– Massive change will ensure long-term stability of the power sector
– Expected outcomes include more efficient power generation, increased service reliability, decreased use of liquid fuels for power generation, and creating more economically viable and sustainable sectors.
Riyadh, Saudi Arabia, 17 November, 2020 / PRNewswire / – A press conference was held on Monday 16ThNovember 2020, Organized by Saudi arabia Ministry of Power to announce reforms in the power sector, which will ensure the long-term health and stability of the power sector and the achievements of the state’s target under Vision 2030.
These reforms are considered an important step in achieving energy targets for the power sector that are in line with the Vision 2030 goals, and include the following:
- Transition to optimal energy mix for power generation in the state, with changes in renewable energy and efficient natural gas sources; And
- Increase system efficiency and reduced use of liquid fuel for energy production; And
- Increase the region’s transmission and distribution network security and reliability to enable effective integration of renewable energy and interconnection with neighboring countries; And
- Greater environmental compliance to reduce the carbon footprint of the sector
The comprehensive reform package of measures includes the establishment of a revenue requirement mechanism for service sector providers and the tariff balancing account to compensate for the difference between the efficient cost of tariffs and income from tariffs.
His Royal Highness Prince Abdulaziz bin Salman bin Abdulaziz Al SaudEnergy Minister, Saudi Arab, What was said:
“This announcement is a major achievement for Saudi Vision 2030 and the ambitious goals of creating a sustainable, reliable and diversified power sector for the Ministry of Energy. The reforms are considered the largest and comprehensive globally. These reforms lay a significant foundation. By helping to create a more solid and economically viable sector to attract the necessary investment. Expected results of this comprehensive reform program include more efficient power generation, reduction in the use of liquid fuels for power generation and increased environmental protection is.
“Furthermore, the reforms aim to increase the reliability and quality of service of the Kingdom’s electricity transmission network and facilitate the generation of electricity from renewable energy sources, bringing it in line with the Kingdom’s optimal energy mix for electricity generation . “
Your Excellency Dr. Khalid bin Saleh Al SultanThe chairman of the Saudi power company said:
“With this historically comprehensive reform program, the SEC’s balance sheet becomes more robust to enable the SEC to execute its strategy to increase the capacity of fund projects and contribute to the development of a stronger, more sustainable and diversified power sector.” Will go. “
The reforms, in particular for the Saudi power company, marked the company’s entry into a regulatory framework with clear rights and obligations. In return the company will have the right to receive a reasonable rate of 6% (WACC) on its regulated asset base and recover fully from its efficient costs as determined by the Regulatory, Electrical and Cooperative Regulatory Authority (ECRA). . Importantly the company will operate under a predictable, transparent and stable regulatory framework with clear arm’s length commercial relationships between sector players and participants. The reforms also include the cancellation of government fees of the company and the reconciliation of the company’s net legacy government liabilities and restructuring its balance sheet.
HSBC, the financial advisor to the Saudi power company, commented:
“The creation of this financial instrument and the introduction of an international standard regulatory framework should enable the Saudi power company to maintain a more sustainable capital structure. Through the balancing account, the government continues to support the region and the Saudi power company have hope.” More structured and transparent base.
“These reforms will help improve the efficiency of the region by providing a fair rate on invested capital. In addition, the reorganization also supports a key policy objective of a safe, secure and reliable power sector that is financially sustainable and Able to invest in projects. ” Consumers can enhance service and improve reliability. Overall, these announcements are expected to create an attractive environment for investment in the power sector and contribute to economic growth. Saudi Arab, In line with the Vision 2030 program. “
The magnitude of the reform is an important milestone on many fronts:
- The largest Islamic financial transaction to be executed globally with issuance $ 45 billion The biggest conversion of instruments such as Mudaraba Instruments (interest of 4.5%) and debt to non-dilutive equity by Saudi power company.
- The SEC will have the largest regulated asset base of any utility in the MENA region and a regulated asset base compared to the largest utility companies in the G20 countries.
- Immediate dissolution of USD 128 billion According to a Saudi power company’s balance sheet 2.2 to debt-equity-ratio to 0.6, a utility of its scale is generally considered to have a healthy debt level.
Strategies and advisors of the Ministry of Energy, part of a global strategy consulting business and PwC network, and the restructuring of the power sector, said:
“This shows how the reforms hit the reset button on the legacy of decades of ad hoc methods of addressing the financial challenges of the power sector, and created a strong, transparent and stable regulatory framework that would ensure financial stability and the Saudi power company His ability to meet all of his commercial obligations including health and fuel payments, debt servicing, and dividends. It also provides the Saudi power company, which is the 8th largest utility globally by asset size, with the necessary funds. To mobilize financial strength invest to strengthen the power grid, enhance network security and reliability.
“The power system in the Kingdom could not achieve its ambitions without a fundamental redistribution of the sector’s financial foundations and operating models. At this critical juncture, however, expectations from Saudi Arabia’s power sector are much higher than before. In reform. have improved.” As part of the Kingdom’s Vision 2020 significant tools were created to achieve the policy-maker’s objectives for modernization and transformation of the utility sector. “
Note to editors:
While forward-looking statements are based on reasonable assumptions, there can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events may conceivably differ in such statements. HSBC undertakes no obligation to update the forward-looking statements if the circumstances or management’s estimates or opinions should be changed except as required by the applicable securities rules. HSBC acted as financial advisor to the SEC.
Released by Ministry of Energy, Saudi Arab.
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