Revised electricity tariffs begin to pare subsidy: APSR

SUBSIDY PROJECTED TO EASE IN 2021 FROM PEAK OF RO 582.9 MILLION IN 2020

The Authority for Public Services Regulation (APSR), whose broad remit includes the electricity sector, has projected a tangible easing of government subsidy during 2021 following the phased introduction of revised tariffs for key segments of the sector’s diverse customer base starting from January 1, 2021.

Total subsidy for the electricity sector this year is projected at RO 511 million, down from a peak of RO 582.9 million disbursed to the sector in 2020.

The roughly 13 per cent decline in subsidy projections for 2021 has been attributed to a significant uptick in revenue earned from customers subject to the revised tariffs, coupled with the application of new cost reflective tariffs (CRT) guidelines for major customers effective from this year.

Under measures adopted last year to help reduce the annual budgetary deficit and public debt in the face of a steep decline in state revenues from low oil prices, the Omani government announced a phased lifting of subsidy for residential and other consumers over the 2021-2025 timeframe.

At the same time, it issued directions for part of the revenue increase to be channelled to economically vulnerable citizens to help mitigate the impact of the tariff hike.

It is expected that, by the end of the five-year timeframe for the complete rollback of subsidy — which at its peak averaged RO 600 million annually — tariffs levied will be at par with the economic cost of producing and supplying electricity to consumers.

The Main Interconnected System (MIS) — the country’s largest grid serving much of the northern half of the Sultanate — received the lion’s share of the subsidy of RO 443.8 million in 2020.

This is projected to slump to RO 384.1 million in 2021, the Authority said in its newly published 2020

Annual Report.

Likewise, Dhofar Power System, covering parts of Dhofar Governorate, earned RO 47.4 million in subsidy last year, while the Rural Areas Electricity Company (Tanweer), serving vast swathes of the country unserved by the two main grids, received RO 91.6 million in subsidy last year.

Subsidy estimated to be paid to the latter two systems in 2021 is projected to decline to RO 40.4 million and RO 86.6 million respectively for 2021.

Significantly, the Authority anticipates a sizable increase in customer revenue within the Main Interconnected System during 2021, stemming from the revised tariffs.

“The Authority’s estimate of 2021 MIS subsidy requirement is 13.5 per cent lower than the 2020 outturn subsidy, reflecting the increase of 52.5 per cent in customer revenue of RO 757.9 million due to the new electricity tariffs approve for the year 2021.

Units supplied in 2021 are expected to witness a growth from 2020 by 18 per cent’’, it noted in its 2020 Annual Report.

Improvements in revenue recovered from customers are also expected in the Dhofar Power and Tanweer systems during 2021, helping contribute to modest subsidy reductions. Dr Mansoor bin Talib al Hinai, Chairman of the Authority for Public Services Regulation, noted in the Foreword that electricity supply declined 2.3 per cent to 33.0 terawatt-hours (TWH) last year, which experts have attributed to the subdued economic conditions prevailing in the Sultanate amid a raging pandemic.

“The Authority’s measure of electricity intensity (MWH per account) reached 25.1 in 2020, lower than 2019 by 5.1 per cent and 40.3 per cent higher than in 2005 (when the sector was restructured). Increasing intensity is an important driver of electricity demand and has implications for costs and subsidies’’, he said.