Saudi Electricity says power sector financial, regulatory reforms approved

Saudi Electricity Co. (SEC), the Kingdom’s utility provider, received a letter from the Minister of Energy and the Chairman of the ministerial committee for the restructuring of the electricity sector, approving the cancellation of government fees, as of Jan. 1, 2021.

According to the minister’s decision, SEC will adopt a new operating revenue cap model to regulate the company’s required revenue for the fiscal year 2020, provided that this revenue will cover its total operating and financing costs, including dividends to shareholders and the Public Investment Fund (PIF). 

SEC will also implement a regulatory asset based (RAB) model as a mechanism to regulate its revenue, effective as of FY2021.  

Moreover, SEC signed today, Nov. 16, an agreement with the government to reclassify its net government liabilities worth SAR 167.9 billion into a subordinated perpetual financial equity-like instrument with a redemption option and a profit rate of 4.5% per annum. 

The profit rate is payable once SEC distributes dividends to ordinary shares. This financial instrument is Shariah compliant, classified under shareholders’ equity and represents around 33.4% of SEC’s total assets by the end of Q3 2020. It also includes government loans and net government payables and accruals after offsetting for outstanding amounts owed to SEC by the government. 

In addition, it includes an amount of SAR 3.35 billion in total dividend 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 the general meeting’s approval to recognize the dividends owed to Saudi Aramco as being part of the financial instrument. 

A work group that includes representatives from Ministry of Energy, Ministry of Finance, Electricity and Cogeneration Regulatory Authority, in coordination with other relevant entities, will study the SAR 10.3 billion worth of disputed amounts between SEC and Ministry of Finance over technical differences in quantities, prices and handling costs of fuel and electric power. 

An independent legal and technical advisor will be appointed, after being approved by both SEC and Ministry of Finance to end the dispute and raise the results to the ministerial committee in Q1 2021. 

These developments are forecast to play a key role in restructuring and strengthening SEC financial position, enabling it to provide high-quality services. However, they will unlikely have a material impact on its dividend distribution.  

SEC will assess the financial impact and will announce updates as deemed appropriate, the statement added. 

The utility provider will hold a conference call on Tuesday, Nov. 17, 2020, to discuss these material developments with investors and financial analysts.