KSA electricity sector overhaul to reduce liquid fuel use

Published: 20 November 2020 - 12:15 p.m.
By: Carla Sertin

A royal order has approved the overhaul of Saudi Arabia's electricity sector, which will include structural, regulatory and financial reforms, the Saudi Press Agency reported.

The goal of these comprehensive reforms is to enhance the sustainability and efficiency of the kingdom’s electricity sector, in line with goals set out in Saudi Vision 2030. The expected outcomes include more efficient power generation, reduction in the use of liquid fuels for electricity generation and increased environmental protection.

The reforms aim to increase the reliability of the Kingdom’s electricity transmission network and to facilitate the production of electricity from renewable energy sources, bringing it in line with the Kingdom’s optimal energy mix for electricity production. These will be supplemented by upgrading and automating the distribution networks.

The announced reforms included the treatment of Saudi Electricity Company’s (SEC) net government liabilities by converting them into a Shariah-compliant equity-like non-dilutive financial instrument that would be categorized as shareholder equity in the company’s balance sheet (SHI, 4%). This resolution is expected to enhance SEC’s financial and operational sustainability. The reforms also included the cancellation of government fees, which the company had been obligated to pay. By cancelling the fees, the company will be able to take full advantage of the tariffs, provide better service to consumers, and enhance its ability to satisfy all is financial obligations.

The reforms also include the introduction and adoption of a new mechanism to determine SEC’s revenue model. The sector regulator, Electricity and Cogeneration Regulatory Authority (ECRA), will determine SEC’s revenue which ensures the company can cover its efficient costs of providing services, while achieving a fair return on invested capital (WACC, 6%). The difference between SEC’s determined required revenue and its actual income from the established tariffs will be covered by the Balancing Account, however, this is contingent on company committing to providing better service to the customers.


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