Saudi Arabia Approves Sweeping Regulatory Reforms for the Electricity Sector

Prince Abdulaziz bin Salman, Minister of Energy, Chairman of the Ministerial Committee for Restructuring the Electricity Sector (“Committee for Restructuring”), Chairman of the Board of Directors of the Electricity and Cogeneration Regulatory Authority (“ECRA”) today announced the issuance of a Royal Order approving a set of structural, regulatory and financial reforms for the Kingdom’s electricity sector.

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.

Moreover, 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, ultimately enhancing the reliability of service to consumers.

The Minister of Energy stated that these reforms are a culmination of the collective efforts including from the Supreme Committee for Energy Mix Affairs, chaired by His Royal Highness the Crown Prince Mohammed bin Salman bin Abdulaziz, Deputy Prime Minister and Chairman of the Council of Economic and Development Affairs, which provided oversight and support for the Ministerial Committee dedicated to the restructuring of the sector.

It also included efforts from multiple Governmental and private  entities which play a critical role in the electricity sector’s integrated ecosystem.

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.

The Ministerial Committee for Restructuring has also been tasked with supervising the sector’s development and investments in key projects which seek to ensure higher quality and efficiency in the electricity sector ecosystem.

The Committee will also overlook and follow up on SEC’s implementation of these projects and submit periodic progress reports to the Supreme Committee for Energy Mix Affairs.

ECRA – in coordination with the relevant authorities – will periodically monitor performance indicators in line with international best practices.

His Highness stated that the electricity sector’s reforms will continue to be progressed by the Ministerial Committee for Restructuring, under the direct supervision of the Supreme Committee for Energy Mix Affairs.

These reforms aim to help the Kingdom’s electricity sector in achieving financial and operational sustainability and reaching the optimal energy mix for electricity production.

On this occasion, the Minister extended his gratitude to Custodian of the Two Holy Mosques King Salman bin Abdulaziz Al Saud, and the Crown Prince, His Royal Highness Prince Mohammed bin Salman for their continuous support of the Kingdom’s electricity sector and the energy sector as a whole.

He also thanked the members of the Ministerial Committee for Restructuring, which consists of Mohammed Al-Jadaan, the Minister of Finance, Minister of Economy and Planning, Acting Chairman of the Board of Directors of the National Center for Privatization, and Yasir Al-Rumayyan, the Governor of the Public Investment Fund, for their efforts in driving these changes forward.

He also extended his utmost appreciation to all the electricity sector; thanking tens of colleagues from the electricity participants who collectively represent the various related government sectors to support the Ministerial Committee for Reform.