Big revamp for Saudi Arabia electricity sector
Shake up involves the world’s largest ever Islamic bond
Saudi Electricity Company, which runs the Kingdom’s power generation and distribution, has unveiled a far-reaching restructuring of its finances and regulatory setup to “to provide its services with higher levels of efficiency and reliability.”
As part of the shake-up, the government will turn its liabilities from SEC — amounting to $44.77 billion (SR167.92 billion) — into an Islamic bond. “The transaction is considered the world’s largest Islamic transaction ever to be executed, demonstrating the Kingdom’s leadership and global preeminence in Islamic finance,” according to a statement posted by SEC on the Tadawul stock exchange, where its shares are traded.
While SEC’s debts are reclassified in this way, the government will also cancel fees owed to it, and set up a new operating revenue cap model to cover SEC’s total operating and financing costs, and the distribution of dividends to all its shareholders, including the Public Investment Fund (PIF), the majority shareholder with 74 percent.
The sweeping reform of the SEC corporate and financial structure will also involve the establishment of a new regulatory asset-based model to oversee and regulate SEC’s cash inflows.
Khaled Bin Saleh Al-Sultan, chairman of SEC, said: “The reforms will help the sector and SEC overcome several financial and structural challenges faced in the past, and will ultimately improve the quality of service to customers and enhance the sector’s reliability.” The reforms include the setting up of a working group, including the Ministry of Energy and the Ministry of Finance, and utilities regulatory authorities, who will study some $2.747 billion in dispute between SEC and the Finance Ministry, arising from “technical differences in quantities, prices and handling costs of fuel and electric power,” the statement added.
Prince Abdul Aziz Bin Salman, the energy minister who chaired the committee charged with the long-planned restructuring plan, said: “The goal of these comprehensive reforms is to enhance the sustainability and efficiency of the Kingdom’s electricity sector, in line with the goals set out in Saudi Vision 2030.”
The new Islamic bond is classified under shareholders’ equity and considered non-dilutive to existing shareholders’ stakes, the Tadawul statement said.
“The financial instrument represents about 33.4 percent of SEC’s total assets as at end of the third quarter of 2020, and includes government loans and net government payables and accruals, after offsetting for outstanding amounts owed to SEC by the Government,” it added. Saudi Aramco also has a near 7 percent stake in SEC. The Shariah-compliant bond “includes an amount of SR3.35bn total dividends owed to Saudi Aramco since SEC’s inception until 2017, the book value of which was previously transferred to the Ministry of Finance. SEC will be seeking General Assembly approval to recognize the dividends owed to Saudi Aramco as being part of the financial instrument,” SEC said.