Saudi power revenue stifled by low tariff

Low electricity tariffs in Saudi Arabia are putting pressure on the sector’s revenue despite a surge in consumption because of a rapid population growth and high public investment, the Gulf kingdom’s largest bank said on Tuesday.

The sharp rise in power demand in the world’s dominant oil power has already started to exert pressure on the existing electricity networks, with the country’s total actual generation capacity peaking at 49,138 MW at the end of 2010.

In nominal terms, the market size was SR27.9 billion ($7.4 billion). For the same period, per capita electricity consumption was nearly 7,822 kWh, having grown by over 40 per cent since 2000.

“Saudi Arabia’s rapidly rising population rate, expansionary fiscal policies and resulting high investments in social and physical infrastructure, have exerted pressure on the existing power networks,” National Commercial Bank (NCB) said in a study sent to 'Emirates24|7'.

It noted that in an attempt to boost sector revenues and profitability, the government last year approved a new tariff structure for non-residential sectors, maintaining the cross-subsidy existing in the tariffs.

Residential subscribers of consumption, at 4.9 million, continued to command the most electrical consumption, accounting for 51 per cent of the total in 2010 or 108,627 GW. This translated into an annual average demand of 22,204 kWh per household consumer; or a monthly equivalent of 1,850 kWh.

“This monthly consumption is categorized in the primary tariff bracket of five Halalas/kWh (0.13 cent/KWh),” the study said.

“As the bulk of consumption remains concentrated here, the existing tariff structure is not optimal for electricity conservation, resulting in wastage. Consequently, as the majority of revenues are generated from the lowest tariff bracket, this will restrict the profit margins for an industry already facing financing challenges.”

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