Power sector subsidy to go up by 56%

Muscat - 

The Authority for Electricity Regulation (AER) has said that the total subsidy in the electricity sector will increase from RO287.1mn in 2014 to a massive RO448.3mn in 2015. The 56 per cent increase is a result of the doubling of the price of natural gas supplied to power plants from this year onwards.

In Muscat governorate, the average consumer enjoys a subsidy of RO205 per annum, while it goes up to RO350 per customer in North Batinah, Dhahirah and Buraimi governorates and reaches a maximum of RO1,570 in rural areas.

“The price of natural gas sold by the Ministry of Oil and Gas to electricity generation plants has been increased, with effect from January 1, 2015, from US$1.50 per million British Thermal Units (MMBTU) to US$3 per MMBTU. The increase in the price of gas doubles the fuel cost for power generation in the Main Interconnected System (MIS) and Dhofar Power System (DPS) and has a significant impact on 2015 generation costs and electricity sector subsidy,” said the authority in its annual report.

The authority’s 2015 estimate of MIS (which includes MEDC, Majan and Mazoon companies) costs represents a 31 per cent increase over 2014 costs. “This is primarily the result of the 40 per cent increase in electricity production cost that, in turn, is largely driven by the gas price increase,” the regulator said.

Power chart

Given the rise in costs, the regulator estimates that in 2015 the MIS subsidy will be RO340.5mn, which will be around 59 per cent higher than 2014 subsidy of RO214.1mn. “This reflects total estimated economic costs of RO733.1mn for MIS, of which 54 per cent is expected to be recovered through customer revenues and rest by subsidy. Thereafter, at the start of every subsequent year, the gas price shall go up at three per cent annual rate,” stated AER.

For DPC, the authority estimates a subsidy of RO41.3mn in 2015 compared to RO28.5mn in 2014, an increase of 45 per cent.

Although Rural Areas Electricity Company’s (RAECO) production costs are unaffected by the increase in gas price, as its plants use diesel to generate electricity, the subsidy will go up substantially in 2015 to RO66.5mn (82.3bz/kWh). This will be approximately 50 per cent higher than the subsidy in 2014 of RO44.5mn or 63.2bz/kWh.

Mazoon accounted for 31 per cent of the total subsidy provided to in 2014, Majan 22.5 per cent, MEDC 20.1 per cent, RAECO 16.7 per cent, and DPC 9.8 per cent.

Subsidy per customer account varied from RO1,570 for RAECO, RO350 for Majan, RO338 for DPC, RO265 for Mazoon and RO205 for MEDC.

“RAECO subsidy per kWh supplied and per account is significantly higher than other companies confirming the significant subsidy support provided to customers in rural areas,” stated the report.

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