Saudi Arabia's aviation regulator is in talks with government agencies to set up free zones at Jeddah and Riyadh airports as part of a long-term plan to diversify the kingdom's economy away from oil, its chairman said.

"This is not a simple development of a free zone; there's a lot of agencies involved. The starting point would be one in Jeddah Airport and one in Riyadh Airport," Faisal Al Sugair, vice-chairman of the General Authority of Civil Aviation (GACA), told Reuters in an interview.

The free zones would aim to attract foreign businesses through relaxed licences, visa and taxation rules, available to various industries and services. They would be large enough to include manufacturing facilities, Al Sugair said.

The authority, which oversees all the country's 27 airports, announced plans in November to privatise Saudi Arabia's international and domestic airports by 2020 as the kingdom seeks foreign investment to support state finances.

Al Sugair said the Council of Economic and Development Affairs (CEDA) and Public Investment Fund (PIF) were working on the free zones as part of the National Transformation Plan, a package of reforms meant to boost the non-oil private sector.

"It's led by CEDA and the PIF, working together with the Ministry of Commerce and obviously GACA to develop the right concept for these free zones, but that's going to take some time," he said.

Saudi Arabia, with finances hit by low oil prices, announced plans last year to shrink a record state budget deficit with spending cuts, reforms to energy subsidies and a drive to raise revenues from taxes and privatisation.

Al Sugair said he expected bids for Jeddah's King Abdulaziz International Airport, Saudi's busiest, by the end of April.

Work on the new Terminal 5 at Riyadh's King Khaled International Airport would be completed in May, he said. T5 will be run as a concession by Dublin Airport Authority before the rest of the airport is itself privatised.

Al Sugair said he expects approval from CEDA's privatisation committee to come in April, after which point fundraising for upgrades at the kingdom's other airports would come exclusively from non-governmental sources.

"Once we corporatise, no more government funding. That's fundamental. If we cannot get that, we're wasting our time," he said. – Reuters