Privatisation of Saudi's power generation companies set to begin next year

The first of four companies to be created from Saudi Electricity Company’s generating business could be privatised by next year, according to a government official.

Abdullah Al Shehri, the governor of Saudi Arabia’s Electricity & Co-Generation Regulatory Authority, said that the power generating arm is currently in the process of being hived off to the country’s Public Investment Fund (PIF).

Speaking on the sidelines of Meeds Leaders In Energy Reform summit in Dubai, Mr Al Shehri said it could happen within months.

“From this time, it may take three months, four months or whatever,” he said. “But the decision is already in process.”

At the same time, Saudi Electricity Company is dividing this business into four separate companies – each of which will be privatised and compete for customers across the kingdom.

“The SEC is now establishing the four companies. They are preparing for appointing their boards, the employees, which plants are going to be in which company. They are working on it so once the PIF takes over it is already there,” he said.

Mr Al Shehri said that the PIF will decide how and when these businesses will be brought to market, and whether they will be fully or partially privatised.

“The legacy of SEC is now about 60GW, so dividing it by four, it will make it in the range of 15-20GW in each one,” he said.

The businesses will not be split geographically, he said.

“They will be split all over the country to make the competition fair. They will be equal in the type of technology, they will be almost equal in production, in costings and accessibility to types of fuel.”

He expects that the first of these four companies is likely to be brought to market in 2017.

Although Saudi Electricity Company will retain control over electricity transmission and distribution, it is expected that once the four generating companies have been brought to market, there could be some private sector involvement in distribution in the future.

The kingdom’s National Transformation Plan has a target for the percentage of electricity generated through “strategic partners” to increase from its current level of 27 per cent to 100 per cent by 2020.

Electricity supply in Saudi Arabia has been growing at a rate of about 7 per cent a year and demand currently stands at about 62GW, according to Mr Al Shehri.

“We expect this demand to increase to more than 120GW by 2030,” he added, citing the fact that population growth is adding 500,000 new customers per year and that per capita growth is increasing because of demand for industry.

It is trying to meet this by boosting plant efficiency from a current level of 34 per cent to almost 43 per cent by 2020, and by diversifying sources of power. The kingdom has a target of generating 9.5GW through renewable energy sources by 2030, as well as developing nuclear power.

Eduardo van-Zeller Neto, a partner in the management consultancy Roland Berner, said that the transition towards privatisation in new markets is something that takes time.

“From experience of analysing European markets in the 1980s and 1990s, it is a big journey,” he said.

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