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
167
Water
Transport & Communication
144
Electricity
117
113
100
100
MIS Supply 2000 = 100
328
100
2000
Source: MNE Monthly Statistical Bulletin & AER Supply data
2013
Nominal vs Real Tariff
lower band of Residential Tariff – 10 baiza/kWh
Baisa/kWh
12
10
8
6
4
2
0
2000
2000
Source: MNE Statistics, Authority
2001
2002
2003
2004
2005
2006
2007
2008
2009
2013
2010
Nominal vs Real Tariff
lower band of Residential Tariff – 10 baiza/kWh
Baisa/kWh
12
10.0
10
8
6
Nominal Tariff
4
2
0
2000
2000
Source: MNE Statistics, Authority
2001
2002
2003
2004
2005
2006
2007
2008
2009
2013
2010
Nominal vs Real Tariff
lower band of Residential Tariff – 10 baiza/kWh
Baisa/kWh
12
10.0
10
8
6.6
6
Nominal Tariff
Real terms Tariff
4
2
0
2000
2000
Source: MNE Statistics, Authority
2001
2002
2003
2004
2005
2006
2007
2008
2009
2013
2010
Nominal vs Real Tariff
lower band of Residential Tariff – 10 baiza/kWh
Baisa/kWh
12
10.0
10
8
6.6
6
Nominal Tariff
Real terms Tariff
4
2
0
2000
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
Reduction in real prices in the face of upward cost pressures
Source: MNE Statistics, Authority
2013
2010
Problem: Competing Interests
Statutory Obligations & Responsibilities
Investors
Maximize Profit
Regulatory
Authority
Customers
Low prices
Minimize risk
Security & quality of supply
Government
Maximize privatization proceeds
Reduce sector subsidy
Economic development
Environmental interests
Employment objectives
Slide - 8 -
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
Electricity Market Structure
1. Main
Interconnected
System
Wadi Al Jizzi PC SAOC.
325MW
Al Ghubrah P&DC SAOC.
430MW
Al Rusail PC SAOG.
2. Rural
Systems
687MW
Muscat Electricity Distribution
Company SAOC
Oman Power & Water
Procurement Company
SAOC
8,689 GWh
248,625 Accts
UPC SAOG.
273MW
Al Kamil PC SAOG.
283MW
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
Mazoon Electricity Company
SAOC
Pheonix PC SAOG
2000MW
5,706 GWh
Majan Electricity Company
SAOC
6,703 GWh
Oman Electricity
Transmission Company
SAOC
186,605 Accts
Transmission
Distribution & Supply
703 GWh
3. Dhofar
Power
System
Dhofar Generation Company
Sembcorp Salalah SAOC
Source: 2014 AER Annual Report
273MW
445MW
Oman Power & Water
Procurement Company
SAOC
Oman Electricity
Transmission
Company SAOC
30,904 Accts
Distribution & Supply
Company
2,327 GWh
87.7% of
Total Supply
87.6% of all
Accounts
340,923 Accts
Rural Areas Electricity Company SAOC
Generation/Desalination
Oman 2014:
84,127 Accts
3.4% of
Total Supply
3.3% of all
Accounts
8.8% of
Total Supply
9.1% of all
Accounts
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
Electricity Sector Transactions
Main Interconnected System
Direction of payments
Customer Revenue
Al Ghubrah Power &
Desalination
Company SAOC
Oman Power & Water
Procurement Company SAOC
Wadi Jizzi Power
Company SAOC
Discos pay PWP for
Al Rusail Power
Company SAOC
PWP pays Production Facilities for
•
Capacity and Output in
accordance with terms of
PPA/PWPA
•
Ancillary Services
United Power
Company SAOG
Al Kamil Power
Company SAOG
•
bulk purchases of electricity
charged at a cost reflective Bulk
Supply Tariff (BST);
•
Electricity BST includes PWP’s
costs of electricity procurement
activities
ACWA Power Barka
SAOG
Sohar Power
Company SAOG
SMN Barka SAOC
Oman Electricity Transmission
Company SAOC
Majan Electricity Company
SAOC
Mazoon Electricity Company
SAOC
Discos pay OETC for
•
Connection to OETC’s Transmission
System (Distribution business)
•
Use of OETC’s Transmission System
(Supply business)
Barka III (750MW)
Sohar II (750MW)
Muscat Electricity Distribution
Company SAOC
Subsidy
Sur IPP (2,000MW)
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
Competition
Transmission
& Dispatch
Distribution Total Economic
& Supply
Cost of
Electricity
Supply
RPI-X Price Controls
Revenue &
Subsidy
Economic Costs and Subsidy
MIS 2014
Licensed
Suppliers
145 m RO
560 m RO
68 m RO
347 m RO
Generation
Competition
Transmission
& Dispatch
Distribution Total Economic
& Supply
Cost of
Electricity
Supply
RPI-X Price Controls
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
Competition
Transmission
& Dispatch
Distribution Total Economic
& Supply
Cost of
Electricity
Supply
RPI-X Price Controls
Revenue &
Subsidy
Economic Costs and Subsidy
MIS 2014
Licensed
Suppliers
145 m RO
560 m RO
560 m RO
Economic Subsidy
214 m RO
68 m RO
347 m RO
Customer
Revenue
346 m RO
Generation
Competition
Transmission
& Dispatch
Distribution Total Economic
& Supply
Cost of
Electricity
Supply
RPI-X Price Controls
Revenue &
Subsidy
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
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
243
Underlying Subsidy per kWh Supplied Index
100
2006
2007
2008
2009
2010
2011
2012
2013
2014
Movement in MIS Subsidy
2006-14
Underlying Economic Subsidy Index
243
Underlying Subsidy per kWh Supplied Index
100
GWh Supplied Index
178
100
106
2006
2007
123
2008
138
2009
201
218
240
154
2010
2011
2012
2013
2014
Movement in MIS Subsidy
2006-14
Underlying Economic Subsidy Index
243
Underlying Subsidy per kWh Supplied Index
100
101
GWh Supplied Index
178
100
106
2006
2007
123
2008
138
2009
201
218
240
154
2010
2011
2012
2013
2014
Movement in MIS Subsidy
2006-14
Underlying Economic Subsidy Index
243
Underlying Subsidy per kWh Supplied Index
100
101
GWh Supplied Index
178
100
106
2006
2007
123
2008
138
2009
201
218
240
154
2010
2011
2012
2013
Growth in subsidy in line with supply growth
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
14.0
210.3
12.0
200.0
150.0
9.4
9.5
10.0
8.0
100.0
6.0
86.5
4.0
50.0
2.0
0.0
0.0
2006
2014
Underlying Economic Subsidy
Underlying Subsidy per kWh Supplied (bz/kWh)
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
Permitted Tariffs
Permitted Tariffs approved by the Council of Ministers
A:
Permitted Tariffs for Electricity Supply
Permitted Tariff Category
Industrial1
Commercial
Tariff Structure
All Regions except Dhofar
Dhofar Region
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
Ministry of Defence
Residential
Government
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
Agriculture & Fisheries
Tourism2
0-3000 kWh
10 Bz / kWh
7001 kWh & above
10 Baiza per kWh
3001-5000 kWh 5001-7000 kWh
15 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
20 Baiza per kWh
above 7001 kWh
20 Bz / kWh
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
bz/kWh by Customer Category
40.0
2013 Revenue/kWh
35.0
2013 cost/kWh
30.0
25.0
20.0
15.0
10.0
5.0
0.0
Residential
Industrial
Commercial Agric/Fisheries
Tourism
Government
MoD/Special
Forces
Revenue vs Cost per kWh by Customer category
bz/kWh by Customer Category
40.0
2013 Revenue/kWh
35.0
2013 cost/kWh
30.0
25.0
20.0
15.0
10.0
5.0
0.0
Residential
Industrial
Commercial Agric/Fisheries
Tourism
Government
MoD/Special
Forces
Revenue vs Cost per kWh by Customer category
bz/kWh by Customer Category
40.0
2013 Revenue/kWh
35.0
2013 cost/kWh
30.0
25.0
20.0
15.0
10.0
5.0
0.0
Residential
Industrial
Commercial Agric/Fisheries
Tourism
Government
MoD/Special
Forces
Revenue vs Cost per kWh by Customer category
bz/kWh by Customer Category
40.0
2013 Revenue/kWh
35.0
2013 cost/kWh
30.0
25.0
23.4
20.0
19.9
20.0
16.8
15.3
15.0
12.0
11.6
10.0
5.0
0.0
Residential
Industrial
Commercial Agric/Fisheries
Tourism
Government
MoD/Special
Forces
Revenue vs Cost per kWh by Customer category
bz/kWh by Customer Category
40.0
2013 Revenue/kWh
35.0
2013 cost/kWh
30.0
25.0
23.4
20.0
19.9
20.0
16.8
15.3
15.0
12.0
11.6
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
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
Subsidy per Customer Category
MoD/Special
Forces
0.3%
Government
3%
Tourism
0.1%
Agric/Fisheries
2%
Commercial
12%
Industrial
10%
Residential
73%
Subsidy per Customer Category
MoD/Special
Forces
0.3%
Government
3%
Tourism
0.1%
Agric/Fisheries
2%
Commercial
12%
Industrial
10%
Residential
73%
Subsidy per Customer Category
MoD/Special
Forces
0.3%
Government
3%
Tourism
0.1%
Agric/Fisheries
2%
Commercial
12%
Industrial
10%
Residential
73%
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
Domestic Customer Demand Profiles & Subsidy
2010 Consumption between 20,000 & 25,000 kWh
kWh per Month
3,500
3,000
MEDC
2,500
MJEC
2,000
MZEC
1,500
RAEC
1,000
DPC
500
0
Jan
Feb Mar Apr May Jun
Jul
2010
Source: Authority
Aug Sep
Oct Nov Dec
Domestic Customer Demand Profiles & Subsidy
2010 Consumption between 20,000 & 25,000 kWh
kWh per Month
Subsidy RO
3,500
3,500,000
3,000
3,000,000
2,500
2,500,000
Subsidy (rhs)
MEDC
2,000
2,000,000
1,500
1,500,000
MJEC
MZEC
RAEC
1,000
1,000,000
500
500,000
0
0
Jan
Feb Mar Apr May Jun
Jul
2010
Source: Authority
Aug Sep
Oct Nov Dec
DPC
Average monthly Consumption: Muscat
Between 0 & 5k
Between 15k & 20k
300
2,500
250
2,000
200
1,500
150
1,000
100
500
50
0
0
Jan
Feb Mar Apr May Jun
Jul
Aug Sep
Oct
Nov Dec
Jan
Between 5k & 10k
Feb Mar Apr May Jun
Jul
Aug Sep
Oct
Nov Dec
Oct
Nov Dec
Between 20k & 25k
1,000
3,000
800
2,500
2,000
600
1,500
400
1,000
200
500
0
0
Jan
Feb Mar Apr May Jun
Jul
Aug Sep
Oct
Jan
Nov Dec
Between 10k & 15k
Feb Mar Apr May Jun
Jul
Aug Sep
Between 25k & 30k
1,800
1,600
1,400
1,200
1,000
800
600
400
200
0
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
Jan
Feb Mar Apr May Jun
Jul
Aug Sep
Oct
Nov Dec
Customer Consumption
Customer Accounts below 25,000 kWh p.a. Consumption
178,992
159,457
Accounts > 25000kWh p.a.
Accounts < 25000kWh p.a.
103,767
149,320
118,301
39,341
80,423
14,409
31,946
12,027
MEDC
Source: Authority, 2010
Majan
Mazoon
RAEC
DPC
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
kWh
Baisa/kWh
Block 1
0-3000
Block 2
3001-5000
Block 3
5001-7000
Block 4
7001-10000
Block 5
>10,000
10
15
20
25
30
Residential Tariff Analysis
kWh
Baisa/kWh
Block 1
0-3000
Block 2
3001-5000
Block 3
5001-7000
Block 4
7001-10000
Block 5
>10,000
10
15
20
25
30
11.5 bz/kW
Average
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
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
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
bz/kWh by Customer Category
40.0
2013 Revenue/kWh
35.0
2013 cost/kWh
30.0
25.0
20.0
15.0
10.0
5.0
0.0
Residential
Industrial
Commercial Agric/Fisheries
Tourism
Government
MoD/Special
Forces
Revenue vs Cost per kWh by Customer category
bz/kWh by Customer Category
40.0
2013 Revenue/kWh
2013 cost/kWh
2015 cost/kWh
35.0
30.0
25.0
20.0
15.0
10.0
5.0
0.0
Residential
Industrial
Commercial Agric/Fisheries
Tourism
Government
MoD/Special
Forces
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
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
Thank you for your kind attention