked up in a room full of people without any knowledge of just how difficult such a task would be.
About a dozen members of Aramco’s public relations team convened with top executives to quickly devise a statement that made it seem like management had been consulted and was part of the discussions.
Chairman Khalid al-Falih, who privately opposed the initial public offering (IPO) in meetings with government officials, confirmed the company was considering selling shares and touted its excellent management. “Nobody has any concerns whatsoever with the company having any weaknesses whatsoever,” he told the Wall Street Journal days later. That statement was untrue. Beneath its veneer of Exxon-style corporate efficiency, Aramco was riddled with accounting and management idiosyncrasies that could turn off international investors. Some of them would be considered red flags.
Companies that trade on the massive stock exchanges of cities like New York, London, and Tokyo must follow strict rules making them accountable to investors. Their books have to be transparent, and their accounting must follow internationally accepted standards. Aramco, in contrast, was basically the biggest mom-and-pop in the world. It was accountable to one man, the Saudi king, and under no obligation to follow anyone else’s rules. Aramco’s records were so disorganized that the expat accountants who kept its books couldn’t consistently calculate profits and losses by the end of each financial quarter—the most basic requirement for a publicly traded company.
Outwardly, Aramco claimed to “voluntarily comply” with international accounting standards. In fact, it cut corners on the boring but important details that investors use to quantify an oil company’s performance. Aramco’s accountants would just make up the rate of depreciation of oil fields, for example, rather than follow the standard calculations that big companies like Exxon and Royal Dutch Shell use. What did depreciation matter to a company owned by the king? But for a corporation whose shares trade on international markets, fudging such details could be a crime.
The company lacked the kind of accountability Western investors expect in other ways. Its management and pay structure didn’t pretend to be meritocratic. Top decision-making positions were occupied by Saudis, even if they were less experienced or qualified than expats working beneath them. And those expat employees’ pay and benefits were based largely on their ethnicity rather than their achievements. American and British engineers and accountants had higher salaries than those from India or Pakistan. Professionals from Africa made even less.
And in an industry whose other big companies developed an obsession with safety after paying gigantic fines and legal settlements for disasters like the Exxon Valdez oil spill and BP’s Gulf of Mexico oil rig explosion, Aramco had never been held to the same kind of standards. It was governed by the Saudi courts, which were controlled by the same royal family that owned Aramco. So it lacked the same incentive to avoid costly and publicly humiliating accidents. Just a few months before Mohammed announced the IPO plan, Aramco suffered the worst disaster the oil industry had experienced in years, an accident caused by Aramco’s willful disregard for basic safety measures.
The catastrophe occurred in a brand-new housing complex near Aramco headquarters, which the company rented to house non-American expat workers. The Saudi company that built and owned the apartment buildings gave them the veneer of modernity, with a courtyard swimming pool and workout area.
Aramco sent a building-safety expert named Thomas Meyers for a routine inspection before moving employees in. Meyers, a reticent Coloradan who spent years as a building inspector for local government and a consultant to private companies, had been hired after a fatal fire in Aramco worker housing years before. It was a cushy job that he could feel good about, with good pay, easy life in an Aramco housing compound, and an opportunity to bring his safety expertise to a country that needed it.
What Meyers found in the new condo complex was shocking. Each of its eight six-floor buildings had open stairwells that would function like “a chimney” in a fire, sucking in oxygen from below and carrying heat and embers to the upper floors, he wrote in a report for his managers. The buildings didn’t have full fire sprinklers—a violation of Aramco’s own rules—and lacked proper safety exits. Apartments had no smoke detectors. And the buildings’ electrical wiring was shoddily slapped together with tape. The problems amounted to “major life-safety concerns,” Meyers and his boss wrote to Aramco management, urging the company not to move workers in.
The managers ignored the letter and moved dozens of employees and their families into the buildings. Almost immediately, Pakistani geologists and accountants noticed construction and safety problems in their new homes. The fire alarms didn’t seem to work, and there were no fire-safety lights, one resident complained to a housing manager in an email. The company didn’t fix the problems.
At 4:45 a.m. on August 30, 2015, an electrical transformer in the parking garage below one of the buildings failed. A Filipino lifeguard who lived in a downstairs bunkhouse smelled smoke and woke his colleagues. They fanned out across the complex, trying to wake residents. But the fire moved faster than they could. Burning oil from the transformer ignited car tires, and within minutes booming explosions began shaking the building, one for each car that blew up underground.
The flames shot up a stairwell as Meyers predicted, and residents on the upper floors had no way out. A pregnant woman jumped from her window into the complex’s courtyard pool, hitting her head on the concrete edge. She died instantaneously. Another family dropped a toddler from their balcony to a man waiting in the courtyard below with outstretched arms. A Pakistani husband and wife jumped from their window, each embracing a child, hoping their own bodies would absorb the impact of the fall. The man suffered a traumatic brain injury and broke both legs, but the children were spared.
Residents gathered in the courtyard for a head count and realized that Ahmed Razi, a Pakistani geologist, and his family were still missing. A friend called upstairs, and Razi’s wife, Nighat, said her apartment was filling with smoke and her husband was unconscious. She waved a hand out her apartment window, but rescuers couldn’t get cherry pickers into the courtyard because the complex’s entry was too small.
A Sudanese petrophysicist, Mohammed Gebreldar, managed to escape with his two-year-old daughter. But when he went back to rescue his two other children, his wife, and her mother, the smoke was too thick. The wife, son, and two daughters of a Canadian engineer, Tariq Minhas, were also trapped inside.
Once the flames were out, rescue workers searched the complex. Nighat Razi survived along with two of her daughters. Her husband and another daughter were dead. So were Gebreldar’s two other children and mother-in-law. Minhas lost his entire family. In the end, ten people died, making it one of the deadliest oil-industry accidents of the decade.
But Aramco faced nothing like the criminal and civil penalties that nearly brought BP, one of the world’s biggest oil companies, to its knees in the United States. Workers were unable to sue Aramco in Saudi courts. The company paid relatively small sums to many, but not all, of the residents. Some were forced to pay for their burnt cars to be salvaged and to settle any outstanding debt on the cars as a condition of leaving Saudi Arabia.
Families that suffered deaths got modest compensation, but Nighat Razi, who asked to stay in Saudi Arabia because one of her daughters suffered permanent, debilitating injuries and was hospital bound, was deported to Pakistan with a $32,000 payout. Aramco later paid her substantially more after Wall Street Journal reporters asked the company about her situation.
Minhas, the Canadian engineer, got a different kind of compensation. He was a devout Muslim, and Aramco agreed to bury his wife and children in a famous cemetery near the holy city of Medina. The company gave Minhas about six months of leave and flew more than a dozen family members from the United States, Canada, and Pakistan to visit Mecca. Aramco said at the time that despite there being no “ruling of liability or financial responsibility” against the company, “the company also chose to provide relief and compensation to cover damages incurred, as appropriate.” They said, “The safety of our employees, their dependents, and our contractors is of paramount importance.” Yet the biggest settlement Aramco paid ended up going to the Saudi company that built the firetrap: It got $5 million because Aramco had broken its lease early when it moved employees out of the scorched complex.
Aramco’s safety record was a red flag to investors: If the company went public, the perceived risk of accidents that could result in expensive litigation could hurt shares.
Another concern was the fact that Aramco did lots of things other than produce, process, and sell oil. The company’s engineers and workers built much of Saudi Arabia’s infrastructure. Crews from the company laid the kingdom’s first modern road and constructed its schools, universities, and hospitals. Its analysts were quietly consulted about any investment or economic idea, even if it had absolutely nothing to do with oil. Soon after Mohammed bin Salman took it over, he began sending over requests for deep dives into ideas like bringing theme parks to Saudi Arabia.
It had a long history of such work. During the first half of the twentieth century, when the oil fields were new and Saudi Arabia still poor, Aramco workers eradicated malaria in the kingdom. As the most capable engineering and project-management company in the country, Aramco could design and deliver projects that no one else in Saudi Arabia could. It also subsidized the Saudi economy.
To keep the people happy under their totalitarian rule, the Al Saud had Aramco give away fuel. It sold natural gas at a loss, and in some cases its government customers didn’t pay at all. In 2015, Saudi Arabia’s largest electricity company reported that it had run up a $20 billion debt by accepting fuel shipments from Aramco that it had never paid for—for fifteen years. The free fuel made it possible for the electric company to give Saudi citizens nearly free electricity. How would foreign investors feel about buying into a company whose profits went to subsidize the Saudi populace rather than pay shareholders dividends?
Then there were the vanity projects. King Abdullah ordered Aramco to develop a $1 billion “sports city” with a stadium and a mosque. He was so pleased with it that shortly before his death, he ordered up thirty-five more—a decree abandoned after Salman took the throne because of the cost and the effort required. Aramco built a museum and performance space, the King Abdulaziz Centre for World Culture, in the desert near the oil fields, hiring a Swedish design firm that created a building that looks like a spaceship from one of the Star Wars movies. And around the time Mohammed announced the IPO, Aramco built a $55 million complex to house one of the prince’s favorite traditional Saudi events: an annual camel beauty pageant. That was great for the royal family, but US and UK stockholders would much prefer a cash distribution. Capitalism doesn’t incentivize charity unless it’s a relatively small marketing expense.
One senior Aramco official worried at the time that the country’s leadership didn’t fully grasp the huge sums Aramco spent on non-business-related projects. “Does MBS understand the decimal points?” he asked.
After Mohammed’s IPO announcement, Aramco leaders scrambled to come up with plans to untangle the company from the government and the royal family. A Saudi manager named Motassim al-Maashouq convened key staff in a meeting room and declared that the project would make Aramco more efficient and transparent. Then he set out an almost completely opaque process for achieving that. He assigned about twenty trusted employees to code-named teams, swore them to secrecy, and set them to work on different potential strategies. One conference room with a combination-locked door housed Project X, which developed a plan to take the entire company public. Projects Y and Z, each with its own room, focused on proposals to sell one piece of the company at a time.
Still, Mohammed kept relying on Aramco for nonoil matters. He asked planners inside the company to formulate key pieces of his plan to remake the country’s economy. And for months he tasked Aramco oil-forecasting analysts to prepare ten reports a week on investment opportunities, including the Comoro Islands, Japanese investment firm SoftBank, and at least one amusement park company. One oil analyst recalls the confusion that set in at the company. “What does Six Flags have to do with oil?”
Selling part of Aramco was a huge departure from the old Saudi way and only the first step in Mohammed’s strategy to move away from oil, diversify the kingdom’s economy, and create new jobs and social freedom for its burgeoning youth population.
The key to convincing his father and the rest of the aging Al Saud leadership of this plan was to make the case that without it, an inevitable economic crisis would threaten the royal family’s grip on Saudi Arabia. And that required turning the vision into a specific plan, with numbers to demonstrate how it would work and international buy-in to show that it would help boost the kingdom’s global status. He knew where to turn for help.
Over the two-plus years since King Abdullah had given Mohammed permission to study economic reforms, he had found a ready collaborator in McKinsey & Company. The world’s preeminent consulting firm had entered the kingdom in 1974 with a modest assignment to plan a new oil company headquarters. The American consultants had the good fortune of working with a young Saudi engineer, Ali al-Naimi, who would rise up to become oil minister, the most powerful nonroyal in the kingdom, in 1995. From Aramco, McKinsey branched out into the Saudi government bureaucracy. In recent years it had solidified its ties to the kingdom by hiring young Saudis. Some were relatives of government officials, including two sons of Khalid al-Falih, Aramco chairman and minister of energy and industry.
In December 2015, the McKinsey Global Institute, the consulting firm’s research arm, published a paper, titled “Saudi Arabia Beyond Oil,” that laid out a plan for the kingdom to re- invent its economy. Between 2015 and 2030, McKinsey wrote, Saudi Arabia could double its GDP and “create as many as six million jobs.” McKinsey said the work was independent research funded by its own money, not Saudi Arabia. But the lead author was Gassan al-Kibsi, the McKinsey consultant advising the Saudi government. The report amounted to a giant McKinsey marketing effort on behalf of its most important client.
The stamp of authenticity conferred by consultants who’d worked for the world’s biggest companies and governments gave Mohammed new international credibility. By the time he announced the IPO plan in January 2016, he had enough buy-in from the Royal Court and enough power granted by his father that even the skepticism of Falih, the oil minister and Aramco chairman, couldn’t stop the IPO plan.
Mohammed bin Salman developed a fascination with consultants when he was setting up his own companies and his MiSK foundation before his father became king. One idea he loved was the creation of key performance indicators, soon to be known throughout the ministries and government-linked companies as “KPIs.” Mohammed didn’t respond to strategies that weren’t backed up by numbers. He had an impressive memory for them as well, often recounting to underlings forecasts they had showed him months beforehand to prove he had a strong understanding of the underlying issues.
McKinsey and a whole host of other consultants were ready to accommodate whatever big requests Mohammed made for his economic-transformation plan. To get his attention, they built PowerPoint presentations with slide after slide of projections, charts, and graphs. And they loaded them with numbers, statistics, and KPIs, just the way the prince liked.
