Electricity Subsidy in Oman

Transcription

1 Electricity Subsidy in Oman Hassan Taqi Authority for Electricity Regulation, Oman GCCIA Conference Abu Dhabi, UAE 17 December, 2015

2 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

3 Movement in Prices... Index 2000 = 100 General Price Index (1-9) Food, Beverages & Tobacco Water Transport & Communication Electricity MIS Supply 2000 = Source: MNE Monthly Statistical Bulletin & AER Supply data

4 Nominal vs Real Tariff lower band of Residential Tariff 10 baiza/kwh Baisa/kWh Source: MNE Statistics, Authority

5 Nominal vs Real Tariff lower band of Residential Tariff 10 baiza/kwh Baisa/kWh Nominal Tariff Source: MNE Statistics, Authority

6 Nominal vs Real Tariff lower band of Residential Tariff 10 baiza/kwh Baisa/kWh Nominal Tariff Real terms Tariff Source: MNE Statistics, Authority

7 Nominal vs Real Tariff lower band of Residential Tariff 10 baiza/kwh Baisa/kWh Nominal Tariff Real terms Tariff Reduction in real prices in the face of upward cost pressures Source: MNE Statistics, Authority

8 Problem: Competing Interests Statutory Obligations & Responsibilities Investors Maximize Profit Minimize risk Regulatory Authority Low prices Customers Security & quality of supply Government Maximize privatization proceeds Reduce sector subsidy Economic development Environmental interests Employment objectives Slide -8-

9 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 Conclusion

10 Electricity Market Structure 1. Main Interconnected System Wadi Al Jizzi PC SAOC. 325MW Al Ghubrah P&DC SAOC. 430MW Al Rusail PC SAOG. 687MW UPC SAOG. 273MW Oman Power & Water Procurement Company SAOC Muscat Electricity Distribution Company SAOC 8,689 GWh 248,625 Accts Oman 2014: Al Kamil PC SAOG. 283MW AQWA P&DC SAOG. 434MW Majan Electricity Company SAOC 87.7% of Total Supply Sohar P&DC SAOG. 590MW SMN Barka P&DC SAOG. 679MW Al Batinah PC SAOG 745MW Al Sawadi PC SAOG 750MW Oman Electricity Transmission Company SAOC 6,703 GWh 186,605 Accts Mazoon Electricity Company SAOC 87.6% of all Accounts Pheonix PC SAOG 2000MW 5,706 GWh 340,923 Accts 2. Rural Systems Rural Areas Electricity Company SAOC Generation/Desalination Transmission Distribution & Supply 3.4% of Total Supply 703 GWh 30,904 Accts 3.3% of all Accounts 3. Dhofar Power System Dhofar Generation Company 273MW Oman Power & Water Procurement Company SAOC Distribution & Supply Company 8.8% of Total Supply Sembcorp Salalah SAOC 445MW Oman Electricity Transmission Company SAOC 2,327 GWh 84,127 Accts 9.1% of all Accounts Source: 2014 AER Annual Report

11 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 Conclusion

12 Electricity Sector Transactions Main Interconnected System Direction of payments Customer Revenue Al Ghubrah Power & Desalination Company SAOC Wadi Jizzi Power Company SAOC Al Rusail Power Company SAOC United Power Company SAOG Al Kamil Power Company SAOG Oman Power & Water Procurement Company SAOC PWP pays Production Facilities for Capacity and Output in accordance with terms of PPA/PWPA Ancillary Services Discos pay PWP for bulk purchases of electricity charged at a cost reflective Bulk Supply Tariff (BST); Electricity BST includes PWP s costs of electricity procurement activities Muscat Electricity Distribution Company SAOC Majan Electricity Company SAOC ACWA Power Barka SAOG Sohar Power Company SAOG Oman Electricity Transmission Company SAOC Mazoon Electricity Company SAOC SMN Barka SAOC Barka III (750MW) Sohar II (750MW) Sur IPP (2,000MW) Discos pay OETC for Connection to OETC s Transmission System (Distribution business) Use of OETC s Transmission System (Supply business) Subsidy Others All intra sector transactions are: (i) regulated & (ii) fully cost reflective Single point of Subsidy injection

13 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.

14 Economic Costs and Subsidy MIS 2014 Licensed Suppliers Generation Transmission & Dispatch Competition Distribution & Supply RPI-X Price Controls Total Economic Cost of Electricity Supply Revenue & Subsidy

15 Economic Costs and Subsidy MIS 2014 Licensed Suppliers 145 m RO 560 m RO 68 m RO 347 m RO Generation Transmission & Dispatch Competition Distribution & Supply RPI-X Price Controls Total Economic Cost of Electricity Supply Revenue & Subsidy

16 Economic Costs and Subsidy MIS 2014 Licensed Suppliers 145 m RO 560 m RO 68 m RO 347 m RO Customer Revenue 346 m RO Generation Transmission & Dispatch Competition Distribution & Supply RPI-X Price Controls Total Economic Cost of Electricity Supply Revenue & Subsidy

17 Economic Costs and Subsidy MIS 2014 Licensed Suppliers 145 m RO 560 m RO 560 m RO 68 m RO Economic Subsidy 214 m RO 347 m RO Customer Revenue 346 m RO Generation Transmission & Dispatch Competition Distribution & Supply RPI-X Price Controls Total Economic Cost of Electricity Supply Revenue & Subsidy

18 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 Conclusion

19 Movement in MIS Subsidy Underlying Economic Subsidy Index Underlying Subsidy per kwh Supplied Index

20 Movement in MIS Subsidy Underlying Economic Subsidy Index Underlying Subsidy per kwh Supplied Index

21 Movement in MIS Subsidy Underlying Economic Subsidy Index Underlying Subsidy per kwh Supplied Index GWh Supplied Index

22 Movement in MIS Subsidy Underlying Economic Subsidy Index Underlying Subsidy per kwh Supplied Index GWh Supplied Index

23 Movement in MIS Subsidy Underlying Economic Subsidy Index Underlying Subsidy per kwh Supplied Index GWh Supplied Index Growth in subsidy in line with supply growth

24 Underlying Subsidy 2006 and 2014 comparison Underlying Economic Subsidy

25 Underlying Subsidy 2006 and 2014 comparison Underlying Economic Subsidy Underlying Subsidy per kwh Supplied (bz/kwh) 0.0

26 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 Conclusion

27 Permitted Tariffs Permitted Tariffs approved by the Council of Ministers A: Permitted Tariffs for Electricity Supply Permitted Tariff Category Tariff Structure Industrial 1 All Regions except Dhofar Dhofar Region Commercial Ministry of Defence Residential Government Agriculture & Fisheries Tourism 2 September to April: 12 Baiza per kwh August to March: 12 Baiza perkwh May to August: 24 Baiza per kwh April to July: 24 Baiza per kwh Flat 20 Baiza per KWh Flat 20 Baiza per KWh kwh kwh kwh kwh above kwh 10 Bz / kwh 15 Bz / kwh 20 Bz / kwh 25 Bz / kwh 30 Bz / kwh kwh kwh kwh kwh above kwh 10 Bz / kwh 15 Bz / kwh 20 Bz / kwh 25 Bz / kwh 30 Bz / kwh kwh 7001 kwh & above 10 Baiza per kwh 20 Baiza per kwh kwh kwh kwh above 7001 kwh 10 Bz / kwh 15 Bz / kwh 20 Bz / kwh 20 Bz / kwh 1 Customers require a MOCI letter of recommendation and must maintain a power factor of least Subject to Ministry of Tourism regulations and approval B: Permitted Tariff fees for Disconnection & Reconnection of accounts Disconnection fee (all types of metered accounts): Rial Omani Reconnection fee (all types of metered accounts): Rial Omani

28 Subsidy per Customer Category 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

29 Revenue vs Cost per kwh by Customer category bz/kwh by Customer Category 2013 Revenue/kWh 2013 cost/kwh 0.0 Residential Industrial Commercial Agric/Fisheries Tourism Government MoD/Special Forces

30 Revenue vs Cost per kwh by Customer category bz/kwh by Customer Category 2013 Revenue/kWh 2013 cost/kwh 0.0 Residential Industrial Commercial Agric/Fisheries Tourism Government MoD/Special Forces

31 Revenue vs Cost per kwh by Customer category bz/kwh by Customer Category 2013 Revenue/kWh 2013 cost/kwh 0.0 Residential Industrial Commercial Agric/Fisheries Tourism Government MoD/Special Forces

32 Revenue vs Cost per kwh by Customer category bz/kwh by Customer Category 2013 Revenue/kWh 2013 cost/kwh Residential Industrial Commercial Agric/Fisheries Tourism Government MoD/Special Forces

33 Revenue vs Cost per kwh by Customer category bz/kwh by Customer Category 2013 Revenue/kWh 2013 cost/kwh Residential Industrial Commercial Agric/Fisheries Tourism Government MoD/Special Forces Revenue from Residential customers is the lowest on average per kwh (11.6 bz/kwh) and imply the highest Subsidy per kwh

34 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 Conclusion

35 Subsidy per Customer Category MoD/Special Forces 0.3% Government 3% Tourism 0.1% Residential 73% Agric/Fisheries 2% Commercial 12% Industrial 10%

36 Subsidy per Customer Category MoD/Special Forces 0.3% Government 3% Tourism 0.1% Residential 73% Agric/Fisheries 2% Commercial 12% Industrial 10%

37 Subsidy per Customer Category MoD/Special Forces 0.3% Government 3% Tourism 0.1% Residential 73% Agric/Fisheries 2% Commercial 12% Industrial 10%

38 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 Conclusion

39 Domestic Customer Demand Profiles & Subsidy 2010 Consumption between 20,000 & 25,000 kwh kwh per Month 3,500 3,000 2,500 2,000 1,500 1,000 MEDC MJEC MZEC RAEC DPC Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2010 Source: Authority

40 Domestic Customer Demand Profiles & Subsidy 2010 Consumption between 20,000 & 25,000 kwh kwh per Month 3,500 Subsidy RO 3,500,000 3,000 3,000,000 2,500 2,000 1,500 1,000 2,500,000 2,000,000 1,500,000 1,000,000 Subsidy (rhs) MEDC MJEC MZEC RAEC DPC ,000 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Source: Authority

41 Average monthly Consumption: Muscat Between 0 & 5k Between 15k & 20k 300 2, ,000 1,500 1, Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Between 5k & 10k Between 20k & 25k 1,000 3, , ,000 1,500 1, Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Between 10k & 15k Between 25k & 30k 1,800 1,600 1,400 1,200 1, Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 4,000 3,500 3,000 2,500 2,000 1,500 1, Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

42 Customer Consumption Customer Accounts below 25,000 kwh p.a. Consumption 159, ,992 Accounts > 25000kWh p.a. Accounts < 25000kWh p.a. 103, , ,301 39,341 80,423 14,409 12,027 31,946 MEDC Majan Mazoon RAEC DPC Source: Authority, 2010

43 Analysis of Residential Consumption (2013 kwh Annual Consumption at 10 bz/kwh) 15% 85% 85% of total 2013 Residential consumption was within the first block ( kwh) and therefore charged at 10 bz/kwh

44 Residential Tariff Analysis Block 1 Block 2 Block 3 Block 4 Block 5 kwh >10,000 Baisa/kWh

45 Residential Tariff Analysis Block 1 Block 2 Block 3 Block 4 Block 5 kwh >10,000 Baisa/kWh bz/kw Average

46 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

47 Actions

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

49 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

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

51 Actions 1. Introduction of Cost-Reflective Tariffs for Large Consumers: Industrial, Commercial & Government 2. Undertake a socio-economic impact study to assess the impact of utility tariff rises on Residential consumers

52 Actions 1. Introduction of Cost-Reflective Tariffs for Large Consumers: Industrial, Commercial & Government 2. Undertake a socio-economic impact study to assess the impact of utility tariff rises on Residential consumers 3. Revise the price of gas sold to electricity generation plants

53 Revenue vs Cost per kwh by Customer category bz/kwh by Customer Category 2013 Revenue/kWh 2013 cost/kwh 0.0 Residential Industrial Commercial Agric/Fisheries Tourism Government MoD/Special Forces

54 Revenue vs Cost per kwh by Customer category bz/kwh by Customer Category 2013 Revenue/kWh 2013 cost/kwh 2015 cost/kwh 0.0 Residential Industrial Commercial Agric/Fisheries Tourism Government MoD/Special Forces

55 Actions 1. Introduction of Cost-Reflective Tariffs for Large Consumers: Industrial, Commercial & Government 2. Undertake a socio-economic impact study to assess the impact of utility tariff rises on Residential consumers 3. Revise the price of gas sold to electricity generation plants

56 Actions 1. Introduction of Cost-Reflective Tariffs for Large Consumers: Industrial, Commercial & Government 2. Undertake a socio-economic impact study to assess the impact of utility tariff rises on Residential consumers 3. Revise the price of gas sold to electricity generation plants 4. Show actual cost of supply and subsidy on customer bills

57 Thank you for your kind attention