Power subsidy to rise 13pc to R0 605m in 2019

MUSCAT, JULY 21 - Government subsidy to the nation’s electricity sector is estimated to balloon to RO 605.4 million in 2019, up from RO 536.29 million last year, a growth of 12.9 per cent, according to newly published figures released by the Authority for Electricity Regulation (AER) Oman. The projected uptick in government financial support for the sector would have been considerably higher absent the Cost Reflective Tariffs (CRT) programme which came into force at the start of 2017. Under the programme, large commercial, industrial and government customers consuming upwards of 150 MW hours of electricity annually are not entitled to any subsidy and must pay electricity tariffs at the actual economic cost of supply.

Also contributing to the growth in subsidy is the inexorable increase in customer accounts, which jumped to 1.2 million in 2018, up from 1.14 million a year earlier — an increase of 6.3 per cent. Residential customers, all of whom enjoy subsidy, accounted for nearly 70 per cent of the growth.

Customers falling within the coverage of the Main Interconnected System (MIS) encompassing much of the northern half of Oman, will receive around RO 457.9 million in subsidy during 2019, entailing an increase of around 9.6 per cent over the previous year’s grant of RO 418.0 million. This amount will account for as much as 46 per cent of the actual economist cost of supply electricity to customers in this grid.

The largest share of the subsidy, amounting to RO 193.2 million, will go to Mazoon Electricity, followed by Majan Electricity (RO 133.9 million) and Muscat Electricity (RO 130.8 million).

Explaining the factors behind this uptick in subsidy estimates, the Authority said: “The Authority’s estimate of 2019 MIS Subsidy requirement is 9.6 per cent higher than 2018 outturn Subsidy, reflecting (1) an expected growth in supply of 8.6 per cent; (2) commencement of full commercial operation of two new power plants (Ibri IPP and Sohar IV IWPP) with a combined capacity of 3283 MW; and (3) new 4-year Transmission and Dispatch price controls effective from January 1, 2019.”

Subsidy payable to customers in the Dhofar Power System (covering Salalah and others areas within Dhofar Governorate) is projected to rise 11.9 per cent to RO 48.1 million in 2019, up from RO 43.0 million in 2018.

“The Authority estimates that 53 per cent (or RO 54.8 million) of the total DPS economic cost will be recovered from customer revenue. Economic costs are expected to increase by 13.6 per cent during the year, reflecting an increase in supply of 6 per cent and commencement of full commercial operation of new generation capacity from the 718 MW Salalah II IPP, while customer revenue is expected to increase by around 15.2 per cent,” the regulator stated.

The Rural Areas Electricity Company (RAECO), which oversees supply to remote areas falling outside of the coverage of the MIS and Dhofar Power grids, is projected to receive RO 118.7 million in subsidy this year. This compares with a grant of RO 104.4 million in 2018, entailing an increase of 13.7 per cent. “The increase in 2019 RAECO Subsidy is mainly driven by increases in electricity purchase costs as well as an expected increase in RAECO’s fuel costs reflecting international market prices. As diesel fuel costs account for around 40 per cent of RAECO’s total economic costs, this has a direct and significant impact on the company’s overall costs,” the Authority noted.