electricity subsidy in oman - gccia 2 - 2. hassan taqi.pdf · oman power & water procurement...

Electricity Subsidy in Oman

Hassan Taqi

Authority for Electricity Regulation, Oman

GCCIA Conference – Abu Dhabi, UAE

17 December, 2015

Presentation Outline

� Overview

� Regulatory challenge

� Market structure

� Subsidy mechanism

� Analysis

� Movement in Subsidy

� Customer Tariffs vs Cost-Reflective Tariffs

� Subsidy Allocation by Customer Category

� Residential Subsidy

� Way Forward

� Actions

100

144

167

117113

100

2000 2013

General Price Index (1-9)

Food, Beverages & Tobacco

Water

Transport & Communication

Electricity

Movement in Prices...Index 2000 = 100

Source: MNE Monthly Statistical Bulletin & AER Supply data

100

328MIS Supply 2000 = 100

Nominal vs Real Tarifflower band of Residential Tariff – 10 baiza/kWh

0

2

4

6

8

10

12

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Baisa/kWh

Source: MNE Statistics, Authority

2000 2013


10.0

0

2

4

6

8

10

12

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Baisa/kWh

Nominal Tariff


2000 2013


10.0

6.6

0

2

4

6

8

10

12

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Baisa/kWh

Nominal Tariff

Real terms Tariff


2000 2013


10.0

6.6

0

2

4

6

8

10

12

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Baisa/kWh

Nominal Tariff

Real terms Tariff


2000 2013

Reduction in real prices in the face of upward cost pressures

Slide - 8 -

Problem: Competing Interests

Regulatory Authority

Maximize Profit

Minimize risk

Investors

Low prices

Security & quality of supply

Customers

Maximize privatization proceeds

Reduce sector subsidy

Economic development

Environmental interests

Employment objectives

Government

Statutory Obligations & Responsibilities


� Overview




� Analysis





� Way Forward

� Actions

� Conclusion

1. Main Interconnected System

2. Rural Systems

3. DhofarPower System

Oman Power & WaterProcurement Company SAOC

Oman Electricity Transmission Company SAOC

Al Rusail PC SAOG. 687MW

Wadi Al Jizzi PC SAOC. 325MW

UPC SAOG. 273MW

Al Kamil PC SAOG. 283MW

Al Ghubrah P&DC SAOC. 430MW

AQWA P&DC SAOG. 434MW

Sohar P&DC SAOG. 590MW

SMN Barka P&DC SAOG. 679MW

Al Batinah PC SAOG 745MW

Al Sawadi PC SAOG 750MW

Pheonix PC SAOG 2000MW

Muscat Electricity Distribution Company SAOC

8,689 GWh 248,625 Accts

Majan Electricity Company SAOC

6,703 GWh 186,605 Accts

Mazoon Electricity Company SAOC

5,706 GWh 340,923 Accts

Sembcorp Salalah SAOC 445MW

Dhofar Generation Company 273MW

Oman Electricity Transmission Company SAOC

Distribution & SupplyCompany

2,327 GWh 84,127 Accts

Generation/Desalination Transmission

Rural Areas Electricity Company SAOC

Distribution & Supply

703 GWh 30,904 Accts

Electricity Market Structure

87.7% of Total Supply

87.6% of all Accounts





Oman 2014:

Source: 2014 AER Annual Report



� Overview




� Analysis





� Way Forward

� Actions

� Conclusion

Wadi Jizzi Power Company SAOC

Al Ghubrah Power & Desalination Company SAOC

Others

Direction of payments

Muscat Electricity Distribution Company SAOC

Majan Electricity Company SAOC

Mazoon Electricity Company SAOCOman Electricity Transmission

Company SAOC

All intra sector transactions are: (i) regulated & (ii) fully cost reflective

Electricity Sector Transactions Main Interconnected System

United Power Company SAOG

Al Rusail Power Company SAOC

Al Kamil Power Company SAOG

ACWA Power BarkaSAOG

Sohar Power Company SAOG

SMN Barka SAOC


PWP pays Production Facilities for

• Capacity and Output in accordance with terms of PPA/PWPA

• Ancillary Services

Subsidy

Customer Revenue

Barka III (750MW)

Sohar II (750MW)

Sur IPP (2,000MW)

Discos pay PWP for

• bulk purchases of electricity charged at a cost reflective Bulk Supply Tariff (BST);

• Electricity BST includes PWP’scosts of electricity procurement activities

Discos pay OETC for

• Connection to OETC’s Transmission System (Distribution business)

• Use of OETC’s Transmission System (Supply business)

Single point of Subsidy injection

Electricity Subsidy

Subsidy = Economic cost of supply – Customer revenue

� Customer revenue insufficient to recover the full economic cost of electricity supply, therefore Subsidy required.

� Article (18): Ministry of Finance shall pay electricity subsidy calculated by the Authority to Licensed Suppliers.

� Five Licensed Suppliers : Muscat, Majan and Mazoon, RAEC and DPC

� Published in Authority Annual Reports: transparency and accountability .

Generation Transmission

& Dispatch

Distribution

& Supply

Total Economic

Cost of

Electricity

Supply

Revenue &

Subsidy

Licensed

Suppliers

Economic Costs and Subsidy

MIS 2014

RPI-X Price ControlsCompetition


& Dispatch

Distribution

& Supply

Total Economic

Cost of

Electricity

Supply

Revenue &

Subsidy

560 m RO

Licensed

Suppliers


MIS 2014

347 m RO

68 m RO

145 m RO



& Dispatch

Distribution

& Supply

Total Economic

Cost of

Electricity

Supply

Revenue &

Subsidy

560 m RO

Licensed

Suppliers

Customer

Revenue

346 m RO


MIS 2014

347 m RO

68 m RO

145 m RO



& Dispatch

Distribution

& Supply

Total Economic

Cost of

Electricity

Supply

Revenue &

Subsidy


MIS 2014

347 m RO

68 m RO

145 m RO 560 m RO

Licensed

Suppliers

Customer

Revenue

346 m RO

Economic Subsidy

214 m RO

560 m RO



� Overview




� Analysis





� Way Forward

� Actions

� Conclusion

Movement in MIS Subsidy

2006-14

2006 2007 2008 2009 2010 2011 2012 2013 2014

Underlying Economic Subsidy Index

Underlying Subsidy per kWh Supplied Index


2006-14

2006 2007 2008 2009 2010 2011 2012 2013 2014

100

243




2006-14

100 106 123

138 154

178 201

218 240

2006 2007 2008 2009 2010 2011 2012 2013 2014

GWh Supplied Index

100

243




2006-14

100 106 123

138 154

178 201

218 240

2006 2007 2008 2009 2010 2011 2012 2013 2014

GWh Supplied Index

100

243

101




2006-14

100 106 123

138 154

178 201

218 240

2006 2007 2008 2009 2010 2011 2012 2013 2014

GWh Supplied Index

100

243

101



Growth in subsidy in line with supply growth

86.5

210.3

0.0

50.0

100.0

150.0

200.0

250.0

2006 2014

Underlying Economic Subsidy

Underlying Subsidy 2006 and 2014 comparison

86.5

210.3

9.4 9.5

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

0.0

50.0

100.0

150.0

200.0

250.0

2006 2014

Underlying Economic Subsidy

Underlying Subsidy per kWh Supplied (bz/kWh)

Underlying Subsidy 2006 and 2014 comparison


� Overview




� Analysis





� Way Forward

� Actions

� Conclusion

Permitted Tariffs

Permitted Tariffs approved by the Council of Ministers

A: Permitted Tariffs for Electricity Supply

Industrial 1

Commercial

Ministry of Defence

0-3000 kWh 3001-5000 kWh 5001-7000 kWh 7001-10000 kWh above 10000 kWh

10 Bz / kWh 15 Bz / kWh 20 Bz / kWh 25 Bz / kWh 30 Bz / kWh

0-3000 kWh 3001-5000 kWh 5001-7000 kWh 7001-10000 kWh above 10000 kWh

10 Bz / kWh 15 Bz / kWh 20 Bz / kWh 25 Bz / kWh 30 Bz / kWh

0-3000 kWh 3001-5000 kWh 5001-7000 kWh

10 Bz / kWh 15 Bz / kWh 20 Bz / kWh

B: Permitted Tariff fees for Disconnection & Reconnect ion of accounts

Disconnection fee (all types of metered accounts): 7.500 Rial Omani

Reconnection fee (all types of metered accounts): 7.500 Rial Omani

Residential

Government

0-7000 kWh

Flat rate @ 20 Baiza per KWh

April to July: 24 Baiza per kWh

7001 kWh & above

Flat rate @ 20 Baiza per KWhMay to August: 24 Baiza per kWh

Tourism 2

1 Customers require a MOCI letter of recommendation and must maintain a power factor of least 0.9

2 Subject to Ministry of Tourism regulations and approval

above 7001 kWh

20 Bz / kWh

Agriculture & Fisheries10 Baiza per kWh 20 Baiza per kWh

Permitted Tariff Category

All Regions except Dhofar

Tariff Structure

September to April: 12 Baiza per kWh August to March: 12 Baiza perkWh

Dhofar Region

Customer Categories as per current Permitted Tariffs Schedule:

1. Residential

2. Industrial

3. Commercial

4. Agriculture & Fisheries

5. Tourism

6. Government

7. Ministry of Defence

Subsidy per Customer Category

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

Residential Industrial Commercial Agric/Fisheries Tourism Government MoD/Special

Forces

bz/kWh by Customer Category

2013 Revenue/kWh

2013 cost/kWh

Revenue vs Cost per kWh by Customer category


0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0


Forces


2013 Revenue/kWh

2013 cost/kWh


11.6

15.3

20.0

12.0

16.8

23.4

19.9

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0


Forces


2013 Revenue/kWh

2013 cost/kWh


11.6

15.3

20.0

12.0

16.8

23.4

19.9

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0


Forces


2013 Revenue/kWh

2013 cost/kWh

Revenue from Residential customers is the lowest on average

per kWh (11.6 bz/kWh) and imply the highest Subsidy per kWh


� Overview




� Analysis





� Way Forward

� Actions

� Conclusion

Residential

73%

Industrial

10%

Commercial

12%

Agric/Fisheries

2%

Tourism

0.1%

Government

3%

MoD/Special

Forces

0.3%

Subsidy per Customer Category


� Overview




� Analysis





� Way Forward

� Actions

� Conclusion

Domestic Customer Demand Profiles & Subsidy2010 Consumption between 20,000 & 25,000 kWh

0

500

1,000

1,500

2,000

2,500

3,000

3,500

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

kWh per Month

2010

MEDC

MJEC

MZEC

RAEC

DPC

Source: Authority

Domestic Customer Demand Profiles & Subsidy2010 Consumption between 20,000 & 25,000 kWh

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

0

500

1,000

1,500

2,000

2,500

3,000

3,500


Subsidy ROkWh per Month

2010

Subsidy (rhs)

MEDC

MJEC

MZEC

RAEC

DPC

Source: Authority

Average monthly Consumption: Muscat

0

50

100

150

200

250

300


Between 0 & 5k

0

200

400

600

800

1,000


Between 5k & 10k

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800


Between 10k & 15k

0

500

1,000

1,500

2,000

2,500


Between 15k & 20k

0

500

1,000

1,500

2,000

2,500

3,000


Between 20k & 25k

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000


Between 25k & 30k

Customer Accounts below 25,000 kWh p.a. Consumption

118,301

80,423

149,320

12,02731,946

159,457

103,767

178,992

14,409

39,341

MEDC Majan Mazoon RAEC DPC

Accounts > 25000kWh p.a.

Accounts < 25000kWh p.a.

Customer Consumption

Source: Authority, 2010

85% of total 2013 Residential consumption was within the

first block (0-3000 kWh) and therefore charged at 10 bz/kWh

Analysis of Residential Consumption

(2013 kWh Annual Consumption at 10 bz/kWh)

15%

85%

Residential Tariff Analysis

Block 1 Block 2 Block 3 Block 4 Block 5

kWh 0-3000 3001-5000 5001-7000 7001-10000 >10,000

Baisa/kWh 10 15 20 25 30

Residential Tariff Analysis

Block 1 Block 2 Block 3 Block 4 Block 5

kWh 0-3000 3001-5000 5001-7000 7001-10000 >10,000

Baisa/kWh 10 15 20 25 30

11.5 bz/kW

Average


� Overview




� Analysis





� Way Forward

� Actions

Actions

Actions

1. Introduction of Cost-Reflective Tariffs for Large Consumers: Industrial, Commercial & Government

Large Customers

Large Customers account for:

� Less than 1% of total accounts;

� But, more than 30% of total electricity supply;

� Cost-reflective tariffs expected to reduce Subsidy by about 6-8%;

� Important step in tariff reform process

Actions


Actions


2. Undertake a socio-economic impact study to assess the impact of utility tariff rises on Residential consumers

Actions



3. Revise the price of gas sold to electricity generation plants

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0


Forces


2013 Revenue/kWh

2013 cost/kWh



0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0


Forces


2013 Revenue/kWh

2013 cost/kWh

2015 cost/kWh

Actions




Actions




4. Show actual cost of supply and subsidy on customer bills

Thank you for your kind attention

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