Government funding support for Oman’s electricity sector is estimated at RO 605.2 million in 2020, representing a marginal increase over the actual subsidy of RO 601.9 million paid to the sector in 2019.
The modest uptick bucks a trend in sharply increasing subsidy allocations to the power sector witnessed in past years. In 2018, it rose a hefty 23 per cent to reach RO 536.29 million, up from RO 456 million 2017.
It comes as demand growth for electricity, which has long averaged annual double-digit growth over the past decade, is moving into negative territory possibly for the first time in the history of the sector – the result of an economic downturn aggravated by the pandemic.
Shedding light on this development, the Authority for Electricity Regulation (AER) said: “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. 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,” the regulator stated in its newly published Annual Report 2019.
Oman’s power and water sectors have long benefited from government funding support. “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 RO 451 million for 2020, up from RO 431.1 actually paid out in 2019. For Dhofar Power System, catering to parts of Dhofar Governorate, subsidy is projected to climb to around RO 50 million in 2020, up from RO 43.8 million in 2019.
The Rural Systems, an important beneficiary of government subsidy, is expected to see its allocation decrease to RO 104.2 million for 2020, down from RO 117 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.
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