Oman’s government is expected to marginally step up funding for the Sultanate’s electricity sector to RO605.2 million ($1.56 billion) in 2020, as against the actual subsidy of RO601.9 million paid to the sector in 2019, a media report said.
In 2018, subsidy allocations rose 23 per cent to reach RO536.29 million, up from RO456 million 2017.
“It is anticipated that 2020 will witness the first overall negative growth in supply since the restructuring of the electricity sector in 2005, a sharp fall from the decade after restructuring which saw consistent double-digit annual growth rates in supply,” Oman’s Authority for Electricity Regulation (AER) was quoted as saying in the report.
“Supply growth in 2020 is expected to decrease by 1.1 per cent from 2019 outturn, mainly driven by the impact of the outbreak of the COVID-19 pandemic and the resulting downturn in the general economy,” AER said in its Annual Report 2019.
“Subsidies are an integral factor of the electricity sector and are implemented through Article 18 of the Sector Law wherein the Ministry of Finance (MoF) provides subsidies based on annual calculations by the Authority to licensed suppliers. These calculations are divided into three subsidy categories: Main Interconnected System Subsidy (required by Muscat Electricity Distribution Company MEDC, Majan Electricity and Mazoon Electricity); Dhofar Power System Subsidy (required by Dhofar Power), and Rural Systems Subsidy (required by Rural Areas Electricity Company RAEC). For the purposes of these calculations, a subsidy is defined as the difference between the economic cost of supply (including financing costs) and Permitted Tariff (and other) revenue,” the regulator explained.
Subsidy for the Main Interconnected System, covering the northern half of Oman, is estimated at RO451 million for 2020, up from RO431.1 actually paid out in 2019. For Dhofar Power System, catering to parts of Dhofar Governorate, subsidy is projected to climb to around RO50 million in 2020, up from RO43.8 million in 2019.
The Rural Systems, an important beneficiary of government subsidy, is expected to see its allocation decrease to RO104.2 million for 2020, down from RO117 million in 2019. The decline is mainly attributable to the pandemic, with power consumption expected to be five per cent lower than in 2019.
Significantly, the Main Interconnected System (MIS) witnessed no growth in supply in 2019 over 2018 trends, which was lower than anticipated when compared to recent annual average growth rates of approximately 5 per cent (3-year average for 2015-2018), according to the Authority.
“The general economic slowdown in 2019 and, to some extent, the impact of Cost Reflective Tariffs for large customers in 2017, are likely causes of this stunted growth,” the regulator added.