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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

Movement in Prices... Index 2000 = 100 General Price Index (1-9) Food, Beverages & Tobacco Water Transport & Communication Electricity 167 144 117 113 100 MIS Supply 2000 = 100 328 100 100 2000 2013 Source: MNE Monthly Statistical Bulletin & AER Supply data

Nominal vs Real Tariff lower band of Residential Tariff 10 baiza/kwh Baisa/kWh 12 10 8 6 4 2 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2013 2010 Source: MNE Statistics, Authority

Nominal vs Real Tariff lower band of Residential Tariff 10 baiza/kwh Baisa/kWh 12 10 10.0 8 6 Nominal Tariff 4 2 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2013 2010 Source: MNE Statistics, Authority

Nominal vs Real Tariff lower band of Residential Tariff 10 baiza/kwh Baisa/kWh 12 10 10.0 8 6 4 Nominal Tariff Real terms Tariff 6.6 2 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2013 2010 Source: MNE Statistics, Authority

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-

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

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

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.

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

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

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

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

Movement in MIS Subsidy 2006-14 Underlying Economic Subsidy Index Underlying Subsidy per kwh Supplied Index 2006 2007 2008 2009 2010 2011 2012 2013 2014

Movement in MIS Subsidy 2006-14 Underlying Economic Subsidy Index Underlying Subsidy per kwh Supplied Index 243 100 2006 2007 2008 2009 2010 2011 2012 2013 2014

Movement in MIS Subsidy 2006-14 Underlying Economic Subsidy Index Underlying Subsidy per kwh Supplied Index 243 100 100 106 123 138 GWh Supplied Index 154 178 201 218 240 2006 2007 2008 2009 2010 2011 2012 2013 2014

Movement in MIS Subsidy 2006-14 Underlying Economic Subsidy Index Underlying Subsidy per kwh Supplied Index 243 100 101 100 106 123 138 GWh Supplied Index 154 178 201 218 240 2006 2007 2008 2009 2010 2011 2012 2013 2014

Underlying Subsidy 2006 and 2014 comparison 250.0 210.3 200.0 150.0 100.0 86.5 50.0 0.0 2006 2014 Underlying Economic Subsidy

Underlying Subsidy 2006 and 2014 comparison 250.0 200.0 210.3 14.0 12.0 150.0 9.4 9.5 10.0 8.0 100.0 86.5 6.0 50.0 4.0 2.0 0.0 2006 2014 Underlying Economic Subsidy Underlying Subsidy per kwh Supplied (bz/kwh) 0.0

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 rate @ 20 Baiza per KWh Flat rate @ 20 Baiza per 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 7001-10000 kwh above 10000 kwh 10 Bz / kwh 15 Bz / kwh 20 Bz / kwh 25 Bz / kwh 30 Bz / kwh 0-7000 kwh 7001 kwh & above 10 Baiza per kwh 20 Baiza per kwh 0-3000 kwh 3001-5000 kwh 5001-7000 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 0.9 2 Subject to Ministry of Tourism regulations and approval B: Permitted Tariff fees for Disconnection & Reconnection of accounts Disconnection fee (all types of metered accounts): 7.500 Rial Omani Reconnection fee (all types of metered accounts): 7.500 Rial Omani

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

Revenue vs Cost per kwh by Customer category 40.0 35.0 30.0 25.0 20.0 15.0 10.0 5.0 bz/kwh by Customer Category 2013 Revenue/kWh 2013 cost/kwh 0.0 Residential Industrial Commercial Agric/Fisheries Tourism Government MoD/Special Forces

Revenue vs Cost per kwh by Customer category 40.0 35.0 30.0 bz/kwh by Customer Category 2013 Revenue/kWh 2013 cost/kwh 25.0 20.0 15.0 11.6 15.3 20.0 12.0 16.8 23.4 19.9 10.0 5.0 0.0 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

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

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 500 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2010 Source: Authority

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 500 500,000 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2010 0 Source: Authority

Average monthly Consumption: Muscat Between 0 & 5k Between 15k & 20k 300 2,500 250 200 150 100 2,000 1,500 1,000 50 500 0 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 3,000 800 2,500 600 400 200 2,000 1,500 1,000 500 0 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 1,000 800 600 400 200 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Customer Consumption Customer Accounts below 25,000 kwh p.a. Consumption 159,457 178,992 Accounts > 25000kWh p.a. Accounts < 25000kWh p.a. 103,767 149,320 118,301 39,341 80,423 14,409 12,027 31,946 MEDC Majan Mazoon RAEC DPC Source: Authority, 2010

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 (0-3000 kwh) and therefore charged at 10 bz/kwh

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

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

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

Revenue vs Cost per kwh by Customer category 40.0 35.0 30.0 25.0 20.0 15.0 10.0 5.0 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

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