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2006 Annual Report

June 2007

Photos appearing in the report were graciously provided by the Saudi Electricity Company (SEC)and by the Saline Water Conversion Corporation (SWCC).

King Fahd National LibraryLegal Deposit No. : 1428/3669Date : 1/06/1428HISSN : 1658-368X

2006 Annual Report

June 2007

Subject Page

Preface 8

Overview of the Authority 12

Electricity Industry in the Kingdom 18

Accomplishments 28

Electricity Law 28

Implementing Regulations 29

Licensing Documentation and Framework 30

Subsidiary Documents – Industry Codes 36

Studies 36

1- Electricity Industry Restructuring Plan for Saudi Arabia 36

2- Development of Tariff Design and Tariff Review System 37

3- Master Plan for Electricity Generation and Transmission 37

4- Development of Long Term Plan for Desalinated Water 38

2006 Annual Report4

Table of Contents

Subject Page

Dispute Resolution 38

Consumer Care and Service Providers Affairs 38

E-Management and IT 40

Training and Manpower Development 41

Management and Finance 44

Organizational Structucture 44

Human Resources 46

Financial Data 47

Board of Directors 50

Management of the Authority 51

Dispute Resolution Committee 52

2006 Annual Report 5

Preface

2006 Annual Report8

PrefaceThis report presents a brief review of the activities of the Electricity and Cogeneration* Regulatory Authority (ECRA) in the Kingdom of Saudi Arabia during 2006. This year represents the effective launching of the Authority's activities and provides a real indicator of the pace of progress of its efforts in the years to come. In 2006 the legal foundation for the electricity industry** and its regulation was firmly put in place with the adoption of theelectricity law and its implementing regulations related to the responsibilities of the Authority, the creation of the Dispute Resolution Committee of the Electricity Industry (which adjudicates disputes between consumers and service providers as well as disputes among service providers themselves), and issuance of the bylaws of this committee. Several studies of crucial importance to the electricity industry were launched in 2006 which include the following:

Electricity industry restructuring plan which represents a roadmap to transform the industry from its current status of a vertically integrated monopoly of a single player that dominates the generation activity and undertakes all transmission and distribution activities, into a free market situation characterized by competition

between many players where prices are determined by market forces of supply and demand and where the consumer enjoys full freedom of choice between competing service providers.

Comprehensive study of the methodologies of tariff design, setting, and review process. This study is of great importance to the consumer, who wishes to receive the electricity service at the least cost, to the investor who desires to achieve a reasonably attractive return on his investment, and to the public interest which requires the assurance of availability of excellent reliable service as well as guaranteeing continued investment in the electricity industry to meet growth and renovation needs.

Long range plan for generation, transmission, and desalinated water to determine demand for electricity and drinking water. Knowledge of the demand will determine requirements for growth and expansion in these two areas in the next quarter century.

Codes for transmission, distribution, and metering which delineate the relationships between the active entities in the industry and clearly indicate the extent and limits of each entity’s authority and responsibility.

Cogeneration: The simultaneous production of electricity and desalinated water, or steam used in other production processes.

Electricity industry: Includes electricity generation, cogeneration, and transmission of electricity, its distribution, supply and trading.**

*


Connection agreements that define the relationshipbetween the transmission system owner, and owners and operators of generation plants, enabling connection to the public network as well as permitting transmission of electricity to large consumers, all in accordance with rules and “wheeling” charges set by ECRA.

It is hoped that 2007 will see actual implementation of these studies, as well as completion of the requirements of the planned programs that include issuance of licenses for the various activities, preparation of detailed studies to create the entities contained in the industry restructuring plan, adoption of a new tariff, and promulgation of the transmission and distribution codes.Alongside these activities, the Authority continued to perform its responsibilities of providing for the consumer and caring for the interests of service providers. Over 2400 consumer complaints were handled by the consumer care department and 9 cases were reviewed by the dispute resolution committee. The process of building the organization continued with additional hiring of qualified manpower to fill vacant positions; andorganizing regulatory, administrative, and financial operationsalong streamlined modern lines.

The following sections of this report give details of the activities of the Authority in 2006.

Overview of the Authority

2006 Annual Report12

Overview of the AuthorityIntroduction

The Electricity and Cogeneration Regulatory Authority (ECRA) is an independent government agency, which regulates the electricity industry in Saudi Arabia to insure provision of adequate, high quality, and reliable services at reasonable prices. Its mission is to develop and pursue a regulatory framework, in accordance with government laws, regulations, policies, and standards, as well as international best practices, in order to guarantee the provision of safe, reliable, and efficient electricpower to the consumers of Saudi Arabia.

The Authority was formed on 27/8/1422AH (13 November 2001) by Council of Ministers Decision No. 236, which approved the formation of the Electricity Regulatory Authority and delineated its responsibilities. On 17/5/1425AH (5 July 2004) the Council of Ministers, by Decision Number 163, assigned to the Authority the additional responsibility of regulating the cogeneration industry. Consequently, the Authority’s name was revised to the current appellation of “Electricity & Cogeneration Regulatory Authority” (ECRA).

The Authority’s Goals

ECRA was established to regulate the electricity industry in order to guarantee that the services of the industry are adequately provided to the country at the lowest prices consistent with high quality and reliability. Specifically, the main objectives ofthe Authority are:

Protection of the public interest and rights of consumers to receive high quality, safe and reliable electricity and cogeneration services at economically sound prices

Promotion of consumer oriented electricity and cogeneration services that protect the consumer's right of choice among competing service providers

Encouragement of private sector investors to participate in the development of the electricity industry, protecting their interests, and enabling them to realize fair economic returns on their investments

Formation of a clear, transparent, stable, and non-discriminatory regulatory framework for the electricity industry

Creation of a favorable environment that encourages legitimate and fair competition among providers and suppliers of electricity and cogeneration services


The Authority’s Responsibilities

To achieve ECRA’s objectives the government has charged it with certain responsibilities that are delineated in its Charter. Specifically, these responsibilities cover four areas as follows:

Supply Matters - issuing licenses for generation, transmission, distribution and trading of electricity and cogeneration services; monitoring of compliance with license requirements and conditions; development of unified accounting procedures for electricity andcogeneration providers; coordination of the infrastructure of the electricity industry, and development of the expansion plans of these industries.

Consumer Issues - assessment of tariffs charged for electricity and cogeneration services, periodic review of these tariffs, proposing as needed new tariffs to the government, protecting interests of stakeholders in the electricity industry, investigating and resolving complaints by involved parties, and improving industry performance.

Technical Issues - ensuring adequacy of the R&D activities

of the electricity industry, promoting energy conservation measures in coordination with the Ministry of Water and Electricity (MWE), and other relevant technical matters.

Organizational and Administrative Tasks - definingpublic interest with regard to the electricity industry, development of regulations for expansion of the infrastructure of the industry, encouraging private sector investments, and issuing periodic reports to the Council of Ministers on costs and tariffs of electricity and cogeneration services.

2006 Annual Report

The Authority’s Scope of Work

The Authority’s work covers a wide range of responsibilities. It includes the following:

Tariff

Tariffs must be fair, affordable to end-users, easy to implement, and meet service providers’ revenue requirements. In order to achieve these aims ECRA’s concerns include:

Developing a tariff setting methodology and periodic review

Designing and preparing a tariff structure Developing an overall tariff policy statement for the

Kingdom Preparing a standardized financial reporting system to

be utilized by all licensed service providers in order to assess their costs which ultimately affect the tariff paid by the consumers

Licensing

All existing as well as new generation, transmission, distribution, and trading providers need a license to conduct their activities. The objectives of the licensing process are to streamline the development of the electricity industry and monitor the quality and reliability of the services which are of paramount importance to the consumers as well as to the whole national economy. The Authority issues licenses and monitors performance, with penalties for non-compliance. Operators must comply with technical, legal, and environmental requirements.

Complaints, Arbitration and Dispute Resolution

ECRA deals with consumer complaints associated with electricity and cogeneration covering the following areas:

Application of tariffs Quality of supply Quality of service Billing

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2006 Annual Report

The Authority also deals with disputes arising between the various participants in the electricity industry.

Arbitration is used to resolve consumer complaints as well as resolving disputes that arise between the industry participants. All players whether they are consumers, service providers, investors, traders or any other participant in these industries must be treated fairly and their interests’ vis-à-vis third parties protected. In the event that arbitration fails, disputes are referred to the Dispute Resolution Committee. The Committee’s decisions may be appealed to the Kingdom’s Court of Grievances.

Standards, Quality of Service, and Performance Monitoring

A very important aspect of ECRA and one of its pillars is that through licensing and monitoring the general quality of service and efficiency of the industry is improved. The reliability ofthe electricity supply, minimization of brownouts, and absence of voltage spikes are clearly of considerable importance, as are

issues such as clearing faults, minimizing power loss due to a line or cable breakage, and quality of service with regard to contracts, such as billing.

Encouragement of Private Sector Participation and Investment

The encouragement of private sector participation in the electricity industry is essential for the development and sustainability of the electricity industry in the Kingdom. Investment opportunities for private sector participation in the electricity industry include:

Independent Power, and Independent Water and Power Projects

Building, leasing, and/or operating transmission lines Formation of power generation companies Obtaining a concession or a lease for existing generation

and water production facilities Getting facility management contracts Establishing power supply companies

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2006 Annual Report

Direct purchase of selected existing power and water desalination assets

ECRA works in coordination with the Ministry of Water & Electricity (MWE), the Saudi Electricity Company (SEC), the Saline Water Conversion Corporation (SWCC), investors from the private sector, and all other interested parties to select the options most suitable and beneficial to Saudi Arabia.

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Electricity Industry in the Kingdom

2006 Annual Report

Electricity Industry in the KingdomIn 2006 the electricity industry in the Kingdom continued its organizational status as a single entity, namely the Saudi Electricity Company (SEC), which substantially dominates all aspects of the industry. It is characterized by being a vertically integrated monopoly of all activities (generation, transmission, and distribution) as depicted in Figure 1.

Figure (1): Current organizational status of the electricity industry in the Kingdom.

ECRARegulation,Licensing

Saudi ElectricityCompany

Genaration

Transmission

Distribution

Consumers

SWCC& Others

MWEPolicies,

Planning,Strategies

18

Producing Entity No. of Plants Capacity (MW)

SEC 49 29,401

SWCC 7 3,426

Saudi Aramco 5 834

Tihamah Power Generation Co. 4 1,074

Marafiq (Yanbu) 1 900

Jubail Power Co. 1 250

Total 67 35,885

2006 Annual Report

The Saudi electrical system is the largest in the Arab world, and is considered among the largest in the world. The following is a brief description of this system.

GenerationGeneration capacity in the Kingdom in 2006 reached 35,885 MW. Of this total capacity SEC owned 82%, SWCC 10%, and ownership of the remainder was distributed among Saudi Aramco, Tihamah Co., Jubail Power Co., and Marafiq (Yanbu) as shownin Table (1) and Figure (2).

Table (1) Generation Capacities

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2006 Annual Report

Figure (2): Distribution of generation capacities among producers

Jubail Power

Co. 1%

Tihama 3%SWCC 10% Aramco 2%

SEC 82%

Marafic

(Yanbu) 2%

The generation plants are distributed throughout the country. The distribution of plants reflects to a certain extent demandfor electricity in each region and the historical status of the industry as most plants were built by independent power companies prior to their merger into SEC. Most generation plants are connected to transmission networks within their regions but a small number of plants are freestanding. Figure (3) shows the regional distribution of generation capacities.

20

Figure (3): Regions of SEC of operation

WesternRegion

SouthernRegion

CentralRegion Eastern Region

Arabian Sea

ArabianGulf

RedSea

FarsanIslands

Jaizan

Jeddah

Makkah

Taif

Riyadh

BuraidahDammamHayel

Madinah

Baha

AbhaNajran

2006 Annual Report

Figure (4): Regional Distribution of electricity

Southern 8%

Central 20%

Western 31%Eastern 41%

Transmission

Electric power is transmitted from the generation plants to the consumption areas through high tension overhead lines that have a total length of 22,187 km and underground lines that have a total length of 2,409 km. A transmission network connects the Eastern Region with Riyadh, Gaseem, and Hail regions. Other transmission networks connect the Makkah and Madinah regions, and Bahah with Asir regions. The other regions are still not electrically interconnected.

Distribution and Supply

In 2006 SEC delivered a total of 163,151 GWh of energy to its 4, 955,906 consumers. Table (2) shows the distribution of customers classified by consumption type. As evident fromFigure (5), the residential sector consumes more than half of the total electricity sold.

Industrial 21%

Government 13%

Commercial 10%

Agricultural 2% SWCC 1%

Residential 53%

Figure (5): Distribution of consumption by class

21

Type Number of Subscribers Consumption (GWh)

Residential 4,077,553 86,028

Industrial 7,659 32,529

Government 168,552 21,710

Commercial 645,890 17,847

Agricultural 56,125 3,629

SWCC 127 1,408

Total 4,955,906 163,151

2006 Annual Report

Table (2): Distribution of SEC customers and their consumption in 2006

Consumption of electricity is roughly equal in the Eastern, Western, and Central Regions, while in the Southern Region it is only a fourth as much as consumed in each of the other three regions (Figure 6).

Southern 8%

Central 30%

Western 29%

Eastern 33%

Figure (6): Regional distribution of consumption

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2006 Annual Report

The distribution of consumption among the various classes shows a marked regional variation. While industrial consumption dominates in the Eastern Region, in the other regions residential consumption is dominant (Figure 7). It is more than 57%

in the Central Region (Figure 8), around 68% in the Western Region (Figure 9), and reaches a maximum of three quarters of total consumption in the Southern Region (Figure 10).

Industrial 49%

Government 8%

Commercial 9%

Agricultural 1%SWCC 2%

Residential 31%

Figure (7): Distribution of consumption in the Eastern Region Figure (8): Distribution of consumption in the Central Region

Residential 57%

Agricultural 5%

Industrial 7%

Commercial 12%

Government 13%

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Quantity of electricity

GWhElectricity generated at SEC plants 156,119

Electricity imported from SWCC 22,328

Electricity imported from other producers

2,987

Total electricity generated and imported

181,434

Total electricity sold 163,151

Total electricity loss in the SEC system

18,282

Percentage of loss in the entire SEC system 10.1 %

2006 Annual Report

Figures for electricity generation from various sources, total quantity of electricity sold by SEC, and total energy loss of the entire SEC system are shown in Table (3).

Figure (9): Distribution of consumption in the Western Region

Residential 68%

Agricultural 1%

Industrial 6%

Commercial 12%

Government 13%

Figure (10): Distribution of consumption in the Southern Region

Residential 75%

SWCC 2%

Industrial 1%Commercial 8%

Government 14%

Table (3): Energy loss in the Saudi electricity system

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2006 Annual Report

In 2006, the average cost of a unit of electricity (kWh) in the Kingdom was about SR0.148. This figure covers the costsof generation, transmission, and distribution. It accounts for operational and capital expenditures, fuel, purchased electricity, and depreciation (Figure 11). The average price collected from consumers by SEC was SR0.123 per kWh.

Fuels 20%

Depreciation 21%

Operational Expenses 34%

Purchased Electricity 6%

CapitalExpenses 19%

Figure (11): Distribution of cost of electricity unit

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Accomplishments

2006 Annual Report

AccomplishmentsThe year 2006 witnessed an increase in activities at ECRA. The most significant of these activities and accomplishments maybe summarized as follows:

The Electricity Law

The draft Law as prepared by ECRA under the lead of the Ministry of Water and Electricity was submitted for consideration by the government and following an extensive review by the Shura Council was forwarded to the Council of Ministers. It was adopted, and issued by Royal Decree No. M/56 on 20 Shawwal 1426 (22 Nov 2005).The Law is central in the regulation and development of the electricity sector in the Kingdom. The general features of the Law cover provision of reliable services, protecting consumer’s rights including reasonable prices, while protecting the rights of investors in the sector to receive a fair return. ECRA has the responsibility of providing a clear, stable, non-discriminatory framework and creating a suitable environment to foster legitimate competition in the industry. An immediate responsibility assigned to ECRA in connection with the Law was the issuance of implementing regulations

and procedures in conformity with its articles. This had to be accomplished within 180 days from the date of publication of the Law. The areas covered included:

Technical, environmental, operational and procedural rules

Licensing regime Licensees performance standards Defining rules for interrelationships among licensees

and licensees with consumers Rules for establishing custodianship whenever any party

violates the Law or the Authority’s Founding Charter Procedures for tariff development and periodic review Rules for dealing with violators of the electricity law, the

Charter of the Authority, or license conditions. Regulations for dispute resolutions Systematic restructuring of the electricity industry and

introduction of competition. Procedures for insuring continuity of supply and

handling emergency situations

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2006 Annual Report

In keeping with the Law all electrical activities must be licensed through the Authority. An important element of the Law relates to tariffs and it requires the Authority to periodically review the tariff structure and submit its recommendations to the Council of Ministers. An important prerequisite incorporated in the Law is the deregulation of the electricity market and encouragement of competition and the availability of multiple suppliers. ECRA has a duty to enhance such a process and protect the sector from monopolistic and cartel tendencies.The Law outlines the restructuring of the electricity industry and mandates the need for the industry development plan to be reviewed and updated to expand and improve quality of service. Unbundling, development of competition and encouragement of private sector investment are critical. The Law contains provisions to deal with disputes and violations by means of a disputes committee.

Implementing Regulations

A major activity at ECRA during the period of the report has been the preparation of Implementing Regulations within the stipulated 180 days following the issuance of the Electricity

Law which was promulgated as a Royal Decree toward the end of 2005. The Implementing Regulations as prepared by ECRA had to be reviewed and approved by the ECRA board prior to becoming official. The main headings of the ImplementingRegulations are licensing, tariffs, competition, restructuring, and disputes and violations.

An entire chapter of the Implementing Regulations is devoted to the relationship of licensees with users and consumers. All transmission, distribution, and retail licensees shall maintain at their offices, paper copies of their current tariffs, and thesewill be available for public inspection without charge by any consumer who requests them. In addition, each of these licensees shall maintain a web site (available at all times) of its tariffs, charging statement, its license, and downloadable connection forms.The Regulations shall spell out in detail the quality of service for consumers, standards and conditions, as well as the situations in which service to the consumer may be suspended.

Pursuant to the Law, the Regulations contain well definedguidelines with respect to dispute resolution and the role of the Disputes Resolution Committee. Disputes covered include those

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2006 Annual Report

between licensees, and between consumers and any licensee. The Regulations detail the constitution of the Disputes Resolution Committee and its procedures, and enforcement actions to be followed by the Authority in connection with contraventions and violations (after their review by the committee).

Licensing Documentation and Framework

The licensing framework must cover procedures and conditions for each type of license, details of rights, duties, and obligations of licensees, and details of monitoring procedures. All procedures and the basis of monetary charges must be as transparent as possible. The Authority is required to process and grant a license within 30 days, for any valid application.Prior to approval of the Implementing Regulations temporary license formats have been used by ECRA. Following publication of the Regulations ECRA has prepared the license formats for generation, cogeneration, transmission, distribution and retail. The formats for generation, cogeneration and transmission have been approved by the Board. The document for distribution and retail has been submitted to the Board. Documentation for separate formats for distribution and retail

as well as for trading is in preparation with ECRA. Table (4) shows the entities that have been licensed by ECRA as of the time of preparation of this report while Table (5) lists the entities that have obtained permits from the Authority.

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2006 Annual Report

Table No. (4): Entities Licensed by the Authority

EntityType of License

License Date Project Site Production CapacityInvestment

Amount

1Obaikan Group for

Industrial InvestmentGeneration

(private)07-11-1424H(30-12-2003)

Riyadh60 MW

electricity

2Tihama Power Generation Co.

Cogeneration04-12-1424H(26-01-2004)

1- Juaimah

308 MWelectricity;

640 Tonne/hrsteam

2- Othmaniyah

308 MWelectricity;

640 Tonne/hrsteam

3- Shadgum

308 MWelectricity;

640 Tonne/hrsteam

4- Ras Tanura

150 MWelectricity;

286 Tonne/hrsteam

3 Yanbu Cement Co.Generation

(private)18-05-1425H(06-07-2004)

Yanbu139 MWelectricity

4National Shrimp Co.

LtdGeneration

(private)05-08-1425H(19-09-2004)

Leith21.6 MWelectricity

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2006 Annual Report



Amount

5Yamamah Cement

Co. Ltd.Generation

21-08-1425H(05-10-2004)

Riyadh157.5 MWelectricity

6 Jubail Power Co. Cogeneration19-02-1426H(29-03-2005)

Jubail Industrial

250 MWelectricity

510 Tonne/hrsteam

SR 580 million

7

Energy & Environmental

Systems Co. Ltd.(Zahid Tractors Co.)

Generation03-11-1426H(05-12-2005)

1- Al-Jauf25 MW

electricity

SR 20 million

2- Ar Ar10 MW

electricity

3- Wadi Al- Dawasir

15 MWelectricity

4- Rafha15 MW

electricity

5- Dammam5 MW

electricity

6- Al-Hodaib5 MW

electricity


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2006 Annual Report



Amount

8Shoaibah National Water & Electricity

Co.Cogeneration

24-11-1426H(26-12-2005)

Shoaibah

905 MWelectricity,

882,000 m3/day desalinated water

SR 9.2 billion

9 Saudi Electricity Co.

Generation

10-05-1427HThroughout the

Kingdom29,401 MWelectricity

Distribution

Trading

10 Medina Cement Co.Generation

(private)08-06-1427H

Marat Center,Riyadh Region

45.5 MWelectricity

SR 100 million

11Al-Shuqaiq Water &

Electricity Co.Cogeneration 24-02-1428H Al-Shuqaiq

1020 MW electricity;212,000 m3/daydesalinated water

SR 6.95billion


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2006 Annual Report

Table No. (5): Entities to whom Authorizations issued by the Authority

EntityType of

AuthorizationAuthorization

DateProject Site Production Capacity

1Tayyabeh Power Generation Co.

Generation23-02-1426H(02-04-2005)

Sudair 1000 MW electricity

Cogeneration29-05-1427H(25-06-2006)

Rabigh2400 MW electricity;

900,000m3/day desalinated water

2MEES Power &

Telecom. Technologies Co. Ltd.

Generation03-02-1426H(13-03-2005)

Rabigh 700 MW electricity

3Bahhar Trading

Technologies Co.Cogeneration

06-08-1426H(10-09-2005)

Rabigh1650 MW electricity;

500,000m3/day desalinated water

4Mechanical

Engineering & Electrical Systems

Generation10-08-1426H(13-09-2005)

Jeddah Industrial City

600 MW electricity

5National Tripartite

Production Co. (A/C, Power & Water)

Generation 17-11-1426H(19-12-2005)

Unspecified1000 MW electricity

6 Maaden Co.Cogeneration 21-05-1427H

Ras Al-Zour(Aluminium)

Electricity: 1809 MW;Desalination: 34,000m3/day

desalinated waterSteam: 420 Tonne/hr.

Cogeneration 21-05-1427HRas Al-Zour(Phosphate)

Electricity: 160 MW;Desalination: 40,000 m3

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2006 Annual Report

Table No. (5): Entities to whom Authorizations issued by the Authority

EntityType of

AuthorizationAuthorization

DateProject Site Production Capacity

7Al-Bikri International

Power Co.Cogeneration 11-04-1427H

Yanbu Industrial Port

Electricity: 4 MW;Water: 6000m3/day

8Marafiq/Public

Investment Fund/Saudi Electricity Co.

Cogeneration 26-07-1427H JubailElectricity: 2500 MW,

Desalinated Water: 800,000m3/day

9Manafea International

Co. LtdCogeneration 14-11-1427H Rabigh

500 MW electricity;150,000m3/day desalinated water

10 Hejaz Trading Co. Generation 04-01-1428H Rabigh5,000 MW electricity;

150,000 m3/day desalinated water

11European Middle East

Project Co. Ltd.Cogeneration 20-02-1428H Rabigh

2882 MW electricity;73,000 m3/day steam

12Ibrahim Zarea

Mohammad Al-Rifae Co.

Generation 27-02-1428HJeddah, 2nd

Industrial City600 MW electricity

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2006 Annual Report

Subsidiary Documentation – Industry Codes

During the year 2006 the transmission, distribution and metering codes have been produced by the Saudi Electricity Company (SEC). The transmission code has been reviewed by consultants and major stakeholders such as Saudi Aramco. Many suggestions from the review process have been accepted as useful. In this case the technical review is complete and the legal review nearing completion. The distribution and metering code is in the first stages of review with ECRA.

Studies

In 2006 various studies have been undertaken by ECRA to elaborate and produce detailed roadmaps for the execution of various developments delineated in the Implementing Regulations. The studies are concerned with restructuring of the industry, tariff design and review, growth and development of generation over the next 25 years, and growth and development of cogeneration over the next 25 years.

1- Electricity Industry Restructuring Plan for Saudi Arabia

The restructuring plan has been prepared pursuant to the relevant articles of the Law and the Regulations. The plan has been developed to meet or exceed global best practice. The approach is a deliberative step by step process. It is envisaged that over a period of 12 years the plan will proceed in three phases: institutional development, large customer competition, and wholesale competition. Key elements are establishment of an independent transmission company and a principal buyer, and implementation of a wheeling tariff. Ultimately arrangements will feature multiple generators, multiple distributors, and electricity traded in liquid spot and bilateral markets. Tariffs for connecting and using transmission and distribution networks which will remain operating on monopoly basis must strike a balance between revenue adequacy and efficiency incentives.The plan examines in detail the existing legal framework and any new legal steps that may be necessary to implement the changes proposed. The plan is expected to be completed in the first month or two of 2007.

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2006 Annual Report

2- Development of Tariff Design and Tariff Review System

The tariff study is being conducted by ECRA in conjunction with an international consultant. The work was started in November 2005 and is expected to be completed by February 2007. The primary objectives of the study are defining a tariff(involving preparation of the tariff, and a review system) that is affordable to end users, easy to implement and will allow sufficient income for the providers. Design of standardizedfinance/accounting forms to be used by all service providersare also an important element. The main elements of the overall tariff charge are a volume charge (cost of energy), connection charge, and a capacity charge.The tariff calculations will be based on what is considered a fair return for the industry; this in turn will be distributed between generation, transmission, and distribution. In addition, the tariff regime will have three phases corresponding to i) the unbundling period, ii) the regulatory period and iii) the ultimate goal of an electricity free market.

3- Master Plan for Electricity Generation and Transmission

The plan is expected to cover developments in the Kingdom over the 25 year period to 2032. The study has been awarded to the Research Institute of King Fahd University of Petroleum & Minerals, together with an international consultant and is expected to be completed by the end of 2008. The plan will take into account the restructuring plans underway as well as developments in availability of natural gas. In predicting demand; minimum, maximum, and likely growth as well as the weightings of the industrial, commercial and residential loads will be considered.Based on an optimum production expansion plan the required transmission system to deliver power to the load centers will be investigated. The final steps in the plan will be the timecoordination/phasing of generation and transmission.

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2006 Annual Report

4- Development of Long Term Plan for Desalinated Water

This study which is coordinated by King Saud University is due to be completed by mid 2008. The study involves projection forecasts for the needed desalinated water in the Kingdom over the next 25 years. Secondly, it will be necessary to estimate the split between desalination and aquifer production. Finally of the desalinated water the estimated cogeneration production will need to be determined compared to other methods primarily reverse osmosis (RO). The study will involve collaboration between ECRA, MWE, and SWCC. The study will encompass economic parameters, location of plants, aquifer data etc.

Disputes Resolution

The dispute resolution function is an important part of ECRA’s operations. Disputes involving various players in the industry as well as those lodged by consumers are considered. In all cases it is ECRA’s policy to attempt to negotiate between the two sides as much as possible. In cases where decisions of the committee are not accepted the matter may be taken to the Kingdom’s Court of Grievances.

Prior to adoption of the Electricity Law the Authority’s Board established a three member dispute resolution committee which continued to function until late in 2006 when, in accordance with the Electricity Law, a new six member dispute resolution committee was established by a decision of the Council of Ministers. The membership of the new committee consists of three legal experts, two experts in the electricity industry and a financial expert.During its tenure, the committee established by ECRA’s Board adjudicated nine cases in fifty meetings (40% in closed sessions).By the end of 2006 the new committee held six sessions.

Consumer Care and Service Providers Affairs

The consumer care department receives consumers’ complaints regarding service providers. Complaints may be presented at the consumer desk of the Authority at its offices in Riyadh,or alternatively communicated by mail, phone (including 800 facilities), by fax, or by e-mail. At present about a third of complaints are lodged in person at the ECRA office. Sixforms corresponding to various categories of complaints are available for completion by ECRA staff for onward transmittal to service providers. Following resolution of individual cases

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2006 Annual Report

the result is conveyed to the complainant in writing by the Authority. Occasionally an issue may require a field visit and anumber of visits were made during the period.Complaints lodged at the Authority by consumers during the period of this report numbered over 2400 and can be classifiedinto four categories, namely:

Electricity connection requests Displacement of poles and compensation requests Invoice problems General issues

General issues included tariff problems, disconnections, meter transfers, electrical safety incidents, delays in activating new connections, and requests to open consumer services offices.Figure (12) shows distribution of complaints by type while Figure (13) shows distribution of complaints by region.

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2006 Annual Report

E-Management and IT

During 2006, ECRA continued implementation of its program to acquire the software and hardware required for E-management and IT. The implementation covered three main aspects: regulatory matters, business support, and documentation management. Business support involves day-to-day operations of functions such as finance and accounts, human resources,administration, and payroll. The system being installed involves total automation, removing the need for paper transactions. The regulatory aspect of the IT plan which involves license management, consumer care, and service provider affairs is being based on a commercially available Customer Relations Management (CRM) module. (No commercial regulatory module is available, regulators having developed their own systems). IT system automation of the technical and tariff areas at ECRA are not being addressed in the present package and will be considered at a later date.Document management is an important function in the operations of ECRA. This is of particular significance as ECRAmust maintain a national archive of documentation concerning the regulatory functions. Documents which are only available in

Connection 53%

Billing 15%

Displacement of Poles and Compensation Requests 24%

General 8%

Figure (12): Distribution of consumer complaints by type

Figure (13): Distribution of consumer complaints by region

Eastern Region 5%

Southern Region 65%

Western Region 15%

Central Region 15%

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2006 Annual Report

hard copy will be scanned and converted to text using optical character recognition and categorized according to an extensive classification system. The resulting archive will be machinesearchable. With the exception of human resources all systems went live in June 2006.By design, employees from each concerned section have been extensively involved in the creation of each module and through meetings and conference room pilots have provided feedback at each stage. In this way the ownership of the system has been firmly vested with the users in each case.The ECRA web site is now well established and contains a number of items of information. The main headings are About ECRA, Laws and Regulations, Investor Services, and Consumer Affairs. License and authorization application forms are available under Investor Services. The previous annual report is also on the site.

Training and Manpower Development

The Authority pays particular attention to human resources development. All ECRA employees undergo a one week training/induction course on joining the organization. An important resource in this context is the ECRA organization manual which contains all the important elements of ECRA operations and practices. During the year 2006 , ninety-one employees participated in 40 training courses at a cost of SR 1,199,500. In addition, two employees were sent for long term training programs abroad, while another eleven have been approved to join the same program.

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Management and Finance

2006 Annual Report

Management and FinanceOrganizational Structure

ECRA is supervised by a board of directors chaired by the Minister of Water and Electricity, with the Governor of the Authority as deputy chair, six members from senior government officials representing the ministries of Waterand Electricity, Finance, Petroleum & Mineral Resources, Commerce & Industry, Economy & Planning, and the Saline Water Conversion Corporation (SWCC); and five membersselected on their own merits.According to article five of ECRA’s Charter, the board is theultimate authority to supervise ECRA’s affairs, adopt policies and plans for its operations, pursue implementation of laws, regulations, and directives related to public policies and approved plans of the electricity industry.The Authority is headed by the Governor who is appointed by a Royal order at the ministerial rank of “distinguished grade”. The Governor is the chief executive and operating officer ofthe Authority.The Governor is assisted by three vice-governors, each heading a sector of ECRA’s operations as follows:

1- Vice-Governor for Consumers and Service Providers Affairs

Supervises the following two departments: Consumer Care Service Providers Affairs

2- Vice-Governor for Regulatory AffairsOversees the following departments:

Technical Affairs Legal and Licensing Affairs Economics and Tariff Affairs

3- Vice-Governor for Support ServicesOversees the following departments:

Financial Affairs Human Resources Information Technology Administrative Support

The Governor is also assisted by a number of permanent and temporary advisors and consultants. Figure (14) shows the organization chart of the Authority.

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2006 Annual Report

Figure (14): Organization chart of the Autority

The Board

Governor

Public Relations

Governor’s Office

Advisors

Internal Auditor

Vice-Governor,Consumers & Service

Providers Affairs

Vice-Governor,Regulatory Affairs

Vice-Governor,Support Services

Consumer CareService Providers

AffairsEconomics &Tariff Affairs

Legal & Licensing Affairs

TechnicalAffairs

FinancialAffairs

Information Technology

Human Resources

Administrative Support

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Specialty Number of Employees

Technical 7

Administrative & clerical 58

Support 20

Engineering 11

Legal 3

Financial 7

Total 106

Nationality Number of Employees

Saudi 100

Non-Saudi 6

Total 106

2006 Annual Report

Human Resources

By its very nature, the Authority is a very small organization. For that reason it has adopted a policy of running its business with a set of human resources consisting of the following:

A nucleus of highly specialized, highly educated individuals with wide experience and thorough knowledge of the electricity industry and regulatory affairs.

A cadre of administrative and technical staff to support the expert group.

A continually changing group of consultants (both individuals and organizations) determined by the nature of the task under consideration. This insures that in every case the Authority receives the best available expertise, whenever it is needed, at the lowest overall cost, because payment for the expertise is limited to the time of need only, without the necessity of permanent employment.

Table (6) shows the distribution of the staff according to their specialties while table (7) shows the distribution according to nationality.

Table (6): Distribution of employees by job specialty

Table (7): Distribution of employees by nationality

46

Source 2006 2005

Saudi Electricity Co. 47,788 33,300

Saline Water Conversion Corp. 9,184 0

Marafiq Company 589 0

Jubail Power Co. 349 0

Total: 57,910 33,300

2006 Annual Report

Financial Data

According to the Authority’s Charter, its financial resources consist of the licensing remuneration, payments received for servicesrendered to service providers and others, and fines levied from violators. The licensing remuneration is set by rules adopted by theBoard of the Authority. The rules were established on the basis of collecting sufficient funds to cover the annual needs of theAuthority. They take into consideration the nature of work of the licensee (cogeneration, generation of electricity, its transmission, distribution, or trading), the relative contribution of each activity to the financing of the Authority, and the size of the licensee’sactivity.The following tables (8 and 9) show comparisons of the Authority’s income and expenditures in the year 2006 with those of the previous year.

Table No. (8)Revenue Comparison for 2006 with the Previous Year

(Amounts in Thousands of Saudi Riyals)

47

2006 2005

Salaries, wages and benefits 18,038 13,451

Social security 1,442 935

End of service remuneration 1,245 865

Health insurance 967 549

Training & scholarships 1,897 1,833

Studies and consultations 12,363 6,991

Operational Expenses 6,294 5,300

Assets depreciation 2,550 3,200

Total Expenses 44,796 33,124

2006 2005

Reserves 38,232 24,630

2006 Annual Report

Table No. (9): Comparison of expenditures for 2006 with the previous year(Amounts in Thousands of Saudi Riyals)

Table No. (10): Comparison of reserves for 2006 with 2005(Amounts in Thousands of Saudi Riyals)

The Authority is permitted by the Charter to retain a reserve equal to twice its expenditures for the preceding year. Table(10) shows a comparison of the reserve at the end of 2006 with its amount at the end of the previous year.

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Board of Directors

Management

Disputes Resolution Committee

BOARD OF DIRECTORS

H.E. ABDULLAH A. AL-HUSEYENMinister of Water & Electricity

Chairman of the Board

H.E. DR. FAREED M. ZEDANGovernor

Electricity & Cogeneration Regulatory AuthorityDeputy Chairman of the Board

MR. SAAD H. AL-HAMDANDeputy Minister for Revenues

Ministry of Finance

MR. ABDULAZIZ S. AL-SUGHAIRAl-Sughair Group

MR. AHMED A. AL-MEDAHEIMVice-Governor

Saline Water Conversion Corporation

DR. ABDULRAHMAN A. AL-JAAFRIChairman

Founding Committee, SAAB Takaful Co.

MR. HASSAN F. AQEEL Deputy Minister for Internal TradeMinistry of Commerce & Industry

DR. ABDULAZIZ S. AL-TURBAQProfessor, College of Engineering

King Saud University

DR. AHMED A. AL-KHALIFAAssistant Deputy Minister for Electricity Affairs

Ministry of Water & Electricity

DR. MOHAMMED SALEM AL-SABBANAdvisor to the Minister

of Petroleum & Mineral Resources

MR. TURKI S. AL-WASEIMEREconomic Advisor

Ministry of Petroleum & Mineral Resources

DR. FAHD SALEH AL-SULTANSecretary General

Council of Saudi Chambers of Commerce and Industry

MR. ABDULLAH A. AL-JARBOUHead, Municipalities & Housing Sector

Ministry of Economy & Planning

Board Secretary

Mr. SAUD AL-YUMNIActing Director of Public Relations, ECRA

2006 Annual Report50

2006 Annual Report

MANAGEMENT OF THE AUTHORITY

GOVERNOR

H.E. Dr. Fareed M. ZedanTel: (01) 201-9009, Fax: (01) 201-9012, e-mail: [email protected]

VICE-GOVERNORS

Eng. Mahmood H. KhalilVice-Governor (Acting)

Consumers & Service Providers AffairsTel: (01) 201-9092 Fax: (01) 201-9093

governor_office @ ecra.gov.sa

Dr. Saleh A. BakhrebahVice-Governor (Acting)

Support ServicesTel: (01) 201-9104 Fax: (01) 201-9105

[email protected]

Dr. Abdullah M. Al-ShehriVice-Governor (Acting)

Regulatory Affairs Tel: (01) 201-9034 Fax: (01) 201-9035

[email protected]

ADVISORS

Mr. Sameer ZakharySenior Advisor

Tel: (01) 201-9060 Fax: (01) [email protected]

The Department Heads

Mr. Mohammad Al-HusseiniActing Director, Governor’s Office


Mr. Saud A. Al-YumniActing Director, Public Relations


Prince Saud A. Al-MugrenActing Director, Consumer Affairs


(not yet appointed)Director, Service Providers Affairs


Mr. Abdul Rahman Al-MehaiziActing Director General, Legal & Licensing Affairs


Mr. Sulaiman Al-FayezDirector General, Technical Affairs

Tel: (01 201-9110 Fax: (01) [email protected]

Dr. Saleh A. Al-AjlanActing Director General, Economic Affairs


Mr. Ibrahim A. Al-GaraawiActing Director, Finance


Mr. Fahd M. Al-HassaniActing Director, Personnel


Mr. Mustapha M. KhanActing Director, Information Technology


Mr. Hamid K. Al-MalkiActing Director, Administrative SupportTel: (01) 2019-240 Fax: (01) 201-3211

[email protected]

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2006 Annual Report

ELECTRICITY INDUSTRYDISPUTES RESOLUTION COMMITTEE

Chairman

Dr. Mohammed A. Al-MarzouqiChairman, Financial Disputes Resolutions Committee,

Capital Market Authority

MEMBERS

Dr. Sameer A. Al-BayatDean, College of Engg. Sciences

Acting Dean, College of Applied EngineeringKing Fahd University of Petroleum & Minerals

Mr. Yusuf M. Al-MubarakChartered Accountant

Dr. Anwar H. MuftiProfessor, Electrical Engineering Dept.

King Abdul Aziz University

Mr. Fahd M. Al-EisaLegal Expert

Experts Bureau, Council of Ministers

Dr. Ayub M. Al-JarbouAssistant Professor, Administrative LawDirector of Systems Management Dept.,

Institute of Public Administration

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Publication 002-1428 June 2007

For further information about the Authority please contactThe Public Relations Department

Electricity & Cogeneration Regulatory AuthorityP.O. Box 4540Riyadh 11412Saudi Arabia

Telephone: (01) 201-9045Fax: (01) 201-9044

Toll Free: (800) 125-9000Or please visit our site on the internet

www.ecra.gov.sa